“Germany’s Enron” Continues to Stagger Forward

It’s time to talk about Wirecard AG. In many respects, it’s yet another accounting fraud scandal – albeit a massive one. But now, inevitably, it also has become a money laundering scandal, courtesy of German law enforcement authorities – and also now U.S. authorities – which are looking into the alleged misuse of shell companies to facilitate the pursuit of pornography, gambling and marijuana distribution. And it’s a story that clearly will be with us for some time, like the Danske Bank disaster. We surely will be blogging on this scandal going forward.

The fallout from the massive, years-long accounting scandal involving Wirecard, the German-based fintech giant, recently has blossomed to implicate alleged money laundering failures by the company and even systemic failures on the part of German regulatory authorities. Wirecard, a payment processor publicly valued more than some of the world’s largest banks, has been in a free-fall since a bombshell report by the Financial Times (“FT”) on February 7, 2019 revealed Wirecard’s widespread accounting fraud after being tipped off by a whistleblower.

As with the Dankse Bank scandal, a whistleblower allegedly was instrumental in causing the financial house of cards to collapse. This is also a story of investigative journalism and its consequences. Please check out this YouTube video by a FT reporter describing the efforts by himself and his colleagues to investigate Wirecard, and what he believed occurred as a result.

This June, Wirecard filed for insolvency and disclosed that it owed creditors almost $4 billion and that 1.9 billion euros – two-thirds of the company’s 2019 revenue – was missing from its accounts. In an effort to calm investors, Wirecard announced earlier this month that James Freis – previously the director of the Financial Crimes Enforcement Network (“FinCEN”) – would serve as the new CEO just after German authorities arrested Wirecard’s longstanding CEO, Markus Braun, for his alleged role in the scandal. Wirecard initially hired Fries as a Compliance Officer but, in a shocking turn of events, appointed him as interim CEO the very next day.

Despite these efforts, Wirecard’s legal troubles continue to grow and new reports emerged last week implicating the company in various money laundering schemes entirely unrelated to the accounting fraud. In an even stranger twist: with the details of both scandals emerging, the spotlight has turned to the alleged inaction of Germany’s regulatory authorities – putting aside the issue of Wirecard’s own auditors – and how they can and should prevent future scandals.
Continue Reading  Wirecard:  A Scandal