Wirecard Scandal Brief Overview
The prominent German payments processing firm Wirecard collapsed after $2 billion in its accounts were found missing or non-existent. The company is well-established as a global provider of payment services across online and mobile platforms. The scandal as we know it has just been uncovered , however, there were money laundering allegations dating back to a decade-long times.
The scandal started to develop due to the activity of the Financial Times which watched Wirecard closely especially its headquarters in Singapore due to the alert about its plan to fraudulently send money to India via third parties. Back in 2019 the Singapore police raided the Wirecard offices, but Wirecard continued functioning dismissing all the allegations.
In late 2019 the Financial Times finally published documents indicating that profits at Wirecard’s units in Dublin and Dubai were fraudulently inflated. Despite denying this, Wirecard appointed KPMG to carry out a special audit, that in April 2020 resulted in a report they could not verify that arrangements responsible for the ‘lion’s share’ of profits reported from 2016 to 2018 were genuine. At this point questions about Wirecards auditors, EY, started to appear since they used to sign off on Wirecard’s accounts for more than a decade. European Investors VEB have called for a “thorough investigation” of EY’s work to be led by the German financial watchdog. Last week Wirecard’s board has decided to file an application for insolvency in the district court of Munich. It remains unknown whether insolvency applications for Wirecard group subsidiaries are likely to follow.
Naturally, the company’s financial scandal has had due impact on its share price which plunged over 75% following the insolvency announcement. The scandal has led to the arrest of the firm’s former chief executive Markus Braun who is now accused of inflating Wirecard’s market position and financial health to appeal to investors. The ex-CEO has been released on a €5 million bail.
It goes without saying the scandal damages trust in auditors. Experts claim EY might have uncovered the fraud sooner if they’d been more diligent about a process called bank balance “confirmation.” Currently Wirecard intends to continue operating despite its insolvency application. Naturally there will be questions asked about how they managed to fraud investors, and EY, for so long. Bloomberg quotes Felix Hufeld, head of the German financial regulator Bafin, who said Monday on a panel discussion: “It’s a shame that something like that happened.” “It starts with looking at complete failure of a senior management, despite many, many hints to discover the facts,” he said. “It goes on to the scores of auditors who couldn’t dig up the truth and it goes on with a whole range of private and public entities including my own who have not been effective enough to prevent something like that happening.”