5 things to know about the Wirecard scandal

Agence France-Presse
5 things to know about the Wirecard scandal
Here are the key facts about the scandal involving German payments provider Wirecard, which has reached the Philippines

FRANKFURT AM MAIN, Germany – German payments provider Wirecard filed for insolvency on Thursday, June 25, just days after admitting 1.9 billion euros missing from its accounts likely “do not exist” and its ex-chief executive officer was arrested.

Here are the most important facts about a scandal that is drawing comparisons with the collapse of United States energy company Enron in the early 2000s over accounting fraud.

What does Wirecard do?

At its heart, Wirecard is a payments processor, offering companies services allowing them to accept credit cards and digital payments like Apple Pay or Paypal in stores, online, or on mobile.

The company collects a commission for ensuring that merchants will receive the money they are owed.

Around that, it sells its customers extra services like analytics based on the data generated from those transactions that it says can help boost sales and track trends.

Wirecard claims around 300,000 firms worldwide as customers, and deals with giants in the sector like China’s AliPay and WeChat, Apple, and Google have offered hot prospects for growth.

How did Wirecard make it big?

Wirecard was founded in 1999, starting out offering its services to porn and gambling sites.

Such stable revenue streams helped it survive the early-2000s dotcom crisis, and as more savory forms of online commerce ramped up through the 2000s and 2010s, the group’s star mounted with it.

In the early days, CEO Markus Braun increased his stake to 7%, becoming the largest shareholder.

Wirecard now highlights clients like KLM, Deutsche Telekom, and FedEx on its website.

First listed on the Frankfurt stock exchange in 2005, by 2018 it elbowed traditional lender Commerzbank out of the blue-chip DAX share index.

In early 2019, Wirecard’s market value hit around 17 billion euros, matching crisis-ridden Deutsche Bank with 15 times fewer workers and revenues.

The past week’s revelations have collapsed that value to around 350 million euros.

Why weren’t weak spots uncovered?

Beginning in January 2019, a string of Financial Times reports highlighted accounting irregularities, notably in Wirecard’s Asian division.

Bosses denied any wrongdoing and the German financial world appeared to close ranks around its favorite.

Markets watchdog BaFin announced a probe into potential links between the FT and short sellers betting against Wirecard stock.

The hammer blow came last Thursday, June 18, when auditors Ernst & Young said they were unable to find 1.9 billion euros of cash meant to be sitting in trustee accounts at two Philippine banks.

The fact his agency did not catch the scandal sooner was a “disaster,” BaFin chief Felix Hufeld said on Monday, June 22.

Wirecard’s status as a Payment Service Provider (PSP) subjected it to multiple European Union directives since 2008 obliging it to better fight payment fraud, but companies are not subject to as much scrutiny over their accounting practices.

Who controls Wirecard?

Wirecard has been run by Austrian computer scientist Braun since 2002.

He resigned abruptly last Friday, June 19, after the company was forced to acknowledge the missing cash.

He was detained on Monday after Munich prosecutors accused him of market manipulation and falsifying accounts. Braun turned himself in and was freed on a 5-million-euro bail the following day.

American James Freis is serving as Wirecard’s interim CEO.

Chief operating officer and management board member Jan Marsalek meanwhile was dismissed on Monday, with media reports placing him in the Philippines.

Braun and other senior board members were already under investigation by Munich prosecutors over “market manipulation” relating to how they presented updates of KPMG audit findings of their old accounts.

Who is behind the missing cash?

German news weekly Der Spiegel named Mark Tolentino, a lawyer working in the Philippines, as the trustee responsible for the missing cash.

Based in Philippine financial center Makati City, his website vanished this week, although a Facebook page with public legal Q+A video sessions remained online. (READ: Wirecard ‘trustee’ Tolentino: I’m a victim of a frame-up, identity theft)

Meanwhile one of the country’s largest banks – Bank of the Philippine Islands (BPI) – where some of the missing money was supposedly deposited – confirmed to Agence France-Presse that an employee was on “preventive suspension.”

Media have reported that an assistant manager at BPI signed a forged document relating to the supposed deposits at the bank. – Rappler.com

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