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What are the Wirecard allegations? by FT

German payment group hit by whistleblowers’ claims over accounting

Dan McCrum and team have worked to unravel the story of Wirecard, one of European most high-profile fintech companies, for four years.

This FT investigation is ongoing. If you have comments, questions you would like answered or thoughts about what we should scrutinise, please get in touch: Signal +44 7562 951 037


What is Wirecard?

One of a handful of European technology companies which claim the global scale of tech champions, the Munich-based Wirecard gained more renown when it displaced Commerzbank from Germany’s most prestigious stock market index last year.

Operating for two decades behind the scenes online, Wirecard sells the technology and knowhow for businesses to take payments from customers. It owns a Munich bank, belongs to the Visa and Mastercard networks, and zaps billions of euros around the world every week.

Breakneck expansion, plus its vision of a cash-free society, enchanted investors and made Markus Braun, Wirecard’s longstanding chief executive and largest shareholder, a billionaire.

What happened in Singapore? 

Last year, alerted by whistleblowers, the company’s own compliance team started an investigation into suspicious transactions in Asia. Wirecard’s head of international finance, based in Singapore, was accused by whistleblowers of cooking the books to boost the sales and profits for various entities in Asia and the Pacific.

In April 2018, Wirecard called in Rajah & Tann, a Singapore law firm, to conduct an inquiry.

The lawyers found evidence of forged documents, accounting irregularities and potential money laundering in multiple jurisdictions, according to their preliminary report dated May 2018.

A full investigation followed, but by the start of this year there were still no conclusions and individuals under suspicion remained in their jobs.

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After the Financial Times reported the allegations in January, Singapore police raided Wirecard’s offices in February, and prosecutors named six Singapore employees as suspects in a probe into alleged fraudulent accounting at six Wirecard subsidiaries, involving 11 external companies identified as “transactional partners”.

How did the accusations spread?

The FT reported that Wirecard’s deputy chief financial officer and its head of Treasury approved four money transfers from Munich to Singapore, which appear designed to artificially inflate profits at a subsidiary in Hong Kong.

On March 29 the FT reported finding that two Philippine payment processors, recorded as significant business partners in Wirecard’s internal records, shared the office of a bus company. The contact address of a third was the family home of a retired seaman.

In April, the FT reported the contribution to Wirecard’s sales and profits from three companies, including a Dubai payment processor with skeletal operations. Internal documents indicated the three partners contributed half the group’s revenues and 95 per cent of profits in 2016, for instance. Neither these figures nor the importance of the three partner companies was disclosed to shareholders.

How did Wirecard respond?

The first FT story was “false, inaccurate, misleading and defamatory”, a spokesperson said. A January 31 statement said “no material compliance findings” resulted from the internal inquiry.

In February, Wirecard said neither it nor R&T had “made any conclusive findings of criminal misconduct” about the employees involved. Mr Braun characterised the affair as a dispute between employees, and told investors the allegations were “unfounded, full stop”.

On March 26, however, Wirecard published its summary of findings made by R&T. The company said some employees in Singapore may face criminal liability, that the law firm could not correlate certain payments with agreements, and there was evidence some contracts were created for audit purposes.

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R&T found executives in Germany faced no liability under Singapore law, according to Wirecard, which also said an accounting review by an unnamed “global independent consulting firm” concluded there was no material impact on its financial statements.

Annual results were delayed for three weeks until April 25, when Wirecard announced a dozen measures to improve compliance, oversight and internal controls.

Wirecard also said the contribution to profits from three of its partner companies was “not significant”, and was much less than the 95 per cent reported by the FT for 2016. It did not explain why figures cited by the FT, from a document created by Wirecard’s head of accounting in Munich, should be disregarded.

The company also disputed whistleblower claims, reported by the FT, that Wirecard’s largest subsidiary by sales, based in Dubai, was not audited in 2016 and 2017. The figures were overseen by EY as part of the global audit, the company said. Wirecard also said it had disclosed some information about the subsidiary in German-language filings not prepared under international accounting standards.

Wirecard announced it was filing a legal claim in Munich against the FT in March for “disclosure and false representation of confidential information”. The FT is yet to receive such a claim.

Who has supported the company? 

Large swings in the Wirecard share price in February prompted BaFin, Germany’s financial watchdog, to announce a two-month ban on bets against the share price, citing risks to the German economy. It was the first use of a crisis measure to protect a single company. Authorities there also launched investigations into market manipulation.

Investment bank analysts remained enthusiastic. As of May 14, 21 of 28 recommended investors buy the stock, according to Bloomberg.

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SoftBank, the tech-focused conglomerate with large stakes in Uber and WeWork, also announced it was backing Wirecard with plans to lend it €900m via a five-year bond which converts into stock.

Is the FT in cahoots with short sellers?

Wirecard has been controversial since listing on the German market in 2005 through the reverse takeover of a call-centre business.

In 2008 its accounting practices were criticised, prompting the group to install EY as auditor. Two of the critics, members of a shareholder association, were prosecuted in relation to market manipulation in several stocks and sentenced to “time served” in 2012.

Between 2015 and 2018 the FT published various articles in its House of Wirecard series, which raised fresh questions about the German group’s accounting and how it spent €500m raised from shareholders on a string of obscure businesses in Asia.

The share price collapsed in February 2016 following publication of an anonymous report by short sellers. BaFin announced an investigation into market manipulation. The share price subsequently quadrupled, as Wirecard continued to report rapid growth in profits, winning the group a loyal following. The September entry into the Dax obliged index-following pension funds to buy as well, further boosting the share price.

Some observers have viewed the FT’s reporting this year, which is based on information provided by whistleblowers, as somehow another attack by short-sellers. BaFin fuelled this impression by launching another investigation into market manipulation, referring a criminal complaint against two unnamed FT journalists to Munich prosecutors. The FT rejects any allegation of market manipulation against its reporters as baseless, false, and a smokescreen obscuring serious allegations.


Source: Financial Times

Jung Min-seo


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