Wirecard Inquiry Probes Why Germany Missed Fraud of Century
Germany’s blame game over Wirecard AG’s collapse is focusing in on the question of why authorities failed to take a harder look at the payments company before it became the country’s biggest accounting scandal in living memory.
Lawmakers will question a top adviser to Chancellor Angela
Merkel on Monday in Berlin before grilling financial industry watchdogs the
following day as the fraud that burned investors engulfs the country’s
political establishment. If the hearings go badly, parliament may start a
deeper investigation as the country prepares for the post-Merkel era with an
election due next year.
Wirecard’s crash from rising star to national disgrace has
undermined the country’s reputation as a reliable place to do business and
delivered a major blow to its fragile base of retail investors. While the
government is taking action to prevent a repeat, authorities have struggled to
dispel the impression that they were more focused on protecting Wirecard than
investigating allegations of wrongdoing.
At the heart of the issue is whether German officials
knowingly turned a blind eye because of the prospects of establishing a
home-grown technology leader. Wirecard boasted that it would revolutionize
payments with faster electronic transactions and more services for consumers
and companies.
Those ambitions collapsed when it filed for insolvency in
June after saying that a quarter of its balance sheet didn’t exist. German
prosecutors subsequently said that Wirecard’s 3.2 billion euros ($3.8 billion)
of debt are most likely lost. The scandal has drawn comparisons to FlowTex
Technologie GmbH, which caused 1.8 billion euros of damage by selling
non-existent drilling systems to leasing companies in the 1990s.
Close Connections
The highlight on the first day of the hearing of
parliament’s finance committee will be Merkel’s chief economic adviser,
Lars-Hendrik Roeller, who rarely speaks publicly. He was the point person for
the chancellery’s contact with Wirecard and will certainly be pressed on why Merkel
promoted the company’s efforts to gain a Chinese license during a state visit
in September 2019, even as allegations of irregularities swirled.
There are also issues relating to Merkel’s interactions with
Karl-Theodor zu Guttenberg. In preparations for her trip to China, Merkel met
with her former defense secretary, who resigned in disgrace in 2011 over
plagiarism allegations, and discussed Wirecard. There are also concerns about
the role German political insiders may have played in facilitating contacts for
Wirecard.
Lawmakers will also likely delve into what officials may
have known about Jan Marsalek and his connections. The former Wirecard executive
is at large and under the protection of the Russian secret service,
Handelsblatt reported.
Officials from German financial watchdog BaFin and the
Bundesbank will be in the hot seat on Tuesday. The focus then is likely to be
on why they decided in 2017 that Wirecard was a technology company rather than
a financial firm, allowing most of its operations to escape scrutiny by BaFin,
which only directly oversees banks and insurers.
Lacking Oversight
BaFin has sought to head off criticism by saying that
reclassifying Wirecard wouldn’t have helped much in unearthing the fraud
because it would have still relied on the company’s audited accounts. Still,
lawmakers may ask BaFin President Felix Hufeld why his institution’s probes of
Wirecard’s banking unit failed to point to problems at the wider company.
Hufeld had a rocky time after an earlier hearing in July and
will probably be focused on getting the facts across more clearly while
defending BaFin’s actions.
The Bundesbank, whose role was largely limited to supporting
BaFin in its oversight, was drawn deeper into the scandal with the disclosure
this month that former Wirecard Chief Executive Officer Markus Braun met with a
senior official at Germany’s central bank last year. While it isn’t clear what
was discussed, the meeting is a reminder of Wirecard’s connections to the
country’s top decision makers.
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