German Finance Ministry Backed Strategy Shielding Wirecard

Germany’s Finance Ministry gave explicit backing in 2019 to financial regulator BaFin’s controversial approach to fraud accusations at Wirecard AG, raising questions about its role in one of the biggest corporate scandals in recent history.

In a March 2019 phone call, Deputy Finance Minister Joerg Kukies gave the head of BaFin, Felix Hufeld, broad support for his efforts to investigate the allegations, according to briefing documents for a parliamentary hearing on Wirecard seen by Bloomberg.

By that point, Hufeld had implemented an unprecedented ban on short-selling Wirecard stock. He went on to file lawsuits against journalists who had reported on the accounting irregularities at the company.

In an election year, the revelation that it supported BaFin’s strategy early on puts the Finance Ministry under center-left chancellor candidate Olaf Scholz in the spotlight. Lawmakers are raising the question whether it should have intervened with the regulator’s actions sooner or whether the ministry had even ordered the controversial course of action.

Hufeld testified on Friday that he and Kukies talked for as long as 45 minutes in the March 2019 call.

“It wasn’t a controversial conversation,” Hufeld said at the hearing. “He asked, ‘What are you doing to move the issue forward?’”

German Finance Ministry Backed Strategy Shielding Wirecard

BaFin declined to comment on the communications. The Finance Ministry didn’t reply to questions on the matter.

Protecting Wirecard

BaFin’s top leadership resigned earlier this year after a series of missteps in the Wirecard scandal undermined confidence in the authorities’ grip on corporate malfeasance. BaFin didn’t investigate allegations of accounting fraud as forcefully as it did journalists and short-sellers who pointed to irregularities. The ban on bets against Wirecard stock also gave the impression that BaFin and the German authorities wanted to protect the company.

The German parliament’s committee is due to call Kukies, Scholz and Chancellor Angela Merkel in the coming weeks to testify on their role in the 2020 collapse of the former tech champion, one of Germany’s biggest bankruptcies.

Even though BaFin formally reports to it, the Finance Ministry has tried to distance itself from the regulator, citing its nominal autonomy over matters of supervision. Yet parliamentary and Finance Ministry documents show that the ministry and BaFin were in close and constant contact over the regulator’s actions regarding Wirecard.

From late 2019, the Finance Ministry directly and repeatedly asked BaFin for updates on the state of play in the Wirecard investigation. From April 2020, after a special audit by KMPG -- commissioned by Wirecard amid repeated fraud allegations -- raised more questions than it answered, Kukies began to directly intervene in the case.

The former Goldman Sachs Group Inc. banker “demanded” from BaFin chief Hufeld full transparency and asked him to present a list of measures to be taken, according to the documents that include email exchanges between the ministry and BaFin.

Opposition Green party lawmaker Danyal Bayaz says that the Finance Ministry failed in its responsibility to intervene against BaFin’s short seller ban.

“It’s too easy for Kukies to say BaFin is independent,” he told journalists at a press briefing. “BaFin isn’t independent and the rules foresee that the Finance Ministry has a supervisory function which it needs to fulfill in cases where BaFin fails.”

©2021 Bloomberg L.P.

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