German Finance Minister Knew of Wirecard Issues a Year Before Collapse

(Bloomberg) -- German Finance Minister Olaf Scholz was aware of potential market manipulation at Wirecard AG almost a year and a half before the company collapsed, putting pressure on a key figure in Angela Merkel’s government.

Financial watchdog BaFin informed Scholz in February 2019 about the case “because of the suspicion of a violation against the prohibition of market manipulation,” according to a report by the Finance Ministry seen by Bloomberg.

His early knowledge of the allegations swirling around Wirecard increases scrutiny on the highest-ranking Social Democrat in Merkel’s coalition and lays bare the delicate political dynamics just over a year before the next election.

Presented to the heads of the parliamentary finance committee on Thursday evening, the report creates a new opening for critics who accuse German authorities of being too lax by failing to pursue fraud allegations of a company that aspired to be a leading light in Europe’s tech industry.

The minister was told that BaFin would “investigate in all directions,” said the document, which was reported earlier by German media.

While Scholz has denied any direct involvement in the Wirecard scandal, he has struggled to insulate himself from the issue. His deputy, Joerg Kukies, confirmed on Wednesday that he met the digital payments company’s then-Chief Executive Officer Markus Braun twice at the end of last year, including once on the manager’s birthday.

Scholz’s Problem

Merkel kept the scandal at arm’s length, saying the responsibility to clear up the issue lies with Scholz.

“What information the Finance Ministry possessed at what time will be disclosed by the ministry to the public, and the chancellor sees that as good and correct,” Martina Fietz, Merkel’s deputy spokeswoman, said Friday during a regular government press conference.

She stopped short of stating that Scholz has the German leader’s full support. “The chancellor works faithfully with all members of the cabinet,” Fietz said.

Despite the mounting pressure, Merkel would be hard pressed to take action against her vice chancellor without bringing down the coalition, an unlikely scenario in the midst of a global pandemic and during Germany’s six-month presidency of the European Union.

Political Support

Wirecard, a member of Germany’s benchmark DAX index, became a national disgrace when it said last month that a quarter of its balance sheet probably doesn’t exist. That set off a blame game between banks, auditors and public authorities and revealed large gaps in the country’s oversight of non-financial companies.

In a closed-door meeting of the Bundestag’s finance committee late Thursday, Deputy Finance Minister Kukies said he was unaware that it was Braun’s 50th birthday when he met the former CEO on the sidelines of a banking conference in Munich last November, according to minutes of the session seen by Bloomberg.

Kukies said he discussed a KPMG audit, which Braun had looked forward to as “clearance.” The ministry official also said that Scholz had shown great interest in the Wirecard case and had repeatedly asked him for updates.

The opposition has called for a special meeting of the finance committee during the parliamentary summer break because it sees many questions still unanswered.

‘Highly Problematic’

“Politically it’s highly problematic that the finance minister got involved with the case at such an early stage,” said Danyal Bayaz, a lawmaker with the Green party. “Scholz had Wirecard on his radar, he had an interest, but this interest apparently never became big enough to prompt him to take action.”

Any decision over Scholz’s fate would rather lie with the SPD, whose members last year rejected his bid to lead the party in favor of a duo who voiced more support for policies such as a wealth tax, a higher minimum wage and public spending.

Still, voter backing of the SPD remains mired at historic lows, and the party has begun to maneuver in support of Scholz’s bid to run for the chancellorship. That fragile balance would be upended if the politician’s standing was challenged.

The Finance Ministry waved off suggestions that Scholz didn’t act appropriately. German regulators pursued accusations against Wirecard over the years and the ministry was regularly informed about the state of the various probes, Finance Ministry spokesman Dennis Kolberg said at the government briefing.

Reform Push

The ministry is “actively” looking to overhaul accounting oversight in the aftermath of Wirecard’s collapse and will present a plan “as quickly as possible,” Kolberg said.

BaFin, which is overseen by the Finance Ministry, has come under criticism for appearing to focus more on targeting investors who alleged irregularities at Wirecard and made bets against the stock, rather than the company itself.

The regulator said in March last year that it was investigating both sides. BaFin President Felix Hufeld said last month that his institution is among those parties responsible for the failure to catch what he has called “massive fraud” at the company. Still, he defended BaFin’s actions against so-called short sellers as being a legal obligation.

Despite outrage over the shortcomings, political opponents have stopped short of calling for Scholz to step down.

“The sloppiness when it comes to controlling billion-dollar companies is simply inconceivable,” Bernd Riexinger, head of the Left party, said in an emailed statement. “Scholz urgently needs to explain why suspicions of irregularities at Wirecard -- but also the problems with the oversight regime -- were ignored in his ministry for so long.”

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