Wirecard Inquiry Probes Why Germany Missed Fraud of Century
(Bloomberg) -- 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 grilled a top adviser to Chancellor Angela Merkel on Monday in Berlin and will question finance industry watchdogs on Tuesday as the fraud that burned investors engulfs the country’s political establishment. If the closed-door hearings go badly, parliament may trigger 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.
“Wirecard had a strong political lobby that reached all the way into the chancellery,” Florian Toncar, a member of the opposition Free Democrats, told reporters Monday. “There have been such failings at the core of financial supervision that a full parliamentary inquiry will be necessary.”
The ruling coalition is likely next month to present concrete proposals on legislation to reform Germany’s financial oversight, Justice Minister Christine Lambrecht said after concluding her testimony to parliament’s finance committee.
At the heart of the issue is whether German officials knowingly turned a blind eye because of the lure 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.
The committee will also address why German anti-money laundering authorities didn’t follow up on notifications involving Wirecard. The country’s Financial Intelligence Unit told the government earlier this month that it’s re-examining more than 1,000 reports of suspicious activity involving Wirecard since June 2017.
Merkel’s chief economic adviser, Lars-Hendrik Roeller, was one of those who gave evidence Monday. Roeller, who rarely speaks publicly, was the point person for the chancellery’s contact with Wirecard and lawmakers have questioned 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.
That support was part of broader efforts to get China to open its financial system and wouldn’t have been provided if the government knew what it does today, Hendrik Hoppenstedt, a state minister in Merkel’s office, told the committee.
The issues surrounding Wirecard are a “heavy burden” for Germany as a financial center and need to be cleared up comprehensively, he said, according to parliament’s newsletter.
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 concerns about the role German political insiders may have played in facilitating contacts for Wirecard.
Lawmakers delved 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 newspaper reported.
“We learned that German intelligence services didn’t have any information about Wirecard’s work with international intelligence agencies,” Lisa Paus, a member of the opposition Greens party told reporters. “I’m surprised how naive they were.”
Lawmakers from the parties that make up the government were also critical.
“There are signs of striking failures at the Finance Ministry and the regulator,” said Hans Michelbach, a member of the CSU, the Bavarian sister party of Merkel’s CDU.
Michelbach said Merkel’s conservative caucus will decide whether a deeper investigation is necessary after the second day of hearings. The two parties hold the largest number of seats in parliament.
Senior 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.
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 -- Finance Minister Olaf Scholz and Economy Minister Peter Altmaier were also called to testify -- 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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