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By Gontran de Quillacq
On May 21, 2021

Wirecard, fintech fraud and supervisory blunder

The credit card processor was actually a purpose-built money laundering scheme. Wirecard tricked its auditors, its board, external investigators. It retaliated against whistleblowers. With the support of its regulator. That wouldn't happen over here, but could it? Thoughts?

Wirecard - Financial TimesJim Singh, am executive committee member of the Alternative Investment Management Association had an interesting summary of the Wirecard scandal.

  • The company was a credit card payment processor, and also the answer to California’s Silicon Valley.
  • In June 2020, Wirecard was admitted into the Dax, at double of Deutsche Bank’s valuation, before being quickly kicked out, because of a major scandal.
  • It turns out that the company was created by money launderers for the purpose of laundering criminal proceeds.
  • Wanted - Jan Marsalek - Munich policeThe company survived for two decades. Its admission to the Dax actually demonstrates “The abject failure of Wirecard’s auditors and the German regulators to do one thing: their jobs.”
  • In 2002, Germany created BaFin, a regulator to monitor financial frauds, in the wake of the Enron Scandal, but allocated only €6 m as a budget, enough for 14 employees.
  • When financial analysts (short sellers) reported to BaFin the likely wrongdoing of Wirecard, the regulator actually turned against the whistleblowers and opened investigations into market manipulations.
  • BaFin also defended Porsche and Volkswagen in their own respective scandals.
  • Wirecard’ auditors – EY no less – never detected any malfeasance, for decades.
  • The non-exec directors of the board never saw any malfeasance either.
  • The story only came to light because investigative journalists came out with the research (below) to confirm the malfeasance. The story is worth of the best spy novels – expensive attorneys, Russian connections, slush funds, fake surveillance stories, threats and many other treats.

Ft's WireCard cover stories

  • Worse, the BaFin regulators have survived the scandal and kept their jobs.

 

Fraudulent executives proceedings in their crime for years, retaliating against whistleblowers, with the support of the regulator, in a major developed country. What worse could you imagine?

That it happens also here. It would never happen, right? Your thoughts?

 

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