Five things to know about Germany’s Wirecard scandal

German payments provider Wirecard filed for insolvency Thursday, just days after admitting €1.9 billion missing from its accounts likely "do not exist" and its ex-CEO was arrested.

Five things to know about Germany's Wirecard scandal
Wirecard's headquarters in Aschheim near Munich. Photo: DPA

Here are the most important facts about a scandal that is drawing comparisons with the collapse of US energy company Enron in the early 2000s over accounting fraud.

READ ALSO: Wirecard founder makes bombshell resignition over fraud probe

What does Wirecard do?

At its heart, Wirecard is a payments processor, offering companies services allowing them to accept credit cards and digital payments like Apple Pay or Paypal in stores, online or on mobile.

The company collects a commission for ensuring that merchants will receive the money they are owed.

Around that, it sells its customers extra services like analytics based on the data generated from those transactions that it says can help boost sales and track trends.

Wirecard claims around 300,000 firms worldwide as customers, and deals with giants in the sector like China's AliPay and WeChat, Apple and Google have offered hot prospects for growth.

How did Wirecard make it big?

Wirecard was founded in 1999, starting out offering its services to porn and gambling sites.

Such stable revenue streams helped it survive the early-2000s dotcom crisis, and as more savoury forms of online commerce ramped up through the 2000s and 2010s, the group's star mounted with it.

In the early days, CEO Markus Braun increased his stake to seven percent, becoming the largest shareholder.

Wirecard now highlights clients like KLM, Deutsche Telekom and FedEx on its website.

First listed on the Frankfurt stock exchange in 2005, by 2018 it elbowed traditional lender Commerzbank out of the blue-chip DAX share index.

In early 2019, Wirecard's market value hit around €17 billion, matching crisis-ridden Deutsche Bank with 15 times fewer workers and revenues.

The past week's revelations have collapsed that value to around €350 million.

Wirecard CEO Markus Braun. Photo: DPA

Why weren't weak spots uncovered?

Beginning in January 2019, a string of Financial Times reports highlighted accounting irregularities, notably in Wirecard's Asian division.

Bosses denied any wrongdoing and the German financial world appeared to close ranks around its favourite.

Markets watchdog BaFin announced a probe into potential links between the FT and short sellers betting against Wirecard stock.

The hammer blow came last Thursday when auditors Ernst & Young said they were unable to find €1.9 billion of cash meant to be sitting in trustee accounts at two Philippine banks.

The fact his agency did not catch the scandal sooner was a “disaster”, BaFin chief Felix Hufeld said Monday.

Wirecard's status as a Payment Service Provider (PSP) subjected it to multiple EU directives since 2008 obliging it to better fight payment fraud, but companies are not subject to as much scrutiny over their accounting practices.

Who controls Wirecard?

Wirecard has been run by Austrian computer scientist Braun since 2002.

He resigned abruptly last Friday after the company was forced to acknowledge the missing cash.

He was detained on Monday after Munich prosecutors accused him of market manipulation and falsifying accounts. Braun turned himself in and was freed on a five-million-euro bail the following day.

American James Freis is serving as Wirecard's interim CEO.

Chief operating officer and management board member Jan Marsalek meanwhile was dismissed on Monday, with media reports placing him in the Philippines.

Braun and other senior board members were already under investigation by Munich prosecutors over “market manipulation” relating to how they presented updates of KPMG audit findings of their old accounts.

Who is behind the missing cash?

German news weekly Der Spiegel named Mark Tolentino, a lawyer working in the Philippines, as the trustee responsible for the missing cash.

Based in Philippine financial centre Makati City, his website vanished this week, although a Facebook page with public legal Q+A video sessions remained online.

Meanwhile one of the country's largest banks — BPI — where some of the missing money was supposedly deposited — confirmed to AFP that an employee was on “preventive suspension”.

Media have reported that an assistant manager at BPI signed a forged document relating to the supposed deposits at the bank

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German watchdog steps up monitoring of popular N26 online bank

Germany's financial watchdog on Wednesday ordered online bank N26 to step up "internal controls and safeguards" to prevent money laundering and terrorist financing, and said it was appointing a special representative to monitor progress.

German watchdog steps up monitoring of popular N26 online bank
An N26 card. Photo: Wikimedia Commons

Bafin’s announcement marks an escalation of previous warnings to the popular Berlin start-up, which has come under fire in the past for not properly verifying the identities of new customers.

“Bafin ordered N26 Bank GmbH to rectify deficiencies both in IT monitoring and in customer due diligence,” the regulator said in a statement.

N26 “is required to ensure that it has the adequate personnel, technical and organisational resources to comply with its obligations under anti-money laundering law,” it said.

A “special commissioner” would oversee the company’s efforts, Bafin added. Founded in 2013 and known for its transparent debit cards, digital bank N26 is one of Germany’s most high-profile financial technology or “fintech” firms and now has seven million customers in 25 countries.

Its rapid growth has rested in part on fast-track identity procedures for new customers.

READ ALSO: What is the digital German bank N26 that’s about to hit a million users?

In 2019, German business weekly WirtschaftsWoche said it had managed to open accounts using forged IDs.

N26 on Wednesday pledged to “work closely” with Bafin and the special representative.

It said it had already significantly increased measures to prevent money laundering in recent years, “but we recognise that more must be done in this area”.

The coronavirus crisis had contributed to a spike in fraudulent online transactions worldwide, N26 added, “increasing the demands placed on banks in the fight against crime”.