Financial Crime World

Financial Scandal Rocks Germany: The Collapse of Wirecard

In a shocking turn of events, the Munich-based payment processing giant, Wirecard, became the talk of Germany and the global finance world in 2020. The company, which was part of the DAX index and offered customers electronic payment transaction and risk management services, was engulfed in a financial scandal that led to its insolvency. Allegations of accounting irregularities, fraudulent financial reporting, and regulatory failure have rocked the industry.

Company Overview

  • Founded: 1999, Munich
  • Services: Electronic payment transaction and risk management
  • Climbed DAX index in 2018, peaking at €24bn

Early Warnings and Investigations (2008-2018)

Despite raising questions as early as 2008, the tipping point came in June 2020, when the company filed for insolvency.

  • Questionable business practices reported by regulators and financial journalists
  • Accounting irregularities, including suspicious transactions

The Collapse (2020)

  • €1.9 billion missing from accounts
  • Several high-ranking executives arrested, including CEO Markus Braun
  • Regulatory failure allegations against BaFin, Germany’s top financial watchdog, and Wirecard’s long-time auditor, Ernst & Young

A Meteoric Rise and Fall

  • Began as an online payment provider for adult content websites
  • Bypassed proper scrutiny during initial public offering
  • Expanded into banking, the US market, and China

Criticisms and Red Flags

  • Unusual structures and transparency issues
  • Opaque and poorly audited third-party processors
  • Allegations of market manipulation against critics

Fallout and Ongoing Investigations

  • Singaporean authorities raided Wirecard entities
  • Fraudulent accounting activities reported by Financial Times
  • Lawsuits pending against the Singaporean authorities and Financial Times

The Aftermath and Regulatory Changes

  • Criticism of the German regulatory body, press, and investor community for defending Wirecard
  • Calls for union-wide regulation of market rules and EU body in charge of regulatory actions

Lessons Learned

With executives on the run, investigations ongoing, and lawsuits pending, the collapse of Wirecard serves as a stark reminder of the importance of financial transparency and accountability.