Germany’s Financial Regulator Calls Wirecard Scandal ‘Criminal’

The president of the Federal Financial Supervisory Authority (BaFin), Germany’s financial regulator, said the $2.1 billion accounting scandal at the center of Wirecard AG’s insolvency was a “massive criminal act,” Reuters reported.

“It is plain vanilla, old-fashioned criminal behaviour,” Felix Hufeld said.

His first public comments on a case that has captured the attention of Europe’s financial community came in an online panel discussion, the news service reported.

Citing nearly $4 billion in debt, Wirecard filed for insolvency last week after $2.1 billion went missing from two accounts in the Philippines. Its auditor, Ernst & Young (EY), has said it was the result of a sophisticated global fraud.

But EY, Hufeld and regulators are facing scrutiny over how the once high-flying company managed to escape the industry’s standard accounting rules.

Wirecard’s trouble can be traced back three years.

A Financial Times summary of its customers in 2017 suggested just 100 clients represented more than 50 percent of its real sales, the news outlet said, citing an internal spreadsheet.

While Wirecard said it worked with 170,000 small companies and 33,000 large and medium-sized merchants that year, documents provided evidence that the number of the firm’s clients was considerably lower.

For example, the news service reported thousands of client names were represented multiple times. A spreadsheet shared with 10 staffers in 2017 displayed just 107,000 customers, the report said.

As the scandal unfolded, Germany’s deputy finance minister has called for radical solutions to fix how accounting firms are regulated. The government is expected to end its contract with the Financial Reporting Enforcement Panel (FREP), the country’s accounting watchdog.

“We have reached an agreement with the Finance Ministry to terminate the contract,” a Justice Ministry official said.

Hours after Wirecard AG’s former CEO Markus Braun was arrested on June 22 and charged with accounting fraud and market manipulation, German Finance Minister Olaf Scholz said lawmakers must tighten regulations because the payment services company has embarrassed the nation’s financial watchdog.

“It appears that neither auditors nor regulators were effective here,” Scholz told the news service. “(It) raises critical questions about supervision of the company, in particular with regard to accounting and balance sheet control.”