Wirecard inquiry probes why Germany missed fraud of century

Germany’s blame game over Wirecard AG’s collapse is focusing 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 will question a top adviser to Chancellor Angela Merkel on Monday in Berlin before grilling financial industry watchdogs the following day as the fraud that burned investors engulfs the country’s political establishment. If the hearings go badly, parliament may start 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.

Michaela Handrek-Rehle/Bloomberg

“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 before the hearing. “There have been such failings at the core of financial supervision that a full parliamentary inquiry will be necessary.”

At the heart of the issue is whether German officials knowingly turned a blind eye because of the prospects 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.

Close connections

The highlight on the first day of the hearing of parliament’s finance committee will be Merkel’s chief economic adviser, Lars-Hendrik Roeller, who rarely speaks publicly. He was the point person for the chancellery’s contact with Wirecard and will certainly be pressed on 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.

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 also concerns about the role German political insiders may have played in facilitating contacts for Wirecard.

Lawmakers will also likely delve 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 reported.

“There are signs of striking failures at the Finance Ministry and the regulator,” said Hans Michelbach, a lawmaker from the CSU, the Bavarian sister party of Merkel’s CDU.

“We’re not happy with the level of transparency,” he told reporters Monday. “Each answer poses more questions. We’re seeing significant diversionary tactics. This needs to be cleared up. It’s about restoring trust in Germany as a financial center.”

Michelbach said Merkel’s conservative bloc 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.

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.

Lacking oversight

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 — when 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.

— With assistance from Brian Parkin and Iain Rogers