€3.5 Billion Wirecard Scam – Burning Issues

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What is Wirecard?

Founded in 1999, Wirecard offered electronic payment transaction services in all continents.
At its peak, the company was valued at $28 billion.
It was among the 30 listed companies on Germany’s prestigious DAX stock index.

Wirecard collapsed on June 25 and declared bankrupt in Germany.
Owing creditors more than €3.5 billion (almost $4 billion) after disclosing a gaping hole in its books that its auditor EY said was the result of a sophisticated global fraud.

For many years, there had been complaints of accounting irregularities against Wirecard.
Media reports and whistleblowers alleged the company had faked its sales transactions to inflate revenue and profits.
Matters came to a head in 2019 after the Financial Timespublished a series of investigations into those claims
Wirecard had then defended itself and aggressively hit back against critics, even suing the Financial Times.
Later in 2019, the accounting firm KPMG was called in as an outside auditor to run an independent probe.
In April 2020, KPMG dropped a bombshell, revealing that it could not verify cash balances of €1 billion,
Also it was unable to trace vast sums of advances to merchants.
The findings led to calls for the removal of Wirecard’s CEO Markus Braun.

In June 2020, the accounting firm EY, Wirecard’s auditor for over a decade, refused to sign off on the company’s 2019 accounts,
Saying it had been provided false information about company accounts, and could not confirm whether balances worth €1.9 billion existed.
Wirecard insisted the missing money had been sent to two banks in the Philippines — a claim that was refuted by both the banks
Braun resigned on June 19, and three days later, the company admitted of a “prevailing likelihood” that the €1.9 billion did not exist.
German authorities arrested Braun on June 23.
On June 25, Wirecard filed for insolvency after talks with creditors failed.
According to a Reuterssource,
Wirecard faked two-thirds of its sales, meaning there would be no way it would be able to repay all its debt, notwithstanding all the legal challenges it will face.
It owes its creditors around €3.5 billion, out of which €1.75 billion come from 15 banks plus a €500 million issued in bonds.

The scam, arguably Germany’s biggest since Volkswagen’s ‘Dieselgate’ crisis of 2015 and the Siemens corruption scandal of the late 2000s,
Is being called “Germany’s Enron”– referring to the 2001 accounting scam by the US energy company Enron.

The scandal has caused significant public outrage, and there have been calls to introduce regulatory reforms.
The accounting firm EY is also at the receiving end of public anger.
The firm could also face a wave of litigation.
“If legal, legislative, regulatory measures are needed, we will embrace them and implement them,”
German Finance Minister Olaf Scholz said.
“A scandal like Wirecard is a wake-up call that we need more monitoring and oversight than we have today”.