Wirecard scandal: Why the German government should be nervous

Have leading politicians in Germany’s grand coalition, right up to the Chancellor, been involved in a fraudulent scheme? The Bundestag’s finance committee is looking into it. EURACTIV’s media partner, Der Tagesspiegel, reports.

On Wednesday (29 July), the Bundestag’s finance committee will meet for a special session. The only item on the agenda of the closed meeting is “Current status of the events at Wirecard AG.” Invited are Minister of Finance Olaf Scholz (SPD) and Economy Minister Peter Altmaier (CDU).

At the end of the questioning, there will probably be an inquiry committee. Opposition factions have indicated that they will request one, and the CDU/CSU and SPD cannot block it. This would make it possible to investigate the government’s involvement in the Wirecard affair into the coming year.

German government lobbied for scandal-hit Wirecard

In today’s news from the Capitals, find out more about the recent peak in coronavirus cases in the Czech Republic, the Austrian government postponing its decision on making facemasks mandatory due to the European Council summit over the weekend, and so much more.

Potential poison

The Wirecard case is potentially toxic for the German government because both the Finance Ministry and the Chancellery have been in contact with managers of the company or their representatives.

The main issue was market access in China, which is what the growth-minded management of the payment service provider was aiming for when it acquired a company in 2019.

According to a recent report in the Handelsblatt, Wirecard’s balance sheet fraud could have started 15 years ago.

In light of these new findings, the question is nothing less than: Have leading government politicians, right up to the Chancellor, allowed themselves to be involved in a fraudulent system?

To create transparency, Scholz sent the Finance Committee a fairly detailed chronology two weeks ago, and the Chancellery also provided amazingly detailed information about contacts.

The initial question is nevertheless likely to be why top government officials were still dealing with Wirecard and helping the company in its efforts in China when the Ministry of Finance already knew that the financial supervisory authority (BaFin) was investigating potential market manipulation. It had also fined the company for belatedly presenting its balance sheet.

That was in February 2019, and since then the BaFin had reported regularly on Wirecard to Scholz’ ministry.

Why Scholz must appear

The Finance Ministry and its subordinate authority BaFin are the first addresses in the German government when it comes to monitoring companies such as Wirecard. The problem: the group as a whole was not classified as a financial services provider, so BaFin was only directly responsible for Wirecard Bank AG, a subsidiary.

But of course, the BaFin looks at the stock market, and Wirecard has been an issue there for years due to suspicions of market manipulation. For a long time, the company was able to give investigators the impression that it was a victim of machinations aimed at depressing the stock market price.

In spring 2019, however, the situation changed. The BaFin now checked for suspected market manipulation in all directions, including against Wirecard.

For the first time, it also had the balance sheet audited by the German Financial Reporting Enforcement Panel, a private company working on behalf of the state, which was also invited to the special session of the Finance Committee.

Since then, however, it was clear that the previous presumption of innocence for Wirecard was officially marked with a question mark.

On 17 June, State Secretary for Finance Wolfgang Schmidt, a close confidant of Scholz, wrote an e-mail to his counterpart in Beijing to inform him of Wirecard’s interest in market access in China. According to the documents known so far, he was the first high-ranking government representative to advocate the payment service provider in this moderate form.

In November, Schmidt’s colleague Jörg Kukies met with Wirecard boss Markus Braun for a direct discussion in Munich. Kukies’ former employer, Goldman Sachs, was a major investor in Wirecard with a share of almost 3% at the end of the year.

Why Altmaier is invited

Altmaier’s appearance in the special session is much to the relief of Scholz.

The reasons: Altmaier is in charge of the accounting firms, and Scholz’s line of defence includes noting that the company EY had audited all Wirecard balance sheets until 2018 and had seemingly not noticed the alleged fraud.

Given that the EY monitors are suspected of involvement in the scheme, the Altmaier questioning is concerned with whether this supervision and also the legal regulations are at all effective.

Wirecard Scandal: Former CEO Markus Braun let out on bail

Almost €2 billion are missing from the balance sheets of Wirecard, a German financial services provider. Markus Braun, CEO of the company until last week, was released on bail on Tuesday afternoon (23 June) after a night in custody. EURACTIV Germany reports.

How the Chancellery got involved

There are two CSU people who directly lobbied for Wirecard in the Chancellery: former Defence Minister Karl Theodor zu Guttenberg and the former secret service officer in the Chancellery, Klaus-Dieter Fritsche.

Fritsche requested an appointment for Wirecard, whereupon information was requested from the Finance Ministry. According to the account of the proceedings, only publicly accessible documents were delivered.

On 3 September, Merkel spoke with Guttenberg. On her trip to China from 5 to 7 September, the Chancellor “addressed” Wirecard’s planned acquisition of Allscore, without knowledge of “possible serious irregularities” and “current or past criminal investigations” against Allscore.

Guttenberg was subsequently “promised further support” via the responsible department head Hendrik Röller.

On 11 September, Röller met with Fritsche and two Wirecard managers to discuss business activities in China. Wirecard was thus well positioned to improve these activities via close employees of Merkel and Scholz.

Wirecard had thus positioned itself quite well to improve it in summer and autumn 2019, but the clouds were already gathering.

In October, Wirecard was prompted to commission a special audit from KPMG to be able to counter the allegations of balance sheet fraud, as was reported a few weeks earlier in the Financial Times. The KPMG report, published in April 2020, could not clear up serious allegations and was the beginning of Wirecard’s crash into bankruptcy.

[Edited by Zoran Radosavljevic]