Compliance & Regulation

Wirecard states that missing USD2 billion never existed

Wirecard, the German payment processor and financial services provider, has reportedly now claimed that the over USD2 billion in cash that it reported missing in June 2020 may never have existed.

Wirecard, which was founded in 1999, has been reported to have stated that the FinTech mischaracterised its largest profit source in its balance sheet, as covered in an article by the Financial Times. The firm is now, it says, trying to establish “whether, in which manner and to what extent such business has actually been conducted for the benefit of the company.”

On the back of the missing cash, Wirecard has withdrawn its latest financial results, accompanied by the revelation that previous financial results may not be accurate.

As a result of the missing funds from the firm’s accounts, Markus Braun, CEO and CTO of Wirecard from 2002, has stepped down from his role. Prior to his resignation, Braun stated that the firm may have fallen victim to a mammoth case of fraud.

Braun was taken into custody by Munich authorities under the suspicion that he inflated Wirecard’s balance sheet and sales through fake transactions with third parties, therefore increasing the firm’s value in the eyes of both investors and customers.

According to EY, as reported by CNN Business, the missing cash would account for around about one quarter of Wirecard’s total assets. The revelation has resulted in a dramatic fall in the valuation of Wirecard stock, with a low of EUR13 being reached. This would give the firm a valuation of less than EUR2 billion.

The missing funds reportedly marks the most recent of a number of scandals plaguing the firm in recent months. In Q1 2019, the Financial Times reported that the firm forged and backdated contracts in a string of suspicious transactions. A whistle-blower, revealed in a presentation entitled ‘Project Tiger Summary’, which detailed orders from Edo Kurniawan, then Senior Accounting Executive and Head of Group Payments Accounting for Asia Pacific, which outlined potential violations of Singapore law, including “falsification of accounts” and “money laundering.”

The Project Tiger document was prepared by a Wirecard compliance officer for a presentation to the company’s four most senior executives, led by Markus Braun. It sets out, in graphic form, how about EUR37 million appeared to have been moved in and out of Wirecard subsidiaries and external businesses, across seven sets of complex transactions, flagged as suspicious, said the Financial Times in the same report.

The scandal resulted in the FinTech’s Singaporean offices being raided on a number of occasions.

The Financial Times, in a separate report, revealed that Wirecard appeared to attempt to fraudulently inflate sales and profits at the firm’s Ireland and Dubai, publishing company spreadsheets and internal correspondence, potentially also intending to mislead EY.

Commenting on the latest scandal, Felix Hufeld, President, BaFin, Germany's supervisory authority, said that the controversy surrounding the FinTech as “a complete disaster.” He went on to defend the initial two-month short-selling ban BaFin imposed in 2019 in response to the Project Tiger scandal.

The Munich police have opened an investigation into Wirecard. Meanwhile, the firm is attempting to rescue its payments processing business, following the downgrading of the firm’s grading by Moody’s to ‘junk’.