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Could surveillance tools have predicted Wirecard’s demise?

That’s a question that deserves looking into a little further. First, to establish some context, Wirecard AG was a German FinTech darling innovating financial payment and processing along with related services. The keyword here is “was,” as in past-tense and no longer “is.” In September 2018, their valuation approached €25 Billion. Less than 18 months later, they lost 98% of their value and are now defunct.

But that’s not the whole story. According to Bloomberg and numerous reputable media sources, Wirecard is under investigation for insider trading and other nefarious acts of fiscal regulatory non-compliance. And it’s unclear how many others have profited by placing short positions to bet against the stock. On June 10, 2020, eight days before Wirecard’s stock crashed, an anonymous tipster posted in an online forum that an EY auditor couldn’t account for missing funds; more specifically, missing billions. Both the German media outlet Handelsblatt, and BaFin, a German regulatory watchdog, have confirmed that the now-deleted post was legitimate.

So, the question becomes, could eComms surveillance tools have predicted the fallen FinTech giant’s demise and alerted authorities in time to freeze its assets?

There are always signs

Of course, sophisticated eComms monitoring solutions are necessary to interpret nuance, emojis and the like from conversations, but close scrutiny by watchdogs also proves to be effective. In essence, that’s what Compliance Officers do. However, at least in the case of Wirecard, a savvy blogger (memyselfandi007) has been hot on the tail of the fraudsters – back since 2008 when the company launched. Posts by this blogger regarding Wirecard have been viewed more than 18 million times.

Here’s where it gets really interesting. The blogger’s posts have been heavily redacted and, in some cases, removed; not by the blogger, but by Wirecard. The fallen FinTech also filed numerous lawsuits against this blogger in the years leading up to the current debacle. Did BaFin, the EBA, SEC and other regulatory agencies miss this – or dismiss it?

The Financial Times reported an elaborate “book-cooking scheme” of an Asian-Pacific accounting firm with Wirecard as one of its clients back in February 2019. Shortly after the whistle-blowers went public, the Singapore Police raided Wirecard’s local office. The German Minister of Finance sounded the alarm to the German Chancellery in August 2019 but it’s unclear if or how that warning was acted upon. Apparently, we’re not the only ones asking this question as The Grand Coalition is now actively in pursuit of the truth.

Again, back to the exam question: if a savvy blogger and digital forum members were capable of sniffing out warning signs of market abuse at a seemingly untouchable FinTech giant, could our practice of eComms monitoring solution show signals and alerts of non-compliant behavior (by execs or employees)?

The aftermath of alleged market abuse

Alleged market abuse is the key descriptor here. Even so, suspicions of market abuse don’t pass without making a few ripples. In the case of Wirecard, which has unceremoniously been dubbed, “The German Enron,” it’s not a matter of ripples – it’s a matter of waves.

Marcus Braun, former CEO, resigned in shame and has stated that he and Wirecard are victims of fraud. Jan Marsalek, a former Board member of Wirecard, has fled Germany, likely with his solid gold credit card for which he was renowned. He was spotted in the Philippines and then in China. Some reports indicate that he is currently in Moscow whereas other reports cite that he is under the watchful eye of Russia’s military secret service, the GRU. Why did he flee, and can the regulatory authorities gain access to the eComms of these former leaders whose behaviors are now suspect?

Deutsche Bank is downsizing 18,000 jobs within the next two years as part of its cost-cutting turnaround plan. What’s relevant here is that they are looking to augment their technology stack with new solutions. According to Reuters, they are currently eyeing the acquisition of Wirecard’s payment processing technology. But a few details need to be sorted out first.

How did Wirecard ‘cook the books?’

The suspected scheme isn’t very elegant, but effectiveness and elegance aren’t always linearly equated. A 33-year old Indonesian accountant operated a firm in Singapore and had notable clients like Wirecard. He managed only a handful of employees but, according to testimony that has since emerged, he artfully taught them how to “cook the books.” The practice is called “round-tripping” which involves moving a lump sum of cash from the German bank owned by Wirecard to a dormant subsidiary in Hong Kong. The money sits there just long enough to be recorded as a “customer transaction.” On the books, the transaction gets recorded as revenue. Moments later, the money would travel to Wirecard’s office in India.

Apparently, the practice had been ongoing for years (potentially more than a decade) and Wirecard’s treasurer and head of accounting supposedly knew about it. BaFin and Wirecard were known to each other: previously, BaFin launched investigations into suspected market abuse by Wirecard in 2008, 2015 and in 2016. The 2019 investigation revealed bombshells like “forgery,” “falsification of accounts,” “cheating,” “criminal breach” and “money laundering.” Wirecard was paying Right Momentum Consulting millions of Euros each year and sending the money to an address in Kuala Lumpur which could not be traced. Marsalek was appointed to an accounting practices review committee commissioned internally by Wirecard’s CFO in a classic, “fox-watching-the-henhouse” scenario.

So, we’ll ask the question one last time, could eComms monitoring software have detected the market abuse within Wirecard and predicted its demise? The “paper trail” that includes emails, calls and chats will probably be unveiled in the investigation process, but the way I see it, it is safe to say that the answer will be YES.


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