How Wirecard Became Germany’s Enron

The Wirecard saga unfolded for years before the company’s catastrophic failure. Here’s a quick run-down of how $2.1 billion disappeared (but didn’t) overnight.

Earlier this year, highly successful fintech company Wirecard appeared poised to buy Deutsche Bank, a sale that could have finally buried accusations of fraud deep in the books. They might have gotten away with it if it weren’t for one determined reporter who relentlessly followed the paper trail and exposed the biggest corporate scandal since Enron.

Earnest coverage of Wirecard’s questionable finances began in 2015, however, spreading the full story across dozens of in-depth articles. For those interested in the Cliff’s Notes version, let’s dive in.

The Tech Darling That Was Too Big to Fail

Founded in 1999, Wirecard narrowly survived the dotcom bubble burst. By 2006 the payment processing upstart was officially listed on the Frankfurt stock exchange. From there, growth was rapid.

However, signs of trouble began surfacing as early as 2008. Investor representatives noticed irregularities in Wirecard’s balance sheets, prompting a special audit by Ernst & Young. Two Wirecard employees took the fall, EY earned itself the cushy role of chief auditor, and Wirecard emerged unscathed.

That is, until 2015, when Dan McCrum of the Financial Times reported a €250m gap in Wirecard’s balance sheets. McCrum wasn’t alone in his suspicion of Wirecard. Short sellers at Zatarra Research accused the company of laundering money and overstating its reach in Asia in 2016. Yet, EY reported a clean audit in 2017, and company share values doubled. The following year, Wirecard replaced Commerzbank on the DAX30 index and surpassed Deutsche Bank in value. 

At that point, Wirecard was officially Germany’s tech darling—Europe’s answer to Silicon Valley giants. With CEO Markus Braun’s assurance that sales and profits would double by 2020, investors went all-in.

At the FT, McCrum uncovered a different story. There was a stalled investigation for forged contracts in Singapore, and questions about partners in the Philippines. When McCrum’s colleague went to visit a supposed partner office, she found herself at a retired seaman’s home.

Wirecard dismissed the FT’s findings, temporarily placating investors and regulators who were eager to believe that the company’s success was legitimate. However, police raided their Singapore offices in February 2019 and unearthed evidence of a round-tripping scheme: Wirecard was sending fraudulent funds to businesses in India to create the appearance of increased acquisitions and revenue. Investors were stunned. As share prices plummeted, Germany’s financial regulation authority announced a two-month ban on short-selling Wirecard due to its “importance for the economy.”

The Bigger They Are...

The following month, the FT reported that half of Wirecard’s business was outsourced to payment processors who paid Wirecard commissions into unverified escrow accounts. Braun dismissed the claims, and withdrew €900m from Japan’s SoftBank to dispel any notions of foul play in Asia and reinstate public confidence at home.

In September 2019, Wirecard went on the offensive, suing the FT for “misuse of trade secrets,” alleging its reporters were making money by short-selling the company’s stock hours before their negative press went live. German regulators appeared to side with Wirecard, investigating the FT staff involved in reporting on the company. 

Meanwhile, McCrum and his team uncovered a long list of fake customers in Wirecard’s financial reports, indicating that significant profits were fraudulent. Wirecard once again denied McCrum’s findings, and appointed KPMG to conduct a special audit. After a delay, KPMG reported in April 2020 that it had encountered obstacles and could not verify “the lion’s share” of Wirecard profits from 2016 to 2018. EY’s annual audit too was held up, awaiting confirmation that two bank accounts in the Philippines held €1.9bn—most of Wirecard’s reported profits—in escrow from partners.

Braun and Wirecard insisted everything was fine, underplayed the KPMG report, and claimed that EY was prepared to report a clean audit. Less than two weeks later, the Phillippine banks that supposedly held €1.9b of Wirecard funds informed EY that the bank documents were “spurious”. There was never any money; there were never even accounts. Police raided Wirecard’s Munich offices in June.

After a rush of statements, suspensions, and resignations, four former Wirecard executives are now in police custody, one is on the run, and another has been reported dead in the Philippines. Wirecard filed for insolvency in late June, leaving Germany’s finance sector, not to mention many of its citizens’ pension funds, to pick up the pieces.

What Can We Learn From Wirecard?

Wirecard’s boom and bust prompt many questions, but perhaps the biggest one is: How did regulatory agencies, auditors, and others let Wirecard get away with this?

The answer may lie somewhere at the intersection between archaic auditing practices and disruptive fintech business models. Auditors and regulators default to the belief that a company’s success is due to some “technical magic” they don’t understand, creating a forgiving environment for shallow audits. Meanwhile, big fintech companies earn favor with officials, legally or otherwise, increasing the chance of an averted gaze. 

If it weren’t for reporters like Dan McCrum, how much longer would the shady dealings have gone on? With regulators and auditors wrapped up in Wirecard’s success, who stood in the way? Meanwhile, how many other scandals went unnoticed? And why does it always seem like investigative journalists are doing regulators’ jobs

Until advances in financial technology are met with an analogous evolution in auditing and regulatory practices, these damaging scandals are going to keep happening. And we’re going to need more than intrepid reporters to keep them in check.



Sandeep: Tell me a bit about the early part of your career.

Tom: I spent a decade helping to build start-ups focused on application and database software. This was where I learned how to sell and do business development. I was fortunate to be part of one company going public and another being sold to IBM.

Sandeep: What is something you learned during this time that helped you with consulting?

Tom: I began to appreciate how different customers achieved varying levels of success with the same foundational technology. This made me understand just how critical getting your team and process right can be.

Sandeep: This is something I only came to appreciate years into consulting, especially after the sale of my first consultancy to Capital One.I saw teams in different parts of the company trying to solve challenges like real-time messaging. Same corporate culture, same technology, same internal support mechanisms. Night and day outcomes.

Tom: We saw a lot of the same thing after selling our practice to EMC (sold to Dell in 2015). This is probably the thing I'm most proud of when it comes to the teams I've helped to build: the ability to perform well in a variety of contexts, sometimes in ways that inspires the client team to up their game as well.

Sandeep: Yes. It's particularly cool to see your team succeed in individual ways after an skills definitely translate into the corporate environment.

Tom: Totally. We have people who've stayed on at Dell and risen up the ranks, while others took the opportunity to become successful executives at other Fortune 100 companies....or to start their own agencies and startups.

Sandeep: We've both been around a while. My first consulting project was a Y2K thing for Cisco back in 1998. You've been around a little longer than that :). How do you think consulting has changed most during the past five years?

Tom: I think because there is so much infrastructure available now, consulting has become more delivery and outcome-oriented. A better blend of strategic and tactical. Public Cloud has also enabled velocity to increase at a pace unfathomable 5 years ago.

Sandeep: What has stayed the same?

Tom: It's still mostly about people. People who thrive on change and are focused on their personal and professional development. I love that this has not and will not's what I love about consulting.

Sandeep: I know you're adjusting your work style to COVID. You're still a dude who clearly prefers to drive an hour for a socially-distanced hike or outdoor meeting over Zoom any day of the week :) But personal styles aside, what is specifically compelling about a remote agency during the era of COVID?

Tom: Kunai has been remote for years, which gives them an inherent advantage. There is something about the communication and management styles that just works in a way that other organizations are still figuring out.

Sandeep: Yeah, I think what a lot of people fail to realize is that remote work isn't just office work over Zoom. it's an entirely new paradigm. There needs to be an understanding for asynchronous efficiency...and this just takes time and effort to develop. How do you approach remote work and family? What are you learning about separating work and personal time?

Tom: No matter what the form of interaction, Focus. Be present. Quality over quantity. The best weeks are the weeks where I proactively schedule work and personal time. Neil (Kunai's Head of Delivery) shared a great quote with me "With discipline comes freedom." When I am proactively addressing the majority of my professional and personal commitments, I find I earn a little flexibility. A little freedom.

Sandeep: Tell us about a business hero of yours that I may not have heard of before.

Tom: Paul O'Neill is someone you may not know. His work in both the public and the private sector created a profound impact

Sandeep: We are both over forty years old :). How have you learned how to work smarter during the past decade or so? What do you wish you knew about consulting when you were 25 that you know now?

Tom: Consultants want to make lasting change. Lasting change is often not the act of a single person. Today I work much harder bringing others along on the journey.

Sandeep: Last question. What are you doing here? :) Why join a small consulting company this late in your career when you could have a cushy job somewhere else?

Tom: I love a good challenge personally and professionally. When I turned 40, I decided I would run a 10K every Thanksgiving weekend and try to have my finishing time be less than my age. With the exception of one year where I did not run due to a health issue, I have met the goal. I also recently completed the Leadville 100 Mountain Bike race. So, I guess I'm here because I'm a glutton for punishment :) Jokes aside, our customers have a job to do and I intend to put Kunai in a position to execute flawlessly on their behalf. I love committing jointly to audacious goals for our customers and our business.

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