In early March 2017, lengthy earlier than they grew to become two of the world’s most-wanted white collar fugitives, Wirecard’s chief working officer Jan Marsalek and a younger colleague within the funds firm’s finance crew, Edo Kurniawan, had been frightened about India.
Wirecard’s auditor EY had launched an investigation, codenamed Venture Ring, centered on companies the corporate had purchased within the Indian metropolis of Chennai.
Though EY had overseen Wirecard’s books for a number of years with out incident, Venture Ring was within the arms of a brand new crew of investigators, performing on a tip that senior managers on the German group could have dedicated fraud and that one had tried to bribe an auditor.
Exchanging messages with Mr Kurniawan, Mr Marsalek handed on a warning from somebody at EY. “A junior employees advised our employees ‘off the report’ that they’ve doubts about our software program billings and should withhold the audit affirmation,” in accordance with a replica of chats Mr Kurniawan shared with a pal, which have been seen by the Monetary Occasions.
Mr Marsalek instructed Mr Kurniawan, who led Wirecard’s Asian finance crew, to talk to the particular person in command of the India audit on the next Monday: “We must always deal with it as if we imagine it was a misunderstanding or some India weirdness,” Mr Marsalek suggested his subordinate.
The deflection effort didn’t work. Having endured three months of delay and prevarication, EY’s fraud crew demanded paperwork and knowledge by the top of that week, in accordance with correspondence reviewed by the FT.
It prompted Mr Marsalek to observe up by e-mail: “Hello Edo, do you’ve got this beneath management? This appears fairly worrying. Cheers, Jan.”
But if Venture Ring was an opportunity to show accounting fraud inside one among Germany’s most-lauded know-how corporations, it was missed. Inside paperwork, correspondence and a assessment of Venture Ring by rival Large 4 agency KPMG, all seen by the FT, paint an image of the decided efforts of Wirecard executives to kill off the investigation and guarantee EY continued to present the as soon as high-flying funds group a clear invoice of well being.
It will be one other three years earlier than the size of deception at Wirecard was uncovered, throughout which era the corporate raised billions of euros in contemporary capital. EY now faces an investigation by Germany’s auditor oversight physique Apas, lawsuits from Wirecard buyers and the departure of shoppers comparable to Deutsche Financial institution’s asset administration arm DWS and Germany’s Commerzbank.
In response to the KPMG assessment of Venture Ring, written this yr as a part of a wide-ranging particular audit of Wirecard previous to the group’s collapse in June however not made public, EY’s forensic investigation in India was terminated prematurely and left key questions unanswered.
“KPMG sees proof that argued towards a termination of the Venture Ring particular audit and that ought to have been investigated conclusively,” the report stated. The assessment added that EY ought to have mandated a 3rd social gathering to analyze given the alleged try to bribe a member of its employees.
The thriller Mauritian fund
The allegations investigated by the EY fraud crew centred on a takeover Wirecard introduced in October 2015. It paid €340m to an opaque Mauritius entity named Rising Markets Funding Fund 1A for 3 Indian funds corporations: Hermes i Tickets, GI Expertise and Star World.
The function of the Mauritius fund — which had bought the Indian companies for about €50m solely weeks earlier and so reaped big earnings from the sale — was not disclosed by Wirecard on the time.
Somebody inside EY smelt a rat. In Could 2016, an unnamed EY whistleblower filed a letter to the agency’s German headquarters in Stuttgart asserting that “Wirecard Germany senior administration” instantly or not directly held stakes in EMIF 1A.
The whistleblower additionally accused senior Wirecard managers of artificially inflating the working revenue of the bought companies, whose price ticket was linked to their profitability.
In response to the KPMG report, Stephan von Erffa, Wirecard’s deputy chief monetary officer, was the one supervisor in Germany named by the EY whistleblower. He was not interviewed by the fraud crew, and Wirecard refused them entry to his e-mail account. He has denied any wrongdoing.
On March 23 2017, Mr von Erffa responded to Venture Ring requests for info by making an attempt to close down additional inquiries. “If we begin now once more with completely new audit fields, we’ll by no means get to an finish. Subsequently I mandate my crew to focus on the native EY India audit and to not work on these new duties,” Mr von Erffa wrote in an e-mail seen by the FT.
A lawyer for Mr von Erffa didn’t reply to an FT request for remark.
Flying go to to Chennai
Among the many recipients of the e-mail was Andreas Loetscher, the lead EY accomplice on Wirecard’s audit, who’s now Deutsche Financial institution’s head of accounting. The next month, Wirecard acquired its normal unqualified audit opinion from EY.
That December, Mr Loetscher flew into Chennai for a two-day web site go to at Hermes, one of many companies Wirecard acquired in 2015. Afterwards he wrote to Mr Kurniawan to thank him for the “preparation, discussions, explanations and leisure”.
However as EY’s group audit of Wirecard was beneath manner in January 2018, the undisclosed function of the Mauritius fund, EMIF 1A within the Indian deal and the a lot lower cost it paid for the property was revealed by a non-profit group now known as the Basis for Monetary Journalism. Denying that shareholders had been “robbed”, Wirecard responded by pointing to the oversight of EY as reassurance.
However EY’s fraud crew nonetheless had suspicions. It shared a standing replace with Wirecard’s high administration in March 2018: “Among the observations may probably maintain some indicators of the allegation that chosen revenues had a big impression on ebitda, triggering greater earn-out funds to the vendor of Hermes.”
Killing Venture Ring
Lower than a month later, Wirecard’s administration introduced Venture Ring to an finish.
Explaining the choice by way of e-mail to EY’s fraud crew on April 3, copied to Mr Loetscher, Mr Marsalek asserted that “we take notice that the investigation and evaluation of the allegations within the ‘whistleblower letter’ from Could 2016 didn’t uncover proof supporting the accusations”. He added that an inner probe by Wirecard additionally concluded that there was no proof for misconduct by an worker on the funds group.
“Therefore we charge the allegations as baseless and received’t conduct any additional investigation,” the e-mail continued, with the COO thanking EY for its “all the time clear and extremely skilled evaluation and the corresponding reporting”.
Every week later, the heads of EY’s fraud crew replied to Mr Marsalek’s mischaracterisation of their work. They identified that the evaluation did establish “enterprise transactions and hyperlinks” that may help the allegations raised within the whistleblower letter, however didn’t explicitly problem their shopper’s evaluation.
A day later, on April 11 2018, Mr Loetscher and his colleague Andreas Dahmen signed off the audits for Wirecard’s 2017 outcomes.
Mr Loetscher declined to remark.
The whistleblower’s accusations and Venture Ring acquired solely a short point out within the 42-page audit report EY offered to Wirecard’s supervisory board for the 2017 outcomes. The report, seen by the FT, said that the forensic investigation had been “concluded” with out delivering “any proof indicative of flawed accounting or different violations of regulation”. The identical was said in EY’s audit report for the 2018 outcomes.
For Hansrudi Lenz, an accounting professor at Würzburg College, that qualifies as misrepresentation by EY’s auditors. “If the occasions occurred as described, for my part, [EY’s] description of the ‘Whistleblower India’ subject within the audit studies for 2017 and 2018 is insufficient,” Mr Lenz advised the FT.
The last word helpful homeowners of EMIF 1A remained a thriller. When confronted with questions in regards to the fund, Wirecard all the time pointed to the respected exterior advisers concerned within the deal, comparable to Linklaters, the UK magic circle regulation agency.
This carried weight even after Wirecard imploded this yr. In July a UK Excessive Courtroom decide threw out a civil fraud declare towards the corporate, writing: “Crucially, for my part, EMIF was [sic] been suggested by Linklaters. As a good regulation agency they might have investigated EMIF’s place and been glad as to issues comparable to EMIF’s helpful possession, compliance with money-laundering and terrorist financing legal guidelines, and the absence of tax and different fraud.”
Nevertheless, the KPMG report confirmed that when contemplating wider allegations of accounting irregularities in 2019, EY’s fraud crew had recognized one one who may need hyperlinks to the Mauritius fund: Mr Marsalek.
There was no onerous proof, nevertheless, and Mr Marsalek denied any ties when interviewed by legal professionals for Wirecard’s supervisory board. Unhappy, the supervisory board demanded a affirmation from his tax adviser, certifying that Mr Marsalek had by no means acquired earnings from Mauritius, in accordance with a number of folks with direct data of the matter. The chief working officer ignored the request over many months, these folks stated.
Right this moment, Mr Marsalek’s face is on posters plastered throughout Germany as a part of an Interpol manhunt. Mr Kurniawan, who advised legal professionals for Wirecard he all the time acted on the directions of Wirecard’s COO, was final sighted in Dubai 18 months in the past. Mr von Erffa is in police custody accused of accounting fraud, embezzlement and market manipulation.
EY advised the Monetary Occasions this week that “points regarding potential fraud and bribery issues in India” had been raised by an worker who was following “established protocols”.
The agency burdened that the allegations “had been investigated by the corporate in addition to the EY Germany audit and forensics groups” and that their observations had been reported to Wirecard. “Based mostly on the knowledge obtainable to us, we imagine that personnel from EY India and elsewhere carried out their procedures professionally and in good religion,” stated EY.
It stated that normal trade observe was for auditors “to be on-site, participating and difficult native administration. These conferences have clear audit process agendas.” EY added that Wirecard’s India transaction “was the topic of in depth due diligence by regulation companies and worldwide accounting companies”.