Wirecard fraud trial begins in Germany

The massive fraud trial against Germany's disgraced fintech giant Wirecard opened in Munich on Thursday, two and a half years after the company's collapse. Ex-CEO Markus Braun and two former executives face a series of charges, including falsifying the group's balance sheets and cheating lenders out of $3.1 billion (€3.3 billion).

An 89-page indictment is to be read out throughout the trial being held in an underground high-security wing next to Stadelheim Prison, the largest prison in Bavaria.

Ahead of the opening of the trial, Fabio De Masi, a former lawmaker for Germany's socialist Left Party who sat on a parliamentary inquiry into the Wirecard affair, told DW that "Mr. Braun was not a victim but The Godfather of the criminal operation."

De Masi recalled parliament's 675-page report on the fintech firm, published last year, that established that Braun was involved in signing off on funds to third-party companies despite warnings that he was giving away "the last liquidity of Wirecard."

What was Wirecard?

Wirecard was once the poster child for Germany's financial technology sector. The firm began life in 1999 as an online payment processor for porn and gambling websites and grew a stable stream of revenue that helped it survive the dot-com bust. The company built up a wider base of retail clients thanks to the global boom in online shopping and, later, mobile payments.

Under CEO Markus Braun, a former KMPG consultant who joined in 2002, the company grew at breakneck speed, swallowing up smaller payment firms and expanding into banking. It even launched a joint venture with China's e-commerce giant Alipay to allow Chinese tourists to pay for goods and services while abroad.

Wirecard was listed on the Frankfurt Stock Exchange in 2005 and 13 years later, it knocked traditional lender Commerzbank out of the blue-chip DAX index. At its peak, the company was valued at more than €24 billion ($25 billion), outweighing even Deutsche Bank.

What brought down Wirecard?

In 2016, US financial investigative research firm Zatarra issued a negative report on Wirecard, alleging fraudulent activity at the firm.  It accused senior executives of committing money laundering and defrauding Visa and Mastercard.

Three years later, Financial Times journalist Dan McCrum picked up on the scandal, alleging accounting irregularities at Wirecard's Asian units in a series of articles.

By June 2020, the company admitted to auditor EY that €1.9 billion in cash meant to be held in two Philippine accounts likely didn't exist. Wirecard's share price plummeted by 99% and it became the first DAX company to file for insolvency, owing creditors nearly €4 billion.

An FT investigation found that third-party acquirers (TPAs) —  businesses that processed payments for Wirecard where it lacked its own license to operate —  accounted for around half of Wirecard's reported revenues and a large chunk of its profits. But an address for one such firm led to a family home in the Philippines. Another was a Manila bus company.

Wirecard's auditor EY, who signed off on the firm's accounts for a decade, also faced sharp criticism and is now being sued by Wirecard shareholders. EY has said it acted professionally.

The government of then Chancellor Angela Merkel briefly considered bailing out the company and her then Finance Minister, now Chancellor, Olaf Scholz was censured for bungling oversight of the company. Scholz told a parliamentary inquiry that most of the fraud happened before his tenure.

The scandal also revealed that Germany's market regulator BaFin had not only failed to spot the fraud —  despite the suspicions raised by investigative journalists and financial market analysts — it had instead filed criminal complaints against two FT journalists, claiming market manipulation, which were later dropped.

De Masi told DW that the official reaction to the negative media reports was "scandalous," as the public prosecutor initiated a short-selling ban on Wirecard shares "based on a wild conspiracy theory that Bloomberg conspired to blackmail Wirecard."

The embarrassment forced the resignation of BaFin's chief and the head of Germany's accounting watchdog and even spawned a Netflix documentary, recounted by McCrum.

"Many didn't want to believe that fraudsters were at work at Wirecard," Volker Bruehl, a professor at the Center for Financial Studies in Frankfurt, told Agence France-Presse.

What is the court case about?

Braun and two other high-ranking Wirecard managers go on trial in Munich on Thursday, accused of inflating earnings through fictitious transactions involving a complex web of subsidiaries and partner companies.

Oliver Bellenhaus, the former head of Wirecard's Dubai subsidiary, and Stephan von Erffa, another former executive, are also accused.

Prosecutors will argue that the trio presented inaccurate financial results for 2015-2018 by including revenues from TPA companies in Dubai, the Philippines and Singapore that "did not actually exist."

The three men could face up to 15 years in jail if convicted of several charges, including fraud and market manipulation.

Braun, who has been in custody since the summer of 2020, denies wrongdoing and accuses others of running a shadow operation without his knowledge.

The prosecution has said Wirecard's management invented vast sums of phantom revenue to hoodwink investors and creditors.

Prosecutors have written a 474-page indictment, following hundreds of interrogations, dozens of property searches, and after having sifted through 42 terabytes of data.

Authorities in more than two dozen countries took part, from Switzerland to Singapore, Austria, the Philippines, Britain and Russia.

A verdict is not expected until 2024 at the earliest.

"In my view, Wirecard was a major money laundering entity with close ties to organized crime and secret services. The third-party companies (TPAs) were not just shell companies with fake transactions, they outsourced legal risks from Wirecard by recycling dirty money," De Masi told DW.

One of the accused remains on the run

The Wirecard affair will not be complete without the testimony of former Chief Operating Officer Jan Marsalek, who Braun has painted as the mastermind behind the fraud.

Marsalek vanished when the scandal unfolded by faking an elaborate escape to China via the Philippines, while in reality he was bound for Moscow via Belarus on a private jet.

He remains on Europol's wanted list and is thought to be living under a new identity in Moscow , protected by the Kremlin, having been helped to disappear by a former Austrian intelligence officer and a far-right politician.

With his connections to Russian intelligence agencies and his one-time bid to assemble a Libyan militia, the party-loving Marsalek remains shrouded in mystery.

Edited by: Ashutosh Pandey, Kristie Pladson