The trust accounts and the missing EUR 1.9 billion

analysisAfter trust (escrow) accounts were set up in 2015, Citadelle Corporate Services Pte. Ltd. of Singapore acted as trustee. According to the special investigators the trust agreement gave Wirecard no information rights such as monthly statements, bank balance confirmations or proof that the accounts had been opened, and EY requested balance confirmations from the trustee for 2015–2017. The investigators list the evidence EY obtained on the business: Wirecard Bank statements of the group companies concerned, balance confirmations from the partners, unsigned Excel or PDF lists of transaction volumes, screenshots of test purchases and, from 2015, trust agreements and trustee confirmations, together with site visits to Al Alam in Dubai (2015), PayEasy in Manila (2016) and Senjo in Singapore (2017). ¹

analysisThe investigators list inconsistencies in the 2015–2016 confirmations that EY did not follow up: one named Wirecard Technologies GmbH as beneficiary of account 6508 4162 0001 although CardSystems Middle East had concluded the trust agreement with Al Alam; Citadelle's e-mail addresses and contact names varied; on 25 May 2016 a balance of EUR 41,500,000 was confirmed on Senjo's account for Al Alam with Wirecard UK & Ireland as beneficiary; and at the end of 2016 Al Alam paid EUR 80,000,000 into an escrow account. EY's 2016 files contain two Citadelle confirmations dated 2 December 2016, for EUR 97,533,053.84 on account 6508 4162 0001 addressed to Wirecard UK & Ireland and for EUR 84,009,703.83 on account 6010 9797 5201 addressed to CardSystems Middle East; in both PDFs, the investigators found, signature and seal were inserted electronically and the stamp properties name the author "Oliver", whose identity the report does not establish. There is no confirmation at the end of 2016 for account 6010 9797 5201, which from the end of 2017 was no longer used as an escrow account, and EY's files contain no documents on the transfer of its funds. Whether the confirmations reflected real balances is the subject of the later records below. ¹

analysisFor the 2018 audit the trustee was still Citadelle. EY inspected bank statements during the trustee's visit to Aschheim on 26 March 2019 without receiving copies, and Citadelle's confirmation of 12 April 2019 named neither the account numbers nor the bank and carried a different stamp from earlier ones. In the investigators' evaluation, the auditor did not test the plausibility of trust balances of about EUR 976 million at OCBC Bank in Singapore, sent no confirmation requests to merchants and did not test the transaction chain, so that the confirmation of TPA revenue and cash rested only indirectly on the partners and the trustee. EY's 2019 audit file very probably contains confirmations from Banco de Oro (BDO Unibank) of 16 March 2020 and from Bank of the Philippine Islands of 17 March 2020 for 31 December 2019, a management board decision of 20 February 2020 replacing Citadelle with M. K. Tolentino as trustee, EY's letter of 16 June 2020 to the supervisory board chairman Thomas Eichelmann about possible irregularities, and EY's refusal of an opinion on the 2019 consolidated accounts. The insolvency administrator, Dr. Michael Jaffé, later sent the Bundestag committee a statement on the existence and possible size of the business, whose annexes include a 2016 Citadelle confirmation with "obviously forged signatures". ¹

analysisFrom March 2019 the Financial Times reported, as ESMA summarises, that half of Wirecard's worldwide revenue and almost all its profit came from three opaque partners, which in 2016 produced 95% of EBITDA and more than half of revenue, that profits were channelled mainly through CardSystems Middle East in Dubai, and that the accounts disclosed none of this. In October 2019 it reported that in 2016–2017 Wirecard had routed billions of euros of payments for 34 clients through Al Alam, eight of which had ceased trading and 15 of which said they had never heard of Al Alam, and in December 2019 that EUR 334 million linked to Al Alam on trust accounts in 2017 had been wrongly classified as cash. Wirecard systematically rejected such allegations at the time; on 22 June 2020 it stated that the trust balances of EUR 1.9 billion probably did not exist. ^{1 2}

analysisKPMG began an independent special investigation on 31 October 2019 and reported on 27 April 2020. The next day Wirecard announced that KPMG had found no incriminating evidence of balance-sheet manipulation and, in the four areas examined (third-party acquiring, merchant cash advance and digital lending, India and Singapore), no findings requiring adjustment of the 2016–2018 accounts; it also said that not all the data needed to prove TPA revenue could be obtained because third parties held it, that KPMG had identified documentation and organisational weaknesses, and that publication of the annual accounts on 30 April was cancelled pending coordination with EY. ESMA's chronology states that the report itself found the evidence insufficient to conclude either that the TPA revenue existed and was accurate or that it did not. ^{2 3 1}

analysisESMA, citing the report, states that KPMG could confirm only payments of EUR 85 million by two partners to accounts of Wirecard Technologies and CardSystems Middle East at Wirecard Bank, while Wirecard could not produce trustee statements to verify a final balance of about EUR 1 billion; unsecured credit lines of EUR 250 million ran in the opposite direction, and the subsidiaries had undertaken to compensate the partners for losses, secured by withholdings or escrow accounts at the trustee. Statements and confirmations from the bank managing the trust accounts were not provided because "Trustee 1" had ended its relationships with the Wirecard companies and did not answer enquiries. ¹

analysisAccording to ESMA's chronology, EY informed Wirecard on 16 June 2020 that the banks said to hold the accounts had stated that Wirecard had presented forged balance confirmations for trust accounts of EUR 1.9 billion in the 2019 audit. The same day EY informed BaFin, which says KPMG's report had until then contained only red flags without a finding of fraud; BaFin notified the public prosecutor on 18 June. That day Wirecard announced that EY could not obtain sufficient audit evidence for the EUR 1.9 billion, about a quarter of the consolidated balance sheet total, that there were indications that the trustee or the banks keeping the trust accounts had presented false balance confirmations to deceive the auditor, and that publication of the 2019 accounts was postponed. ^{1 2}

analysisOn 22 June 2020 Wirecard announced a prevailing likelihood that the balances did not exist; ESMA records its statement that the EUR 1.9 billion supposedly held on escrow accounts in the Philippines did not exist, and a European Parliament briefing recalls that on 3 May Wirecard had said KPMG's report confirmed none of the allegations. The day before, according to press reports, the governor of the Philippine central bank, Benjamin Diokno, said initial information showed that the missing funds, put at US$2.1 billion, had not entered the Philippine financial system and that BDO Unibank and Bank of the Philippine Islands had suffered no losses, their names having been used to cover the perpetrators' tracks; both banks said Wirecard was not their client and they had no business relationship with it. The briefing describes as the key question of KPMG's audit whether EUR 1.9 billion supposedly held in an escrow account at OCBC Bank in Singapore existed, noting that the report did not clarify all questions. According to a later press report citing a newspaper, OCBC told the insolvency administrator that it had never held significant sums on behalf of the trustee and that some of the accounts had never existed; no document of the bank itself is in the record. ^{3 1 4 5}

analysisAccording to the Munich I prosecutor's investigation as summarised in the Federal Criminal Police Office's wanted notice, Marsalek and Braun inflated Wirecard's balance sheet total and revenue from no later than 2015, including fictitious revenue from payment transactions with the third-party acquirers; in the 2019 audit the auditor found the trust-account confirmations forged or not genuine, and assets of EUR 1.9 billion, a quarter of the balance sheet total, did not exist. This is a suspicion stated in a wanted notice: Braun denies the charges in the pending trial, and Marsalek has not been tried. ⁶