Germany’s Wirecard fraud trial has begun, with ex-CEO Markus Braun and two former executives on trial for their roles in the country’s biggest-ever accounting scandal.
The trial in Munich began on Thursday, two and a half years after the digital payments company collapsed in spectacular fashion after admitting that 1.9 billion euros ($2 billion) missing from its accounts did not actually exist.
Chancellor Olaf Scholz, then finance minister, described the scandal as “unprecedented” in Germany’s post-war history.
Notably absent from the courtroom was Wirecard’s former chief operating officer, Jan Marsalek, a shadowy figure with ties to foreign intelligence agencies.
Marsalek evaded arrest in 2020 by staging a daring escape from Austria by private jet. Earlier this year it was reported that he would be hiding in Russia.
Veteran Wirecard CEO Braun has been in custody since July 2020 and is charged with commercial gang fraud, breach of trust, accounting fraud and market manipulation.
The 53-year-old denies the allegations and claims to be a victim of the fraud, portraying Marsalek as the mastermind.
His co-defendants are ex-accounting boss Stephan von Erffa and Oliver Bellenhaus, the former head of Wirecard’s subsidiary in Dubai.
Bellenhaus has admitted his wrongdoing and will act as a star witness for the prosecution.
If found guilty, the trio faces long prison terms.
The opening day of the high-profile trial, held in a sprawling Munich prison building, will mostly feature prosecutors reading the 90-page indictment.
The court has scheduled 100 trial dates for the complex case.
The prosecution’s case revolves around the allegation that Wirecard executives inflated the company’s revenues, at least as far back as 2015, by fabricating revenue streams from transactions with a web of partner companies.
These so-called third-party acquirer (TPA) companies in Dubai, the Philippines and Singapore accounted for a large portion of Wirecard’s revenue and profit, according to the books.
But “all the defendants knew” that the revenues from these TPA companies “didn’t exist,” the indictment reads, adding that the defendants used forged documents to cover up the deception.
The goal was “to increase the company’s financial strength and make it more attractive to investors and customers,” prosecutors allege.
Founded in 1999 as a credit card payment processing company for porn and gambling websites, Wirecard has grown into a respected player in the booming “fintech” (financial technology) industry.
An investor favorite, it entered the German blue-chip DAX index in 2018 and was valued at more than 24 billion euros ($25 billion) at its peak, larger than the giant Deutsche Bank.
Despite occasional speculation about corporate misconduct, Wirecard’s meteoric rise continued.
But the trouble really started in 2019 when the Financial Times published a series of explosive articles about accounting irregularities.
The scam was finally unraveled when former EY auditor discovered a hole of 1.9 billion euros ($2 billion) in his accounts in June 2020.
The money, which made up a quarter of Wirecard’s balance sheet, was intended to be held in trust accounts at two banks in the Philippines.
But the Philippines’ central bank has said the money never made it into the monetary system and both Asian banks, BDO and BPI, denied having any relationship with Wirecard.
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Wirecard’s share price plummeted and filed for bankruptcy soon after, leaving a debt of 3 billion euros ($3.1 billion) that creditors are unlikely to get back.
The company’s demise sent shock waves through Germany and prompted a review of financial watchdog Bafin, which was heavily criticized for ignoring early warnings about Wirecard.
Many people “just wouldn’t believe there were fraudsters at work” at a company long hailed as a German champion, said Volker Bruehl, a professor at the Center for Financial Studies in Frankfurt.
“The Wirecard scandal has damaged Germany’s reputation as a financial center.”