On the Wirecard Scandal [Part 1]
[Part 1] summarizes the biggest financial scandal today. [Part 2] will be about why this event is bad for crypto's optics in the Philippines.
The biggest financial news in the world right now involves the Philippines, albeit in a bad way. If you remember the Bangladesh Bank Heist, where money stolen from a bank in Bangladesh ended up in the country through a bank in RCBC. This one has all the makings of a possible Netflix movie. It’s not yet finished. The end credits could not roll because all the actors are not yet revealed.
And I think it will be bad for cryptocurrency’s “optics” in the country.
(You are reading a newsletter with a tentative title, written by Mike who writes about Bitcoin, Crypto, and Blockchain on BitPinas.com. If this your first time receiving this email, or if you have already unsubscribed but magically got included (sorry), please check the About page for more information and steps. Also, please feel free to share this article)
Wirecard
Wirecard is a German payment processor and financial services company, dubbed “Europe’s largest fintech.” By 2018, shares of Wirecard peak at €191 which effectively valued the company at $26 billion.
Financial Times Investigation
From 2018 - 2019, the Financial Times published a series of investigative reports, among them a revelation that a company that’s doing business with Wirecard is using the address of a retired seaman’s home in Cabanatuan City, Philippines to conduct financial business. Other addresses of Wirecard’s partners are listed in the country. The link, according to the Financial Times, is that the names of these companies with dubious addresses “are sitting in the books of Wirecard’s accounts” department in Singapore. Wirecard sued the publication.
March 2020
Numerous fraud allegations followed and Wirecard finally appointed auditing firm KPMG for third party audit of the company, to clear its name. Ernst & Young (EY) also audited the company but in March 2020, both auditing firms postponed the release of their reports.
EY received documents claiming the Wirecard’s money worth €1.9 billion were in two Philippine banks.
April 2020
On April 28, KPMG published the report, claiming it could not verify Wirecard’s third party profits. On June 5, German police began investigating Wirecard’s CEO Markus Braun and other board members.
June 2020
BPI and BDO
On June 16, EY was informed by the two Philippine banks - BPI and BDO that they do not have in their records the €1.9 billion. Two days later, Wirecard officially disclosed that this money is missing. (Days later, the company claimed the money may not have even existed in the first place.) CEO Braun soon resigned and was arrested a few days later.
COO in the Philippines?
Jan Marsalek, the COO, is suspended. A separate report suggested he may be in the Philippines.
Latest Reports
Officials from the Bangko Sentral ng Pilipinas (BSP) advised both BDO and BPI to initiate legal investigation and action, particularly since according to the two banks, at least two of their junior officers were involved in forging fake documents to make it appear that the money is in the Philippines. A BSP official told Mr. Dax Lucas of Inquirer that they believe the money never entered the Philippines and that “the perpetrators used” the names of BDO and BPI “to cover their tracks.”
Currently, the Bureau of Immigration is looking into Mr. Marsalek’s travel history and if he’s really still here in the Philippines. A Filipino attorney also got his name involved for allegedly becoming a ‘Wirecard Trustee’ claimed he was framed up.
The story is not finished. The latest is that Wirecard claimed the money did not really exist.
The scandal could become the biggest financial fraud of the decade, granted the decade just started. Many remembered the Bangladeshi Bank Heist in 2016, wherein portions of the money worth $81 million reached the Philippines through RCBC Bank, to which journalist Likha Cuevas openly wondered on Twitter why it’s always the Philippines where financial criminals would transfer their money.
In [Part 2] of this topic, I will try to answer why such a financial scandal is bad, for optics, particularly for fintech and cryptocurrency not just in the Philippines but everywhere. The gist of the next part, if I can sum it up now, is that assuming everything is true, if financial criminals could do this even under the supposed watchful eye of central banks, monetary authorities, and global financial regulators, why would these regulators not impose the strictest possible measure for cryptocurrencies, whose transactions are mostly out of their purview?
Thanks for reading today.
Please let me know what you think of today’s topic and any suggestions to improve the newsletter.
On the Wirecard Scandal [Part 1]
Great article Mike, as usual. Looking forward to the follow-up article:
"The gist of the next part, if I can sum it up now, is that assuming everything is true, if financial criminals could do this even under the supposed watchful eye of central banks, monetary authorities, and global financial regulators, why would these regulators not impose the strictest possible measure for cryptocurrencies, whose transactions are mostly out of their purview?"
It is my strong opinion that, in fact, the reason cryptocurrencies are superior is because fiat currencies require a third party (a bank) to do transactions while cryptocurrencies do not. With cryptocurrencies, the ledgers are open (although there are options that allow for privacy) and easy to verify; with banks, you need the bank (which means a person in the bank) to confirm amounts in your account. In other words, in cryptocurrencies we trust the blockchain (which is immutable, meaning once a transaction is confirmed it cannot be modified); whereas with fiat we have to trust a bank.
I am not saying that banks cannot be trusted, all I am saying is that there is a big difference between trusting everybody who work in the bank, and trusting an algorithm. I would rather trust an algorithm than anybody who works for a bank, who I do not even know.
This story about Wirecard I think perfectly illustrates the problem with fiat money. Wirecard claimed they had $2B (which now we know is not true). Ernst and Young couldn't verify the existence of that money, and neither could KPMG. If this were a cryptocurrency matter, we wouldn't need EY nor KPMG to confirm - all we had to do is inspect the blockchain (and each blockchain has a website where this is very easy to do). Then all that Wirecard had to do (if they were a cryptocurrency business), would be to prove that they own that address (account) in which that large amount is deposited. This is also very easy to do and there are several ways to do it (from signing of a digital document to sending a small amount to a given address).