Security & Fraud

BaFin Downplayed Wirecard Complaints, Report Says

German market watchdog Federal Financial Supervisory Authority, or BaFin, has come under fire for its actions in the Wirecard scandal, as the regulator reportedly failed to investigate warnings about the payments firm and instead cast more scrutiny on accusers, The Wall Street Journal (WSJ) reported.

The people warning BaFin about Wirecard's potential fraud and money laundering activity included investors, U.S. authorities, journalists and others in the know about the company, according to WSJ.

But BaFin didn't take any action on those warnings, instead playing them down for years. The regulator handed the ball to other authorities, and in some cases, put off investigating the company's accounts, according to new documents seen by WSJ. BaFin saw former Wirecard CEO Markus Braun as more trustworthy than his critics because of his large amount of shares in the company at an important moment.

Instead, BaFin had a tendency to probe the accusers against Wirecard, WSJ reported. A lawsuit in 2008 by a small shareholders' association alleged that Wirecard was using customer deposits as its own cash, resulting in "suspiciously high" margins and suggested the company was involved in things like online pornography and gambling.

BaFin didn't look into the allegations, and instead opened a probe into the ones who filed the suit. Several members of the small shareholders' association were charged, convicted of market manipulation due to Wirecard stock slumps, and given suspended prison sentences, WSJ wrote.

In another instance, two short sellers accused Wirecard in 2016 of participating in money laundering and fraud. BaFin's response was to send a 45-page report accusing numerous short sellers of market manipulation.

BaFin President Felix Hufeld said the regulator had no direct power over Wirecard, but German legal prosecutors said there were plenty of options.

“BaFin can confiscate documents, they can demand communication data such as emails and telephone calls, they can subpoena and interrogate people and appoint external auditors to assist them,” Lars Klöhn, professor of civil and business law at the Humboldt University in Berlin, said, according to WSJ.

The European Union's financial watchdog, the European Securities and Markets Authority (ESMA) will be looking into the conduct of BaFin, with a report expected to come by late October.



The September 2020 Leveraging The Digital Banking Shift Study, PYMNTS examines consumers’ growing use of online and mobile tools to open and manage accounts as well as the factors that are paramount in building and maintaining trust in the current economic environment. The report is based on a survey of nearly 2,200 account-holding U.S. consumers.