Commerzbank Cautioned BaFin About Wirecard Months Before Scandal

Commerzbank warned German financial watchdog BaFin about Wirecard's illicit activity early in 2020, before the payment giant's scandal of missing money came to light later in the year, the Financial Times (FT) reported.

The new revelation is more proof that fears relating to Wirecard were present and mounting well before the scandal broke last summer.

Commerzbank's warning came from findings of an internal review the bank had been doing since early 2019, FT reported, which came after FT wrote about the alleged accounting manipulations in Wirecard's Asian division. The findings of Commerzbank's investigation led the bank to distance itself from Wirecard by the end of 2019.

The revelation of Commerzbank's investigation comes as the German parliament is looking into the backing Wirecard received over the years from the country's largest banks, FT reported. The banks helped Wirecard facilitate a 2015 acquisition of two Indian payment companies that had been referred to in the fraud allegations against the group.

Commerzbank disclosed its role to BaFin last year in a detailed presentation, FT reported. In response to Commerzbank's warnings, BaFin determined there was no immediate reason to act, as it already knew of the bulk of the problems.

However, despite Commerzbank's severing of ties with Wirecard, it remained a part of a consortium of 15 banks that had provided Wirecard with 1.75 billion euros (about $2.1 billion) in a revolving credit facility. That fact led BaFin to become skeptical, asking why it had remained in that relationship even after pulling out of the business relationship, FT reported. Commerzbank said it had wanted to but was prevented from doing so due to a contract.

BaFin has come under fire for reportedly downplaying the warnings it got about Wirecard, PYMNTS reported in July. Other firms also warned the regulator about Wirecard's possible money laundering and fraud activity.

In addition, an EY whistleblower said the global accounting firm had reportedly known since 2016 that Wirecard senior managers had committed fraud and one might have tried to bribe an auditor.