As Wirecard’s CEO, Markus Braun cultivated the image of a fintech guru. Following the Silicon Valley example, he always wore a black turtleneck with a jacket and rimless glasses. From the Wirecard parking garage, where Braun’s driver parked his black Maybach, he took an elevator that ascended directly to his floor, inaccessible to anyone but a handful of close associates. The language of the Austrian also had something elusive: in public appearances, view online, he strung together so many buzzwords that his audience couldn’t help but nod intimidated. Reportedly, the PhD economist only drank mint tea.
The lawsuit against ‘Herr Doktor Braun’ has been running since December for the largest fraud case in modern German history. The German Wirecard, based in Aschheim near Munich, started around the turn of the millennium as a payment service on gambling and porn sites. Later, the company left those grubby corners of the internet to become a serious online bank, at least on the surface. Or, like the English author John Lanchester summed it upthe Wirecard business model transformed from “wanking to banking”.
American witness
As a modern fintech company, Wirecard in Germany, where the economy still relies mainly on hardware, became a darling of investors and proud politicians. The growth seemed unstoppable; since 2018, Wirecard has been one of the top thirty companies on the German stock exchange with a turnover of more than 2 billion. Until June 2020, it turned out that 1.9 billion euros, which would be in a third-party account in the Philippines, had never existed. The profits that Wirecard boasted turned out to be largely fictitious, as did the affiliated payment service providers in Asia that would generate those profits.
Markus Braun, Wirecard CEO from 2002 to 2020, is now on trial in the highly secured court in Munich for organized fraud, forgery and market manipulation. He can be sentenced to 15 years in prison. Also indicted are Stephan von Erffa, former chief accounting officer, and manager Oliver Bellenhaus.
Braun and Von Erffa claim to have been unaware of the fraud. Braun insists that Wirecard was a great company with great people, which unfortunately was looted by CEO Jan Marsalek, who is a fugitive. Defendant Oliver Bellenhaus is also a star witness: at his place of employment in Dubai he forged papers on behalf of Marsalek, and according to Bellenhaus also on behalf of Braun and Von Erffa.
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This week, a witness spoke who also finds Braun’s version – that he knew nothing about the billion-dollar scam – rather implausible. James Freis became CEO of Wirecard in the days when the company imploded and after Markus Braun stepped down. “For a CEO who has been with the company for two decades, who has experienced and helped shape its enormous growth, it is extremely unlikely that he would not know each of the industries in detail,” says the American, in German with an American accent. “And if you had studied those industries, you could immediately see that something was not right. Things were obvious. I saw it within half an hour.”
At the testimony of Freis, Markus Braun, still in that black turtleneck, leans far back in his chair. With his chin raised and his fingertips together, he looks through his glasses as if he smells something bad.
Freis, who was previously responsible for tracing white-collar criminals at the US Treasury Department, was approached by the Supervisory Board in early 2020 to join the board. After pieces in especially the Financial Times that the figures at Wirecard would not be correct, the Board of Directors had to be professionalised.
Amateurism
Freis’s testimony provides insight into the final days before the company’s final demise – and how amateurish the fraud was in part. He outlines how in those hours, on June 18, 2020, there was a diligent search for the money – 1.9 billion euros – that would be in two banks in the Philippines. “Doktor Braun assured us that the money was there. There was talk of some of us from the Board of Directors flying to the Philippines to check with the banks,” says Freis. “But due to Covid-19 there was a travel ban.”
A few hours later, Freis concluded that a trip to the Philippines was unnecessary. From the documents he went through, he says, it was immediately clear that the Wirecard story was wrong. In court, a number of papers are shown on a large screen during Freis’s testimony.
“Anyone who understands international finance knows that accounts with such amounts in euros are totally unlikely in the Philippines – not an international financial center,” said Freis. “Moreover, no sensible company would put that much cash in two banks.”
Wirecard tried to prove the existence of the money with simple bank statements. Those bank statements, according to Freis, were full of inconsistencies. The judge shows one of the papers. An amount of EUR 400,500,000 was transferred via „mobile transactions”. “Mobile transactions?” says Freis. “That’s the kind of transaction you do after dinner to pay part of the bill back to your friend. Not to transfer hundreds of millions of dollars” – like a little bit for half a billion.
Extremely strange
In addition, says Freis, it is extremely strange that such a round amount is transferred. “No transfer fees, no interest – unimaginable.” In a corner, Freis points out, are the costs for a savings account at the Philippine bank: the equivalent of 6 euros. “It appears that this is a statement from an ordinary bank customer, into which the amount of millions has been inserted,” he concludes.
Freis trained as a jurist and lawyer. He calmly and precisely answers the questions from the judge and the defendants’ lawyers about the precise events surrounding June 18, 2020 and Freis’s role. But he gets worked up about the transparency of the deception, and how it could go on for years. “You could see right away that something was wrong. That it could take so long for anyone to see anything! Don’t they know what a bank statement looks like at KPMG?”
KPMG’s accountants, following Wirecard’s house accountant Ernst & Young, conducted a second audit, after more and more journalists and short sellers began to doubt Wirecard’s revenue model. “At E&Y they had no idea,” says Freis. “They were not sure whether the 2018 annual report was correct.”
“The deception,” says Freis, “is patient for months by KMPG. There’s no way they didn’t see it. Wirecard paid KMPG 500,000 euros per week. They tolerated it and made a lot of money.”
Freis’ accusation touches the heart of the Wirecard case: despite critical messages, especially in the Financial Times, who already published in 2015 about Wirecard’s obscure revenue model, everyone in Germany continued to believe in the company. The financial watchdog BaFin did not look critically at Wirecard, even accusing the FT of market manipulation. The German business newspaper Handelsblatt initially defended the same narrative. Politicians were prominently photographed with Braun. Accountants looked looked away.
“What I will never understand,” sighs the American, “is that no one stepped down. Not internally or externally. Not a Wirecard director over the years, not a consultant, not an accountant, not one from the big firms, not one from the BaFin.” The chiefs of the BaFin were replaced a year later, in 2021, by then Finance Minister Olaf Scholz (SPD).
The verdict on Markus Braun and his two Wirecard colleagues is expected in a year. The question of why Wirecard was able to continue for so long will occupy Germany for a few more years.