How did wirecard, which faked $2.1 billion, try to defraud the Hong Kong Monetary Authority?

According tomedia reports, a preliminary investigation report by a top law firm shows that Wirecard’s business in Asia is suspected of fraud. A year ago, in Singapore, Edo Kurniawan summoned six colleagues to a conference room. Cunhawan, 33, manages accounting and finance in the Asia-Pacific region for Wirecard, a global payments company. In that conference room, Cunhawan picked up the whiteboard pen and began teaching his colleagues how to make false accounts.

How did wirecard, which faked $2.1 billion, try to defraud the Hong Kong Monetary Authority?

Mr. Cunhavan’s company, Wirecard, will soon become one of Germany’s most valuable financial institutions, but he says the task now is to fabricate data to persuade the Hong Kong Monetary Authority regulator to issue licences so that Wirecard can issue prepaid cards in China.

Wirecard also plans to acquire Citigroup’s payment business, which covers more than 20,000 retailers in 11 countries, from India to New Zealand. Obtaining regulatory permission in each region is so critical to obtaining the business that it is important to fabricate data for applying for a regulatory permit in Hong Kong.

Mr Cunhawan then came up with a way to “reverse arbitrage”: a sum from a bank owned by Wirecard in Germany, then on the balance sheet of a suspended subsidiary in Hong Kong, then transferred to an external “client” account, and then back to Wirecard’s company in India, so that local auditors would think it was a legitimate operating income.

At first glance, Cunhawan’s plot is more like the behaviour of unruly employees of a little-known financial group branch in a remote area. But a preliminary investigation by Asia’s top law firms suggests that Mr. Cunhawan’s actions are just the tip of the iceberg of Wirecard’s years of fraudulent accounting in its Asian operations. Documents learned by the media show that two executives at the company’s Munich headquarters were aware of the “back arbitrage” scheme. They are Thors Holten and Von Von Erffa, the company’s treasurer and accounting director, respectively.

The revelations cast doubt on the financial data of Europe’s rarely successful technology company. Wirecard, a German fintech group, has grown into a global payment company worth more than 20 billion euros. Wirecard’s value exceeded That of Deutsche Bank or Commerzbank before the investigation was revealed bymedia last week. Wirecard is also a favorite of retail investors, and the company’s rapid expansion in the Asian market has convinced investors that Wirecard can challenge the dominance of the world’s largest banks in a $1.4 trillion payment market.

Markus Braun has been managing the company since he helped recapitalise it in 2002. In digital currencies, Wirecard is top-notch. The company’s success has made Braun, 49, a billionaire.

In response to the preliminary investigation, Wirecard initially said it had found no significant compliance issues. This week, the company added that while the investigation was ongoing, no criminal acts were found and that it was wrong to draw similar conclusions from preliminary investigations.

Prior to that, the company’s accounting practices had been questioned in 2008, 2015 and 2016. Each time, Wirecard has been accused of manipulating the market, each time leading to an investigation by German market regulators into the company.

This time, the question about the company’s Asian operations originated within the company and was raised by a whistleblower. On March 26, the whistleblower reported to Wirecard’s senior legal counsel in the Asia-Pacific region that two senior treasurers, James Wardhana and Irene Chai, were suspected of being involved in fraudulent accounting. Another whistleblower raised the same issue in February, after which he submitted a questionable contract to the compliance team on April 3 to encrypt messaging app Telegram.

Daniel Steinhoff, The Compliance Director at Wirecard Munich, flew to Singapore himself. On April 13, he ordered the “mirror” of the men’s e-mails to be archived and copies of them were seized.

Compliance officers who believe the whistleblower’s account is credible quickly find more evidence in the document and launch an investigation codenamed Project Tiger. They brought in Rajah and Tann, a Law Firm in Singapore, and sent an investigative team of former prosecutors.

On 4 May, Rajah and Tann filed a preliminary investigation report, which was full of 30 pages of heavy allegations: clear evidence of “forgery and/or alteration of accounts” and a reasonable suspicion of “fraud, breach of trust, corruption and/or money laundering” in multiple jurisdictions.

The Singapore trio, led by Cunhavan, are suspected of falsifying invoices and agreements to concoct documentrecords and hand them over to Ernst and Young’s auditors for review, as if money were flowing into and out of Wirecard for legitimate reasons.

Cunhawan’s finance team oversees data compiled by Wirecard’s other subsidiaries in the region and then hands the aggregated data to headquarters. But the bookkeeper is also responsible for summarizing contracts and approving technical projects.

The preliminary investigation found that not only could the alleged emails sent to Wirecard by customers and suppliers be found, but Wirecard’s lawyers, sales staff and technicians did not appear to be involved in the transaction.

Last March, for example, Mr. Wadhana sat in front of his computer and sent himself an electronic copy of the Flexi Flex logo. Flexi Flex is a hydraulics and plumbing company with offices in Singapore and Malaysia. According to the documents learned, the electronic copy appeared on the invoice he showed to a colleague for payment. These documents, including vague software product supply and procurement contracts signed by Cuniavan, are used to create the illusion that Flexi Flex and Wirecard have substantial business dealings.

In an e-mail dated April 9, 2018, Wadhana drafted a response to the German EY inquiry in order to close the year’s audit. He described Flexi Flex as a “new customer acquired in 2017” who had brought in 4 million euros for Wirecard.

Since then, Wirecard has confirmed that the company does not have an actual business partnership with Flexi Flex. Mr. Wadhana’s e-mail also attributed Hong Kong’s revenue of 3 million euros to Right Momentum Consulting, another third-party business partner. But the company’s address in Kuala Lumpur, as given in the document, is not found.

“We can draw reliable and strong evidence from documentary evidence that there were at least some accounting irregularities in the forged agreements,” Rajah and Tann said in a preliminary report. In the best case, the purpose behind these deliberate actions may be to generate false income, not to divert funds. “

Preliminary reports and certain e-mails learned showthat that, while each transaction was insignificant compared to Wirecard’s revenue, the suspicious transactions appeared to be aimed at closing the loopholes with false and post-additional sales agreements at the end of the fiscal year to help Wirecard’s entities meet their expected profit targets.

On Wednesday, Wirecard told reporters that another independent internal investigation into the company’s accounting system, following The initial report by Rajah and Tann, confirmed that the allegations were unsubstantiated and that there were no irregularities. Despite these negative findings, the external Rajah and Tann survey ,which lasted more than 8 months) also reflected the company’s commitment to good governance.

Since 2012, the company has raised 500 million euros from shareholders and used the money for a range of unheard-of payment companies. Failure to meet profit targets could raise doubts about Wirecard’s rapid expansion in Asia over the past decade.

A preliminary investigation by Rajah and Tann into documentary evidence and whistleblower testimony determined that accounting reports submitted to German headquarters by subsidiaries in the Philippines, New Zealand, Hong Kong, Indonesia, Malaysia and India may have been accounting irregularities.

The investigation also revealed another potentially significant problem. Like Germany, Singapore and Hong Kong have strict reporting requirements in place to combat money laundering. Suspicious transactions found in the Project Tiger project should have been brought to the attention of the relevant authorities within a reasonable time.

As the owner of the bank and a member of Visa and MasterCard payment networks, Wirecard is responsible for submitting such reports. The company distributes hundreds of millions of euros a day in debit and credit cards. When the government wants to limit the ability of criminals and terrorists to transfer money, Wirecard is the gatekeeper responsible for helping the police monitor cash flows. Wirecard said this week that it has been complying with applicable regulations.

However, when evidence of an unusual department falsifying documents, concocting cash flows and transferring real cash to fictitious suppliers in a fast-growing Asian branch is in front of us, the munich executive’s response is amusing.

Wirecard’s four top executives received a briefing dated May 7, 2018. After the meeting, the company’s chief financial officer, Alexander von Knoop, thanked the authors in an email: “Thank you for your efforts to clarify the situation and prevent damage to the assets and reputations of the Wirecard Group. “

The email also announced the appointment of Jan Masalik, the company’s chief operating officer, to coordinate the investigation “to put the necessary pressure on the investigation,” von Knop said.

The 38-year-old Isalik, an Austrian with flat hair, a tailored suit and rare gold credit card, is respected within the company. He is also a member of the Management Committee responsible for the Asia Pacific region.

Wirecard’s lawyers in Singapore cautioned that Masarik’s new role could create a “conflict of interest.” They claim that he was an important fact witness who had worked closely with Cunhawan on certain projects.

In an e-mail on May 9, Mr. Rajah and Tann said Mr. Masarik’s appointment could “trigger mandatory inquiries from regulators and law enforcement agencies”. This is a potential conflict that can be avoided, but “in the worst case, an investigation may be considered fatally flawed from the start – the result is that regulators or law enforcement agencies may suddenly step in and conduct a full investigation in person.” “

One of the elements under investigation is the relationship between Wirecard Singapore and third-party company Matrimonial Global. According to Rajah and Tann, Wirecard Singapore’s sales agreement with a third-party company has expired. An email sent by Von Erfa on November 8, 2017, to Masanik, indicates that Masalik was aware of the expired agreement. “Masaryk will support us in terms of contract and communication,” the email read. “

Irene Chai also seems to be linked to Matrimonial Global. On January 9 last year, she wrote an email to colleagues saying: “If you don’t get it wrong, this agreement seems to have something to do with Wirecard Dubai, and I guess this company should belong to Masarik.” “

Colleagues replied: “Yes, it was the extra ‘revenue’ in the last quarter.” “

Wirecard said Masarik does not own Matrimonial Global and was not involved in the investigation.

However, the coo ingon did work closely with Cunhawan for many years. On the eve of the end of 2015, for example, Aprisma, a subsidiary of Wirecard in Indonesia, needed 3.3 million euros in revenue to meet its profit target for the year. Masaryk and Cunhawan then discussed the matter. According to the emails, Aprisma finally met its profit target for the current year, thanks to “additional projects for Masarik.” The preliminary investigation report indicates that the additional sales agreement is false.

The documents also show that a year later, Cunhawan and Masarik worked together to answer questions from Ernst and Young auditors during the audit.

In 2015, Wirecard agreed to buy a series of companies in India for 325 million euros, the largest acquisition in Wirecard’s history. Prior to the deal,media had published a series of feature stories about apparent inconsistencies in Wirecard’s accounting and what appeared to be a widening loophole in the company’s balance sheet. India’s deal has also attracted the attention of cautious analysts and investors. They said the size of the company’s so-called business was hard to verify. Inside Wirecard, EY arranged for a team to conduct a closer look at it at the end of 2016.

In April 2017, Cunhawan told him that he couldn’t sleep all night because of Wirecard’s main business in India, Hermes. Hermes’ chief financial officer, who took over just a few months ago, submitted a disclaimer to Hermes’ board, saying he was “not liable in any way” for most of the documents related to the 2016 audit because he had just taken office. In the end, EY approved the income reported by Wirecard.

The unreserved audit in early 2017 served to reassure investors. Wirecard’s shares quadrupled as global enthusiasm for fintech companies surged.

However, some of the documentary evidence obtained by Rajah and Tann raises new questions about the scope of the accounting breach and the authority granted to the Singapore bookkeeper.

In fact, the core problem remains. What does Munich’s management know about Cunhavan’s behavior? And, how much should you know?

Emails dated February 15, 2018 showed that at least some people at the German headquarters were aware of the “backarbitrage” scheme that Cunhavan described on a whiteboard a few weeks ago. “I need to understand the full flow of funds,” Holten wrote, according to the documents. “Every expenditure authorized by headquarters requires Holten’s signature.

Thirteen minutes later, Cunhavan responded, describing plans to transfer 2 million euros from Wirecard Hong Kong and an outside entity to India. “Is this explanation clear?” He wrote.

“Well, thank you,” Holten replied. Holten then copied the email to Von Elfa. The authorization of capital expenditure also requires the signature of von Earl’s Law.

Last week, when the media revealed the investigation, Cunhawan was still the head of the company’s international finance, and his alleged accomplices were still in office. On Wednesday, Wirecard said some personnel had been temporarily redeployed pending the outcome of the investigation. Any disciplinary action will depend on the outcome of the investigation.

Wirecard also said that since The initial investigation by Rajah and Tann, the company has received significant new developments and new information.

One whistleblower later said, “If a payment company can do this, how do you trust the entire financial system?” “(Muhr)