Greater events often have mundane beginnings. In the summer of 2014, Dan McCrum, aspiring journalist at the Financial Times (FT), met Australian hedge fund manager John Hempton. He asked, “Are you interested in some German gangsters?” McCrum had. He has now written down what happened afterwards in his book “House of Wirecard”.
The Brit researched for seven years, then Wirecard’s house collapsed. The balance sheet fraud, initially apparently of relatively small scale, had taken on a dimension over the years that could only end in bankruptcy if it were to come to light. “How I uncovered Germany’s biggest economic fraud and brought down a Dax group” – this is the self-confident subtitle of the book, which is by no means bragging. McCrum was not alone, he had helpers, good informants, whistleblowers, all of whom appear in his book. The more he wrote about Wirecard, the more he learned.
If McCrum and the “Financial Times” hadn’t been so persistent, they would have been dissuaded from their suspicions early on, if the attempts to prevent the frauds from being uncovered would have been successful – who knows what would have become of Wirecard. After all, the management had managed to find support even in the federal government. However, the German authorities did not initially investigate the German gangsters (the two presumably biggest ones are Austrians), but rather McCrum and his colleague Stefania Palma. The Wirecard affair is something of a David and Goliath thing. McCrum tells them in an exciting way.
Even the beginnings of the company were disastrous. The early advancement in the payment processing industry was mainly achieved through transactions in the “high-risk area”, i.e. gambling and pornography. Wirecard was never a real technology company. They were particularly inventive when it came to constructing complex business relationships for the purpose of concealing financial flows. Last but not least, deputy boss Jan Marsalek (according to McCrum, he moved “seamlessly between investors, oligarchs and spies”) lived out his talent. This is one of the reasons why it was possible to sell a crazy growth story – which was largely based on invented sales, most recently in the billions.
McCrum quotes stock market pro Leo Perry, with whom he worked: “When you fake trading, you end up with a fake money problem. At the end of the year, the auditor expects to find a balanced bank balance – that’s the first thing he checks. So what you have to do is spend the fictitious money on fictitious assets.” Wirecard did this primarily in Asia. The auditors did not check whether the companies bought actually existed or were worth the purchase price.
An alleged partner company resided in the private house of a fisherman, another shared the address with a small bus company. McCrum and Palma spotted such oddities because they flew to see them. One of the most beautiful passages in the book is the description of how Wirecard managers tried to lead even those auditors who ultimately traveled to Asia behind the spruce. However, Wirecard did not only deceive with opaque company acquisitions to feign sales.
The company also used third-party business deals to spoof commission payments posted to alleged escrow accounts somewhere in Asia – fake money that bloated the balance sheet. The ever-growing wheel that Marsalek was turning was largely based on cash flows from just three firms in Dubai, Singapore and Manila. The majority of the alleged group profit was due to it.
“House of Wirecard” gives a pretty good insight into investigative financial journalism. Anyone who frolics there shouldn’t be too pious and too moral – and be prepared for it to get uncomfortable. “If you want to research this, be careful,” Hempton told him in 2014. In the course of his research, McCrum actually felt uneasy more often because he felt he was being watched, spied on, followed. A good in-house lawyer is also an advantage.
Close cooperation with short sellers is part of this investigative business. This species is not always transparent and clean. But the people who bet on falling company prices in order to make high profits are not just driving prices down with rumors and more or less credible analyzes alone. In order to be truly successful, they must also have solid facts or at least firm opinions backed by research. McCrum used that intensively.
His boss Paul Murphy also had a useful and dubious “pool of sources” in the London half-world and underworld, which the Wirecard people used against the FT because they wanted to portray the journalists as corrupt. Crucially, however, McCrum and Palma came across a whistleblower named Pav Gill, General Counsel for Wirecard in Asia, who provided the crucial clues and documents. Working painstakingly in detail, McCrum – at times working in a protected area in the FT editorial office – evaluated the material. As always in life, so here: Uncovering the Wirecard scandal was a mixture of luck and hard work.
One reads little about the responsibility of German authorities and politicians, and if one does, then the astonishment of the British at the somewhat different situation in Germany cannot be overlooked. His impression of the Wirecard investigative committee of the Bundestag, which listened to him: “excessive and unstructured”. The Federal Ministry of Finance, headed by Olaf Scholz in the crucial phase between 2018 and 2020, is rarely mentioned.
However, McCrum mentions one of the wilder events in this story: “Project Panther”, Wirecard’s takeover of Deutsche Bank. In fact, in 2019, Braun and Marsalek had the idea of grabbing the largest German bank. “With a deal of this magnitude, problems with Wirecard’s balance sheet would disappear into the catacombs of Deutsche Bank and never see the light of day again,” writes McCrum. It would have been the “biggest bank robbery in history”.
The consulting firm McKinsey also wrote a feasibility study. According to McCrum, Marsalek’s PR consultant – he is only called “Mr. Samt” in the book – contacted the Swiss bank UBS, which was supposed to support the deal. In Berlin, the then CDU boss Annegret Kramp-Karrenbauer (the potential Merkel successor) was followed up on – and State Secretary for Finance Jörg Kukies, the former Goldman Sachs manager, who has now moved into the Chancellery with Scholz.
At Wirecard, both would probably support the project. In a footnote, McCrum adds that Kukies said he had not been approached and had not agreed to a takeover. Shortly before, the Ministry of Finance’s attempt to persuade Deutsche Bank and Commerzbank to merge had failed. At that time, the Scholz department wanted to create a “national champion” in the financial sector. There were also two management-level discussions between Deutsche Bank and Wirecard at the time.
So there was something going on in 2019 that would not happen without government approval or involvement. What influence this had on the perception of Wirecard in political Berlin can only be speculated on. The uncovering of the accounting fraud definitely put an end to whatever had been contemplated, hoped for, prepared for, or impeded.
McCrum mentions in the introduction that Olaf Scholz thanked him for his commitment. In his laudatory speech at the presentation of the German Reporter Prize in December 2020, Scholz said that McCrum had rendered “great services to the rule of law, our community and – and I want to say this very clearly here – also to Germany as a financial location”. The Promised One has now prepared this on 450 pages.