The 2020 Wirecard Accounting Scandal and the Missing €1.9 Billion

On June 18, 2020, Wirecard AG—the Munich-based digital payments processor hailed as the crown jewel of German financial technology and a constituent of the blue-chip DAX 30 index—announced that its longtime auditor, Ernst & Young (EY), had refused to sign off on its 2019 financial statements after failing to verify €1.9 billion ($2.1 billion) in cash balances. Reported as representing roughly one-quarter of the company’s entire consolidated balance sheet, the €1.9 billion was supposedly held in trust escrow accounts at two major banks in the Philippines to cover risk guarantees for Asian third-party payment operations. Within four days, both Philippine banks and the Bangko Sentral ng Pilipinas confirmed that the escrow documents were forged, forcing Wirecard’s management board to admit on June 22, 2020, that there was a ”prevailing likelihood” the €1.9 billion did not exist. By June 25, Chief Executive Markus Braun had been arrested and Wirecard had become the first reigning DAX 30 corporation in history to file for insolvency. ^[1]

From Subprime Payment Processor to DAX 30 Darling#

Founded in 1999 in Aschheim, a suburb of Munich, Wirecard survived the dot-com bust after Austrian-born former KPMG consultant Markus Braun took over as chief executive in 2002 and merged the business with Munich rival Electronic Business Systems. Initially focused on processing online credit-card payments for higher-risk digital merchants such as online gambling and adult entertainment websites that traditional German banks shunned, Wirecard expanded rapidly by combining merchant acquiring—verifying and settling card payments for sellers—with a licensed banking subsidiary, Wirecard Bank AG, acquired in 2006. ^[2]

During the 2010s, under Braun and Vienna-born Chief Operating Officer Jan Marsalek, Wirecard embarked on a sweeping debt- and equity-fueled acquisition spree across the Middle East and Asia-Pacific, purchasing dozens of regional payment processors in Singapore, Dubai, India, and Southeast Asia. Presenting itself to investors as a high-margin global fintech platform growing at more than 25 percent annually, Wirecard saw its market capitalization soar to a peak of €24.6 billion in September 2018—eclipsing Germany’s 150-year-old Commerzbank and earning Wirecard promotion into the prestigious 30-member DAX index. ^[3]

Third-Party Acquirers and the Financial Times Investigations#

Behind the company’s reported profitability lay an opaque structural mechanism known as the ”third-party acquirer” (TPA) model. Wirecard claimed that in jurisdictions across Asia and the Middle East where it lacked local payment-processing licenses, it outsourced merchant acquiring to three major external partner companies based in Dubai, Singapore, and the Philippines—specifically Al Alam Solutions, Senjo Group, and PayEasy Solutions. According to Wirecard’s filings, these third-party acquirers processed billions of euros in card transactions on Wirecard’s behalf, remitted commissions to Wirecard, and parked €1.9 billion in cash collateral inside trustee-managed escrow accounts to guarantee against customer chargebacks and fraud. ^[4]

As early as 2008 and 2015, short-sellers and investigative journalists—led by Dan McCrum at the Financial Times in his ”House of Wirecard” series—questioned why an advanced technology company relied on obscure overseas partners for roughly half of its reported global revenue and the vast majority of its operating profits. In early 2019, drawing on internal documents provided by a whistleblower in Wirecard’s Singapore Asia-Pacific headquarters, the Financial Times reported that executives had engaged in ”round-tripping” schemes and backdated forged software and payment-processing contracts across Asian subsidiaries to fabricate revenue and meet audit targets. Later in October 2019, further reporting revealed that internal worksheets sent to auditor EY indicated that the customer rosters and profits attributed to Dubai-based Al Alam and other third-party acquirers were largely fictitious. ^[5]

BaFin’s 2019 Short-Selling Ban and Regulatory Capture#

Rather than investigating the substance of the accounting allegations at Wirecard’s Munich headquarters, Germany’s Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, or BaFin) treated Germany’s flagship fintech company as the victim of a coordinated Anglo-American speculative attack. Because Wirecard AG was classified at the holding-company level as a technology enterprise rather than a financial institution, BaFin asserted that its direct prudential supervision extended only to the smaller subsidiary Wirecard Bank AG, leaving accounting enforcement split awkwardly with Germany’s quasi-private Financial Reporting Enforcement Panel (FREP).

On February 18, 2019, following sharp declines in Wirecard’s share price triggered by the Singapore whistleblower reports, BaFin took the unprecedented step—deployed for the first time in German history to protect a single company—of imposing a two-month ban on establishing or increasing net short positions in Wirecard shares. Simultaneously, BaFin filed a criminal complaint with Munich prosecutors accusing two Financial Times journalists and several short-sellers of illegal market manipulation and insider trading. Shielded by the regulator’s public endorsement, Wirecard dismissed the allegations as defamation until autumn 2019, when institutional investor pressure forced its supervisory board to commission auditing firm KPMG to conduct a special independent forensic audit of the third-party business. ^[6]

The KPMG Forensic Report and the Missing €1.9 Billion#

Published on April 28, 2020, KPMG’s special audit report delivered a devastating verdict: KPMG stated that it could neither verify that the vast majority of Wirecard’s reported profits from 2016 to 2018 via third-party acquirers were genuine, nor obtain original bank records confirming the existence of the €1 billion-plus in escrow cash purportedly managed by a Singapore- and Manila-based trustee. Prompted by KPMG’s findings, statutory auditor EY—which had issued unqualified audit opinions on Wirecard’s accounts for a decade while relying on third-party trustee letters rather than requesting direct confirmation from the banks holding the cash—finally demanded official digital bank confirmations from the two Philippine lenders where the €1.9 billion had supposedly been transferred in late 2019: BDO Unibank and the Bank of the Philippine Islands (BPI). ^[7]

In mid-June 2020, BDO Unibank and BPI informed EY that Wirecard was not their client, that the €1.9 billion had never entered the Philippine financial system, and that the bank confirmation certificates provided to the auditors were ”spurious” forgeries. On June 18, 2020, Wirecard postponed its annual results for the fourth time and disclosed EY’s refusal to sign the audit, causing Wirecard shares to plunge by more than 60 percent in a single session. Chief Operating Officer Jan Marsalek was suspended on June 18 and fled Germany via Austria and Belarus to Russia before an arrest warrant could be executed, while CEO Markus Braun resigned on June 19. ^[8]

Insolvency, Criminal Prosecutions, and Institutional Reform#

On Monday, June 22, 2020, Wirecard formally withdrew its 2019 and first-quarter 2020 financial statements and acknowledged that the €1.9 billion in trust balances likely did not exist. That evening, Markus Braun surrendered to Munich police and was arrested on suspicion of balance-sheet falsification and market manipulation. Three days later, on June 25, 2020, facing impending defaults on €3.2 billion to €3.5 billion in bank loans and corporate bonds, Wirecard AG filed for insolvency at the Munich district court.

One month later, on July 22, 2020, Munich prosecutors led by senior prosecutor Anne Leiding rearrested Braun alongside former Chief Financial Officer Burkhard Ley and former head of accounting Stephan von Erffa. Prosecutors announced that internal evidence and witness testimony showed that Wirecard’s top executives had conspired since at least 2015 to fabricate third-party acquirer revenues in order to mask the reality that Wirecard’s core operations were continuously loss-making, using the fictional escrow balances to siphon off hundreds of millions of euros in genuine cash raised from lending banks and bond investors.

The collapse triggered a sweeping reckoning in German corporate governance and European financial supervision. A German Bundestag parliamentary inquiry exposed severe oversight failures at the Finance Ministry, BaFin, and Germany’s audit watchdog APAS, leading to the ouster of BaFin President Felix Hufeld and APAS chief Ralf Bose in early 2021. In response, Germany enacted the Financial Market Integrity Strengthening Act (FISG) in 2021, abolishing the two-tier FREP enforcement structure, granting BaFin direct forensic investigative powers over all listed corporations, and mandating stricter auditor rotation rules, while Braun and two co-defendants went on criminal trial in Munich in December 2022.

Theoretical & Balance-Sheet Transmission Mechanism#

In the Kindleberger–Minsky taxonomy of financial instability (Kindleberger, 1978; Minsky, 1986) and Irving Fisher’s (1933) debt-deflation framework, speculative asset booms become systemic crises when credit expansion shifts balance sheets from hedge finance (cash flows covering principal and interest) to speculative and Ponzi finance (relying on rising asset prices and short-term margin roll-overs).

Once monetary tightening or an exogenous shock halts price appreciation, forced margin liquidations trigger Fisherian debt-deflation: fire-sale asset discounts erode bank collateral values, contracting credit supply across the real economy.

Sources and Further Reading

1. Al Jazeera, “ Wirecard shares punished as fintech searches for missing $2bn,” Al Jazeera, 2020-06-18. Historical & Financial Reference
2. Kalyeena Makortoff, “ German payments firm Wirecard says missing €1.9bn may not exist,” The Guardian, 2020-06-22. Historical & Financial Reference
3. Al Jazeera, “ Germany arrests ex-CEO of Wirecard over missing $2.1bn,” Al Jazeera, 2020-06-23. Historical & Financial Reference
4. Jasper Jolly, “ Wirecard files for insolvency amid German accounting scandal,” The Guardian, 2020-06-25. Historical & Financial Reference
5. Al Jazeera, “ Wirecard’s former CEO back in custody as 2 other execs arrested,” Al Jazeera, 2020-07-22. Historical & Financial Reference
6. Robin Jakubeit, “ The Wirecard scandal and the role of BaFin: A case for unifying capital markets supervision in the European Union,” Luiss School of European Political Economy, 2021-03-22. Historical & Financial Reference
7. Irving Fisher — "The Debt-Deflation Theory of Great Depressions," Econometrica 1, no. 4 (FRASER Federal Reserve Archive, 1933): 337–357 Central Bank / Monetary Authority
8. Charles P. Kindleberger & Robert Z. Aliber — Manias, Panics, and Crashes: A History of Financial Crises (Palgrave Macmillan) Peer-Reviewed / Academic Research

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