The German mega-scandal that puts ours in the shade

How we might laugh today. We could perhaps reframe the programme into a version of competitive corruption. The Russians would declare themselves winners, even before the first whistle had been blown, valiantly followed by, say, Serbia or Bulgaria.

What of the ‘respectable’ big three? Boris Johnson is fending off allegations of sleaze on a number of fronts, par for the course for a man who has never quite grasped the knack of honesty or integrity.

French presidents, as I noted on these pages a short while back, are past masters in dodgy dealing, from brown envelopes for arms deals, African diamonds and party funding courtesy of perfume multi-millionaire heiresses.

Contemporary Germans make for the most curious cheats and hustlers. Over the decades a number of politicians have been caught taking back-handers from businessmen; VW has been caught faking emissions targets. But somehow, and probably inadvertently, the media have managed to drain the stories of drama.

Not this time. The name on the lips of the Berlin Bubble (a version of the Westminster Village) is Wirecard, a digital payments company in a country with a Neanderthal vision of the digital world. It became a darling of the Dax-30 share index, one of the first home-grown tech successes in a country that has turned risk aversion into a national sport.

When over two years ago the Financial Times began reporting on fraud and creative accounting at the Munich-based company, the response of the financial supervisory authority, BaFin (or the Bundesanstalt für Finanzdienstleistungsaufsicht, to be more precise), was to attack the journalists.

The company, as it later transpired, used proxies to spread false allegations that journalists were blackmailing it. The aim was to create a false trail, to divert attention. Bafin didn’t bother to ask questions, instantly believing the company.

In February 2019, after 10 billion euros was wiped off its stock market valuation, it then issued a temporary ban on short-selling in Wirecard. Even more outrageously BaFin filed legal complaints against two FT journalists. It believed the company to be a victim until right at the very end, even after copious allegations had been made. The initial response of much of the German media, was either to stand back or support the regulator.

Last June, it suddenly unravelled. Wirecard announced that 1.9bn euros was missing from its accounts. The money almost certainly had never existed. Days later it collapsed into insolvency, with debts of 3.5 billion euros.

Lawmakers estimate that the fallout from the company’s collapse caused more than 20 billion euros worth of damage, with many small investors losing money. Its CEO, Markus Braun, was arrested on suspicion of falsifying accounts. Its COO fled the country. He was spotted in Belarus; he is on Interpol’s wanted list, but he is assumed now to be in Russia, out of reach.

Fast forward to now. Last Friday, in a drab parliamentary conference room, a middle-aged woman was asked to give her full name, age, place of residence. Angela Dorothea Merkel, sixty-six, she replied courteously. The chancellor is the highest-ranking witness in Germany’s highest-octane corruption investigation.

The inquiry, constituted last October, has been a sensation. Just as the scandal itself has shown Germany at its worst – jobs for the boys, strict secrecy laws – so the investigation has shown Germany at its best – fastidious attention to detail, an absence of deference.

It is one of the most exhaustive ever undertaken by the Bundestag. Equipped with subpoena powers similar to the US Congress, MPs have amassed nearly a terabyte of data and 200,000 pages of documents. They have interrogated 100 witnesses and experts, some repeatedly. Quite a few of the sessions have dragged on until the early hours of the morning, with legislators refusing to accept obfuscation.

They are required to report by September, when parliament is dissolved ahead of the federal elections – the first in a generation in which Merkel will not be standing. The MPs are expected to make a series of recommendations about tightening the relationships between politicians and Deutschland AG. Blood is already on the carpet.

After months of doggedly backing Bafin’s leadership, the finance minister, Olaf Scholz – the Social Democrats’ chancellor-candidate at the election – abruptly sacked the head of the regulator, Felix Hufeld, and his deputy, Elisabeth Roegele. Other prominent figures in the accounting watchdog, banks and auditors have been forced out.

Scholz has initiated a wide-ranging reform of financial regulation, beefing up BaFin’s powers and poaching the respected head of the Swiss regulator to run it. Yet, either through complicity or more likely credulousness, Scholz has been damaged. The details of the corruption are staggering. And they keep on coming.

In December, head of the auditors’ watchdog – the supervisors of the supervisors – admitted that he actually held shares in Wirecard. Employees of his organisation, Apas, and of Bafin were doing the same, trading stock in a company they were supposed to be monitoring. He was quickly fired. Others followed.

A former top executive of Wirecard, Oliver Bellenhaus, who has turned witness for the prosecution, told authorities that he had created a series of shell companies based in Hong Kong and the British Virgin Islands.

Corporate funds were diverted out of headquarters and into these non-existent assets. Bellenhaus was arrested at his office last July on suspicion of aggravated fraud and has been in custody since. Only last week it was revealed that employees had been ordered to stuff banknotes into bin bags.

Even as the evidence mounted, Wirecard’s supervisory board did nothing. What was the role of the auditors, EY, and why did they not spot anything? Why did the regulator fail to investigate one of the country’s worst cases of corporate fraud? How could the company mount an operation on such a scale, hidden in plain sight, with a network of former police chiefs, security chiefs, even an ex-defence minister, lobbying for it within government? Shades of David Cameron x10.

These are some of the many questions the investigation is seeking to answer. Underlying the specifics of the scandal are more deep-rooted problems, such as broader weaknesses in corporate governance. Appointments to supervisory boards are part of a revolving-door circuit of business old-timers who know each other too well.

As for Merkel, embroiled in more vaccine misery, the hearing was just another frustration that she needed to get through before she depart the scene in the autumn. She has always been keen, rightly or wrongly, to push the interests of German business during her foreign trips. She did just that in September 2019, pressing Wirecard’s case nine months before its final demise. The Finance Ministry provided her office with a briefing pack before her departure. The only problem was: it had omitted all the bad bits.

As she remarked to the investigative committee during another action-packed session, there is “room for improvement when it comes to Germany as a financial centre”.

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