Wirecard: A Giant Collapse

Summary of the Issue 

The case study provided expounds Wirecard’s fraud case, which propelled the giant  German company’s collapse after filing for insolvency at a court in Munich in 2020. Wirecard AG was a company that primarily facilitated online transactions, with a stakeholder base of more than 5000 employees, 100 airline firms as clientele, and 250,000 merchants ( The London Financial, 2020) . By 2018, Wirecard was valued at $24 billion, besides  being listed as part of the top 30 most valued organizations in Germany. Wirecard also operated the Wirecard Bank and had branches in the Philippines, Singapore, Dubai, India, Cambodia, and Vietnam, and attracted a vast number of investors and creditors in Germany and across the globe  . However, cases of internal fraud perpetrated by Wirecard’s chief executive officer, Markus Braun and his accountant employees, started erupting from as early as 2008, when the organization was first accused of accounting practices ethical violations by Ernst and Young (EY), an auditing firm hired to check its accounting practices ( The London Financial, 2020  ) . EY indicated that Wirecard’s accounting books exhibited massive irregularities, primarily evinced by its balance sheets. In 2015, the Financial Times launched an investigation into Wirecard’s finances, and claimed that the international company could not account for up to €250 million ( The London Financial, 2020) . According to the Financial Times, Wirecard inflated profits and sales to attract investors, a claim that was vehemently dismissed by Braun and a hired public relations (PR) firm in London. 

Further, in 2015, a research firm, J Capital Research, reported that Wirecard’s operations in Asia were phony and needed to be urgently reviewed ( The London Financial, 2020) .  According to the independent research organization mentioned above  , Wirecard invested heavily in Asia to acquire companies in Singapore, Laos, Cambodia, and Vietnam, yet the mentioned countries did not have any physical offices of the German investor. Further, J Capital research affirmed that Wirecard lacked proof of legitimate acquisitions of organizations in the countries mentioned above  , yet it indicated in accounting books that millions of dollars had been spent for acquisition purposes. Moreover, Wirecard was accused of having ties with gambling institutions, with markings of default, fraud, merchant insolvency, and reversed transactions. Later, the J Capital Research’s CEO reported that Wirecard had retaliate through threats and hacking attempts  , claims that remain uninvestigated to date. Wirecard was then implicated in a fraud case by Zattara Research, a low-key company that had sustained “ghost” operations until its public declaration of the German company’s irregularities. On February 24 th , Zattara Research published incriminating evidence of Wirecard’s fraudulent accounting practices, which implicated the company in illegal transmission of money to the United States and money laundering through a 102 pages report ( The London Financial, 2020) . Wirecard was accused by Zattara Research of engaging in laundering its offshore operations through poker  , having massive hedge funds in Britain and the United States, and shorting organizations on the European Stoxx 600 Index. Although the German financial industry disputed Zattara Research’s report and Mark Braun threatened legal action against the aforementioned whistle-blower, Wirecard’s share price reduced by 25% ( The London Financial, 2020) . 

Furthermore, Wirecard was accused by the Financial Journalism’s chief editor, Roddy Boyd, of engaging in roll-up, a term that implies attainment of organizational growth by acquiring smaller companies at a quicker than usual pace. Bafin, German’s main financial watchdog, started investigating Zattara Research for its supposedly false claims, with accusations that the latter had attempted to induce market manipulations, although the findings of the investigation have never been publicized. In 2018, a whistleblower, Edo Kurniawan, from Wirecard’s Singapore office, accused the organization of contract backdating, engagement in “creative accounting”, and laundering money through unknown third parties ( The London Financial, 2020) . In 2019, Wirecard had also been accused of forgery and accounts’ falsifications by Financial Times, a report that Mark Braun termed as defamatory and misleading ( The London Financial, 2020) . However, Financial Times intensified its requests that Wirecard be investigated for excessive accounting irregularities and that Bafin end the company’s positions in bond short-selling. However, Bafin declined Financial Times’ mandates, citing that Wirecard was an essential asset to German’s economy, and the report indicated above was a “market threat” intended to propel “market manipulation”. 

Nevertheless, Financial Times increased its intensity in investigating Wirecard, which revealed discrepancies in employee tallying, inflated profits and sales to generate a false sense of security in stakeholders, and third party money laundering through offshore accounts. During the same period, Wirecard’s investors’ restlessness escalated, and KPMG was hired to independently audit the German company. KPMG affirmed the claims from previous whistleblowers concerning Wirecard’s fraud, by indicating that the organization could not account for €1 billion worth of bank statements in escrow accounts, a claim that was later confirmed by EY. In 2020, Wirecard filed for insolvency, with its share price plunging to €1.28, which reflected a 98% value loss ( The London Financial, 2020) . Additionally, Wirecard’s listed bonds plummeted to17 cents for every euro, besides leaving creditors with a $3.9 billion loss that could never be recovered ( The London Financial, 2020) . The Frankfurt Exchange also suspended trading of Wirecard’s shares for up to 60 minutes, in preparation for the company’s public declaration of insolvency ( The London Financial, 2020) . Markus Braun resigned and was later arrested after his surrender, and Wirecard suspended the COO, Jan Marselak, who had served the organization more than a decade  . 

Outline of Ethical Theories 

Ethical theories are a moral principles’ set through which society uses to distinguish right from wrong and advance right actions  . Ethical theories include virtue ethics, consequentialist ethics, and deontological ethics, which embody effort, impact, and conduct  . Virtue ethics are engendered by an agent, whose ethical conduct is assessed through exhibited traits or characters. Under the ethical theory listed above,  an action is considered morally upright if it embodies how  a virtuous person would act at the given time, and must be desirable and socially acceptable. The virtue ethics theory argues that an individual is ethical if they desist from vices, such as cowardice, greed, sloth, extravagance, stinginess, rashness, and drunkenness ( MMPA513 2020 T3 Week 2, n.d.) . Instead, a morally acceptable person should manifest self-control, liberality, ambition, and courage. In contrast, the deontological ethics theory asserts that an individual is ethical if they fulfill their non-negotiable obligations and an action is morally acceptable if it honors a principle or value. Further, individuals should honor their social contracts by evincing behavior that is socially acceptable and divine deontology through observing spiritual guidance. Finally, the consequentialist theory of ethics focuses on outcomes of individual behavior, where persons are expected to evidence moral uprightness by practicing utilitarianism, where the action outcomes must be for the greater good of the majority in the society. The consequentialist ethics’ theory also implores that individuals perform a cost-benefit analysis whenever they decide to engage in an action. 

How one of the ethics relates to the Issue  

The consequentialist ethics’ theory applies best to the Wirecard case study discussed above. Markus Braun allowed Wirecard to operate under a faç  ade of prosperity, which hurt creditors and investors in the long term. Wirecard’s CEO appeared to disregard the consequences of his action and impact on stakeholders, which was wrong. Braun should have considered the outcomes of his actions before propelling a loss of livelihoods for Wirecard’s employees, severe tarnishing of Wirecard Bank’s brand image and closure of a promising company that attracted investors. In the future, perhaps Wirecard would rival companies, such as PayPal, Square, and Helcim. 

Outline of the 5 Principles of IFAC Code of Ethics 

The five core principles of IFAC include: 

Objectivity: An accountant must not compromise business judgments or professional relationships because of conflict of interest, bias, or undue influence. 

Professional Behavior: Accountants must always comply with regulations and relevant laws to avoid discrediting their profession ( Lecture Reading, n.d.) . 

Integrity: Accountants must be honest and straightforward in all their business dealings. 

Confidentiality: Accountants must respect confidential information acquired when conducting business ( International Federation of Accountants, 2020) . 

Professional Competence and Due Care: Accountants must maintain and attain professional skills and knowledge, and act diligently while adhering to applicable rules and regulations. 

Conclusion on the Effectiveness of IFAC’s Principles in Solving the Wirecard Issue 

Wirecard’s fraudulent conduct that hurt the company eventually would have been solved if Markus Braun enforced the use of IFAC’s five ethical principles in employees, primarily those in accounting positions. Braun should have also mandated that Wirecard’s finance and accounting team be regularly vetted for professional behavior, professional competence and due care, integrity, objectivity, and confidentiality. In 2008, when Wirecard was first flagged by EY for having balance sheet irregularities, Markus Braun should have ensured that all employees received an intensive training on the IFAC’s principles, which would have averted the insolvency declared on 25 th June, 2020. Therefore, the IFAC’s five principles would have solved the issue highlighted in the Wirecard case study provided  . 

References  

International Federation of Accountants. (2020, June 9).  The international code of ethics for professional accountants: Key areas of focus for SMEs and SMPs . IFAC.  https://www.ifac.org/knowledge-gateway/building-trust-ethics/discussion/international-code-ethics-professional 

The London Financial. (2020, July 18).  Wirecard: A giant’s collapse .  https://www.thelondonfinancial.com/post/wirecard-a-giant-s-collapse 

MMPA513 2020 T3 Week 2. (n.d.).  Ethics and Accounting  [PowerPoint Slides]. 

Lecture Reading. (n.d.).  Code of Ethics for Professional Accountants  [PDF Document ].