Merkel Government in Focus as Lawmakers Push Wirecard Probe

(Bloomberg) — German lawmakers plan to start an in-depth investigation into Wirecard AG’s collapse after key officials from Chancellor Angela Merkel’s government and financial watchdogs failed to put an increasingly political issue to bed.

© Photographer: Thomas Kronsteiner/Getty Images Europe
VIENNA, AUSTRIA – AUGUST 27: Traffic is reflected in the office door sign of bankrupt and scandal-ridden German payments processing company Wirecard on August 27, 2020 in Vienna, Austria. Wirecard AG, once listed in the DAX index and heralded as a tech startup marvel, has completely collapsed following revelations that its accounting was fraudulent. Former board member Jan Marsalek is on the run and some media report he has fled to Russia. The debacle has also tarnished accounting firm Ernst and Young as well as German financial overseer Bafin, both of whom failed to detect Wirecard’s massive financial irregularities. (Photo by Thomas Kronsteiner/Getty Images)

The Greens will back other opposition parties to start a full parliamentary probe, meaning several months of hearings that will keep the scandal in the public eye. With the investigation expected to extend into next year, Wirecard could overshadow the election due in September that will decide who succeeds Merkel in running Europe’s largest economy.

© Photographer: Thomas Kronsteiner/Getty Images Europe
VIENNA, AUSTRIA – AUGUST 27: Traffic is reflected in the office door sign of bankrupt and scandal-ridden German payments processing company Wirecard on August 27, 2020 in Vienna, Austria. Wirecard AG, once listed in the DAX index and heralded as a tech startup marvel, has completely collapsed following revelations that its accounting was fraudulent. Former board member Jan Marsalek is on the run and some media report he has fled to Russia. The debacle has also tarnished accounting firm Ernst and Young as well as German financial overseer Bafin, both of whom failed to detect Wirecard’s massive financial irregularities. (Photo by Thomas Kronsteiner/Getty Images)

“We’ve had to come to the conclusion that the government is stonewalling,” Lisa Paus, a lawmaker from the Greens, said on Tuesday after a two-day Bundestag hearing, the latest in a series of sessions to question officials. “No one is willing to take responsibility.”

Germany’s biggest corporate fraud in living memory has burned investors and engulfed its political establishment by exposing gaping holes in financial oversight and raised the prospect of bias by authorities. The inability of regulators to get to the bottom of the scandal and piecemeal disclosures from the government angered parliamentarians and undermined the country’s reputation as a place to do business.

© Photographer: Thomas Kronsteiner/Getty Images Europe
VIENNA, AUSTRIA – AUGUST 27: Traffic is reflected in the office door sign of bankrupt and scandal-ridden German payments processing company Wirecard on August 27, 2020 in Vienna, Austria. Wirecard AG, once listed in the DAX index and heralded as a tech startup marvel, has completely collapsed following revelations that its accounting was fraudulent. Former board member Jan Marsalek is on the run and some media report he has fled to Russia. The debacle has also tarnished accounting firm Ernst and Young as well as German financial overseer Bafin, both of whom failed to detect Wirecard’s massive financial irregularities. (Photo by Thomas Kronsteiner/Getty Images)

The lawmakers will seek to bring the decision on pursuing the probe to parliament next week, according to Florian Toncar, a lawmaker for the Free Democrats, one of the party’s supporting the move. Along with the Greens and the Left, the parties have enough votes, and Merkel’s bloc said it wouldn’t stand in the way.

In the latest hearing, lawmakers questioned the head of financial market regulator BaFin and the Bundesbank’s top banking watchdog on Tuesday in Berlin. Ahead of the session, they also called out a wide range of authorities in the country, from prosecutors to the operator of the Frankfurt stock exchange.

Even parliamentarians from the ruling coalition vented their frustration with how the government and its agencies have communicated in the hearings.

“Little has been cleared up so far,” Hans Michelbach, a member of the CSU — the Bavarian sister party of Merkel’s CDU — told reporters before the hearing. Wirecard sought to keep much of its business outside of regulatory scrutiny, but BaFin may have let itself be duped, he said after the session.

Another key question for BaFin has been why the regulator didn’t classify Wirecard as a financial company, which would have subjected the payments provider to stricter scrutiny by the watchdog, which only directly oversees banks and insurers.

BaFin has sought to defend itself by saying that reclassifying Wirecard wouldn’t have helped much in unearthing the fraud because it would have still relied on the company’s audited accounts. Still, that doesn’t explain why the institution’s probes of the banking unit didn’t point to problems at the wider company.

BaFin President Felix Hufeld had a rocky time after an earlier hearing in July. Finance Minister Olaf Scholz and Economy Minister Peter Altmaier were also called to testify. Merkel’s chief economic adviser, Lars-Hendrik Roeller, spoke on Monday.

Staff Trading

While BaFin says it followed procedure, the Finance Ministry has acknowledged that Germany’s oversight system needs to be improved. As part of that overhaul, Hufeld told lawmakers that BaFin plans to makes changes to rules on the securities that its staff can own, according to Danyal Bayaz, a Green party lawmaker. The disclosure this month that employees of the watchdog traded Wirecard shares in the months before its insolvency stoked concern that they might have been conflicted.

The Bundesbank, whose role was largely limited to supporting BaFin in its oversight, was drawn deeper into the scandal with the disclosure this month that former Wirecard Chief Executive Officer Markus Braun met with a senior official at the central bank last year. While it isn’t clear what was discussed, the meeting shows Wirecard’s connections to Germany’s top decision makers.

Political responsibility lies with Scholz and his deputy Joerg Kukies, who oversee BaFin, according to Toncar. Before the hearing, he added Munich prosecutors to the list of institutions bearing some blame for the mess, saying that in 2019, they terminated a probe into potential money laundering involving Wirecard.

Michelbach also called out Deutsche Boerse AG, the operator of the Frankfurt stock exchange, for burnishing the company’s image by including the stock in Germany’s benchmark DAX Index in 2018.

In the hearing, Deutsche Boerse CEO Theodor Weimer suggested changing rules that govern listings to give exchanges more abilities to sanction companies, according to the Bundestag newsletter.

“It’s important that we get access to secret documents,” said Fabio de Masi, a member of the opposition Left party. “That’s why the parliamentary investigation is necessary.”

(Updates with additional lawmaker quotes)

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