TPC 31: What Exactly Happened at Wirecard?

German fintech darling Wirecard has collapsed among allegations of fraud, money laundering and very underhanded practices. But the things coming to light about the company and its executive Jan Marsalek now are even more egregious than anything we had heard so far.

German news magazine Der Spiegel has published a fascinating cover story on Wirecard , the sketchy German payment provider and fintech darling I’ve previously covered in episode 26. Their writers, with the usual verve, call it “a story like a Bond movie”. In today’s episode of The Private Citizen, I will dive into this research and we will see what there is to it.

Two Spiegel writers met with Wirecard CEO Markus Braun in November of 2019 to talk about the claims of fraud that had been levelled against the company. At that point, Braun was convinced his company had a glorious future. The Spiegel writers had written critically about Wirecard before and first met Braun as early as 2018. Now, with recent developments, the story obviously turned into something entirely different.

Wirecard’s Sketchy Business

Der Spiegel says that “there had been rumours for years” that Wirecard invented revenue, financial partners and fraudulently inflated its balance sheet. The magazine makes it sound like it was open knowledge, at least in financial circles, that Wirecard was doing sleazy things behind the façade of being a respectable company lauded for its innovation and technical acumen. According to the writers, people (from government oversight institutions, to politicians and pretty much everybody in the financial sector) just looked away and didn’t want it to be true, because Wirecard was the one German tech company that had chances to become a global player. The one hope to prove that Germany can innovate in the digital sphere.

For some reason, the Spiegel writers seem to have never heard of PayPal or Plaid. Which, in my opinion, makes them massively overvalue how innovative and important Wirecard was. They paint the company as the payment provider of the future “that makes online shopping possible” and seem to think that 313,000 customers globally is as big as it gets. But they also say that Braun was “the Elon Musk of the financial world”, which kind of tells you that they have no idea what they are writing about in this regard. If anything, Elon Musk is the Elon Musk of the financial world. He made most of his money by creating a software-based payment provider and bank, after all. The very model of a company Wirecard was copying years later. If anything, the story of Wirecard is also the story of Germans being clueless about what else is going on in the wider (English-speaking) tech world.

According to the story, how much of Wirecard’s capital was fake and how much disappeared is yet to be discovered. We also don’t know why EY kept signing off on their financial reports. All we know that the company is ruined, its investors lost a lot of money and 5,800 employees will most likely lose their jobs. Der Spiegel blames the company’s collapse on its two most important executives: CEO Markus Braun and his right hand Jan Marsalek, who was running the business in a day-to-day capacity. Braun has been arrested and was released on €5 million bail, Marsalek has been on the run for four weeks now.

The article paints Braun as a tech nerd who saw himself as a visionary. Even though he studied Business IT, he never liked to talk about numbers apparently, preferring to spend his public appearances talking about grand visions for his company. What the company was mostly doing, it seems, was to buy other companies in shady deals that were rumoured to net the Wirecard executives a nice cut. In some instances, it seems, Wirecard bought companies or financial funds that actually originally belonged to its own executives. These other companies were used to spin a complex web of sub companies that made it seem like Wirecard had a lot more customers, was doing a lot more business and making a lot more money than it actually was. Investigations in the US and other countries seem to suggest that the confusing web of companies controlled by Wirecard was also used for money laundering.

Many of these sleazy business practices, alleges Der Spiegel, started in or about 2006. Up until that time Wirecard had made most of its money by processing payments from porn and online gambling sites. But when the US outlawed processing online gambling transactions, Wirecard lost a lot of business. Its actual payment processing business is said to have been losing money for quite a few years now. It seems like the new, even more shady business model started with an acquisition in 2007.

Some executives now claim there were two sides to Wirecard: The European business with real clients and real revenues in payment processing and the Asian business (run by Marsalek), which was mostly fake but provided the company with the all-important growth numbers.

Amazingly, a German financial watchdog had first raised the alarm about Wirecard in 2005. But because one of its officials had made money by short selling Wirecard stock, the state prosecutor’s office in Munich investigated the watchdog and not Wirecard. As with a similar occurrence later, when Financial Times writers were investigated by the state prosecutor in Munich instead of the company, Wirecard painted itself as the hero of the people, fighting evil short sellers out to ruin the fintech darling with dirty tricks. See the previous episode on this topic.

Wirecard’s downfall was set in motion when it accepted investments from the Japanese tech conglomerate Softbank. Where apparently nobody else had ever really checked, Softbank actually wanted to know in detail what was going on with the financials of the company it had invested in. At the start of November 2019, auditors from KPMG started looking into the Wirecard business. And they found things that the EY people had ignored for years. They realise that a company called Al Alam Solutions, which is supposed to do a lot of business with Wirecard in the Middle East, and which has been implicated in an earlier Financial Times story as having a lot non-existing retailers as customers, had been shut down. Al Alam is supposed to have made around 2 billion euros in revenue for Wirecard and that money was supposedly deposited with two Philippine banks, when the company was closed. But as we know now, that isn’t true. The money is gone. Or it never existed.

The Philippines, it turns out, aren’t part of the global financial system. The country is suppose to be “a global hot spot of money laundering”, according to Der Spiegel. Because of this, the US heavily penalises banks that do business there. Which is why all the big international banks, according to the magazine, don’t accept business customers from there and have largely left that market. Because the country isn’t part of the usual international system and conventions, fraud there can stay undetected for a long time. Which, it is implied, happened in the Wirecard case. Wirecard had pretended there were €2 billion in Philippine accounts, which wasn’t true.

KPMG starts investigating the trustee who is supposed to be in charge of the two accounts that hold the €1.9 billion in question. This is a guy called Mark Tolentino, who used to be a high ranking member of the Philippine Ministry of Transport because he was fired because of questionable dealings. He is a well-known YouTube star in the country. In March, teams from KPMG and EY (accompanied by Marsalek) travel to the Philippines. Employees of the local banks, apparently bought off, assure everyone that the money is where it’s supposed to be. But the paperwork can’t be presented at the moment. Because of the coronavirus pandemic, of course. The auditors accept this and travel home. KPMG notes in its report that a deposit of around a billion euros from 2018 can’t be verified. A bit later, EY receives written confirmation of deposits of €1.9 billion. These documents get leaked to Der Spiegel as well. EY starts doubting the authenticity of these papers and request the Philippine banks to transfer token amounts from the accounts in question. Nothing happens. And this is when the house of cards finally collapses: The banks explain that the account statements were fake and that the accounts and the €2 billion have never existed. We know what happens next, because I’ve covered it in the previous episode.

Jan Marsalek, International Man of Mystery

CEO Markus Braun says he was duped by his own COO, Jan Marsalek. From here on out, the Spiegel story starts focusing on Marsalek. And it becomes even more speculative than it already was from the very beginning. It’s all attributed to “sources familiar with the matter” or “documents seen by the publication” – the scourge of modern journalism.

Jan Marsalek
Jan Marsalek (Source: Bellingcat)

Apparently Marsalek is a veritable “Dr. No”, as Der Spiegel terms him. Marsalek, a high school dropout, was hired by Wirecard when he was 20 because he was fond of computers and knew stuff about the early mobile web technology WAP at a time when most people in Germany were just coming to terms with the internet. Marsalek was hired by Braun’s predecessor and quickly advanced through the ranks. When a high profile internal project called “Wirecard 2.0” spectacularly fails, Marsalek was blamed for hiding the facts that things were going wrong from the company leadership for a long time. Since the company’s future is in jeopardy, the get in an external advisor from KPMG to fix things: Markus Braun. He later joined Wirecard.

This is how Der Spiegel alleges Braun and Marsalek came to run Wirecard: At a break-in, Braun’s and Marsalek’s laptops are stolen. They are full of trade secrets that allegedly turn up at EBS Holdings, a company that runs porn and gambling sites. Since Wirecard has lost its technological edge to a competitor, the company is destitute and gets bought by EBS Holdings. Now Braun becomes CEO and Marsalek CTO. Funny how these things go.

Apparently Braun ran the company in his role as a visionary while Marsalek was doing the dirty work of keeping up an illusion of constant growth. As the story goes, most other executives never saw Marsalek. He was too busy jetting around the world to visit the company’s headquarters much. According to Der Spiegel Braun and Marsalek haven’t seen eye to eye in recent years. What caused the rift is unknown, but Marsalek is said to have cared less and less about what Braun’s visions for the future of the company were.

While Braun was rubbing shoulders with the high society in Vienna, Marsalek, according to Der Spiegel was investing in Syria and rubbing shoulders with Russian intelligence officials. He’s alleged to have been working for the Russian military intelligence service GU (also known as the GRU). He’s also been implicated in the Ibizagate investigation as being “of the” BVT (the Austrian domestic intelligence service Bundesamt für Verfassungsschutz und Terrorismusbekämpfung). The Spiegel story doesn’t make it clear whether “of the” BVT means he was employed by them in some capacity or acted as an informant.

Marsalek is said to have been in Syria during the height of the war with the help of Russian nationals and apparently expressed interest in arming militants there. He apparently had access to a report containing the top secret formulation of the nerve agent Novichok. He and Braun (both of them were born in Austria) are said to have excellent political connections in Austria and, to some extend, Germany.

According to Bellingcat, Marsalek is under observation by the Russian internal security service FSB (this is sourced to access to internal FSB immigration databases provided by a whistleblower). He’s supposed to be hiding in Belarus now.

On 18 June 2020 the management team – including Jan Marsalek was fired. He told his colleagues that he was going to the Philippines to chase and find the missing billions, in order to prove his innocence. Later that day he went missing as well. While airline bookings and immigration records showed he had made his way to Manila on the 23 June and left onward to China, an investigation by the Philippine’s authorities found that that the trip had been a red herring, and immigration records had been forged on his behalf. Since then, Jan Marsalek has been wanted by German and Austrian authorities on charges of fraud and embezzlement.

Bellingcat, in collaboration with its investigative partners Der Spiegel and the Insider, have now established the location to which Marsalek fled just hours after his sacking – the capital of the Belarus, Minsk. In addition, Russian immigration records and data kept by Russia’s FSB suggest that Russia’s security service had a long-standing interest in Marsalek, who used a number of different passports – including a third-country diplomatic passport – to visit Russia dozens of times in the last 15 years. At least on one occasion – in 2017 – Russia’s security services are likely to have had a lengthy interaction with Marsalek in Moscow.

Bellingcat sums up Marsalek’s shady non-Wirecard dealings as follows:

Since 2015, he has pursued projects in Libya – including investing in the Libya Cement Company, and has engaged with Russian advisors and European officials to discuss plans for “humanitarian reconstruction in Libya” – seen by observers as a plan to establish a mercenary force to protect commercial interests in the war driven country. Marsalek’s adviser in the Libyan initiative was the Russian Andrey Chuprygin – a Russian Arab-world expert whom western intelligence services believe is a former GRU senior officer, maintaining close ties with the intelligence community.

Marsalek collaborated with the Austrian-Russian Friendship Society. The organization received classified documents from Marsalek apparently obtained from Austria’s interior ministry and security service BVT. He also passed classified information and provided geopolitical advice to the country’s far-right populist party, the FPÖ.

In 2017 Jan Marsalek also reportedly boasted in a private meeting about a trip he had made to the ruins of Palmyra, in Syria, as a guest of the Russian military shortly after its recapture from ISIS. In 2018, he also disclosed to business partners in London four highly sensitive, classified reports from the Organization for the Prohibition of Chemical Weapons in the wake of Skripals poisoning in Salisbury. He also claimed to have the full formula of Novichok, the military-grade poison that was used by GRU in the Skripals case.

Aside from Braun and Marsalek, three other Wirecard executives now also have outstanding arrest warrants. It is not clear if those warrants include the ones mentioned in the Spiegel story for Oliver Bellenhaus, Alexander von Knoop and Susanne Steidl. Steidl’s entry in the German Wikipedia was recently deleted , BTW. Because she isn’t relevant, apparently.

Producer Feedback

I’ve been prompted by a number of producers to look into the Irish contact tracing app. I will do so. Once I’ve done some research, I will decide if it is worth doing an episode about.

The Anonymous Canadian Producer sent me further information about COVID-19 reporting in the Canadian media and says:

Keep up the good work. Your podcast this week was another work of excellence.

Martin says about our previous discussion:

I just wanted to say I do take the discussion in good spirit. In fact I think we have been talking slightly cross purposes as I don’t disagree with much you have said at all*– you have often said I misunderstood you when I don’t think I did, and ended up reiterating the same points I was trying to make! I think this is just a limitation of the email format and trying to be as concise as possible about complicated topics.

* Apart from use of exclamation marks!!!! ← I think that’s what Pratchett was talking about and it’s a low blow as I absolutely never do that!

Barry Williams observes regarding my ongoing discussion of the nuts and bolts of being a journalist:

One thing that strikes me with the inside baseball you give about journalism, how difficult is it to keep tight lipped when you get sources off the record (I know how carefully you protect your sources) but it must be so frustrating when you have some information and have to find a source you can quote. I think it will also technically be impossible not to include some information they give you if you do not explicitly find another source for it. As always I do enjoy a peak behind the curtain of journalism. Cheers, mate.

If you also have thoughts on the topics discussed in this or previous episodes, please feel free to contact me.

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But above all, I’d like to thank the following people, who have supported this episode through Patreon or PayPal and thus keep this show on the air: Niall Donegan, Michael Mullan-Jensen, Jonathan M. Hethey, Georges Walther, Dave, Rasheed Alhimianee, Butterbeans, Kai Siers, Mark Holland, Steve Hoos, Shelby Cruver, Vlad, Fadi Mansour, Jackie Plage, 1i11g, Matt Jelliman, Joe Poser, Philip Klostermann, ikn, Dirk Dede, Jaroslav Lichtblau, Dave Umrysh, David Potter, Mika, Vytautas Sadauskas, RikyM, drivezero, Martin, Jonathan Edwards, Barry Williams, Silviu Vulcan and S.J.