Wirecard’s byzantine fraud grips courts in Munich and Singapore

THREE years after the collapse of German payments company Wirecard, one of the most enigmatic actors in the saga has made his first public appearance.

After the start of a trial in Singapore in early August, James Henry O’Sullivan, a wealthy payments industry veteran and one-time confidant of former Wirecard executive Jan Marsalek, has been in court to hear charges against him of abetting the falsification of documents related to the business.

The long-awaited proceedings kicked off as the main Wirecard trial in Munich went out for a four-week summer recess with a bang.

Lawyers for former chief executive Markus Braun filed a motion urging for his immediate release, arguing that he was an innocent victim of the fraud rather than its architect, as claimed by state prosecutors.

Braun and two other former Wirecard executives have been appearing in the Munich court on charges of fraud, breach of trust, market and accounting manipulation since December. Presiding judge Markus Födisch has indicated that the trial will last until the end of next year at least.

The legal cases underline the challenges for national law enforcement agencies trying to get to grips with a complex, global fraud that involved one of Germany’s most celebrated start-ups and an opaque network of companies based in countries including the Philippines, Mauritius and the United Arab Emirates.

Wirecard crashed into insolvency after disclosing that €1.9bn of cash did not exist. The missing money was linked to its outsourced operations in Asia.

The group’s administrator and prosecutors in Munich are convinced that these operations, which on paper accounted for half of Wirecard’s revenue and all of its profits, did not exist. Braun claimed the business was real and that its proceeds were siphoned off without his knowledge.

The trial in Singapore focuses on narrower charges: the alleged falsification of documents to deceive Wirecard’s auditors EY about millions of cash in Asian third-party escrow accounts. Former Wirecard trustee Shan Rajaratnam is on trial alongside O’Sullivan in Singapore. If found guilty, they could each face up to 10 years in jail.

Munich prosecutors are particularly interested in the network of payment firms around the globe that they allege was used by O’Sullivan to embezzle more than €250mn in cash from Wirecard.

Though O’Sullivan has not been charged in Germany, prosecutors in the Munich trial described him as one of the core members of the “criminal racket” behind the Wirecard fraud alongside Braun, Marsalek and another Wirecard executive, Oliver Bellenhaus.

A big obstacle for the German case is that Marsalek absconded days before Wirecard collapsed. The group’s second-in-command, in charge of the Asian outsourcing business, fled by private jet to Belarus and has not been seen in public since. German prosecutors suspect he is hiding in Russia, but wherever he is, he seems to be following the Munich trial.

In an unsolicited letter sent to the presiding judge by his lawyer in Munich last month, Marsalek gave his view on the proceedings so far. He attacked his former confidant Bellenhaus, who oversaw a key part of the outsourcing operations in Dubai. Marsalek supported Braun’s position that the outsourcing business was real and even claimed it survived the collapse of its parent group.

Forensic investigators who tried to uncover details of the Asian operations on behalf of Wirecard’s supervisory board and later the group’s administrator, told Födisch they could not find any trace of the business. This testimony was consistent with Bellenhaus’s claims to the court that the operations were a sham.

In 58 days of hearings since December, the Munich court has heard testimony from dozens of witnesses. None of them has presented hard evidence that Braun was actively aware of the fraud or instigated it. But many contradicted the former chief’s claim that he took the allegations seriously and pushed to investigate them.

Witnesses such as former legal counsel Andrea Görres, ex-head of compliance Daniel Steinhoff and KPMG senior partner SvenOlaf Leitz have testified about Braun’s dismissive attitude to compliance and disregard for critical advice.

Marsalek’s letter was a rare piece of support for Braun. As such, the former CEO’s lawyers seized on it. When the presiding judge suggested it was difficult, if not impossible to treat the letter as formal evidence, Braun’s lawyer Alfred Dierlamm responded forcefully, saying: “You are walking a very fine line of being biased.”

The letter came after a series of setbacks for Braun. At the start of the year, a motion by his lawyers to suspend the trial was dismissed. Questions from Födisch suggested he had major doubts about the former CEO’s testimony.

In civil lawsuits, Braun suffered two big defeats this summer.

A district court in Düsseldorf last month ruled that Swiss Re — an underwriter of his D&O (directors’ and officers’) liability insurance — was not legally obliged to pay out, putting Braun in a difficult spot as the €15mn of this main D&O insurance has been largely spent.

In a separate civil case, the administrator is demanding Braun pay back €35mn to Wirecard. Braun made a sworn declaration that he did not know this money belonged to Wirecard, but the judge in the case declared his declaration was not credible.

In Singapore, prosecutors are presenting pre-trial interviews, emails and Telegram messages in court, trying to prove that both O’Sullivan and Shan knew Wirecard and its subsidiaries were being falsely represented as having significant sums of cash to auditor EY.

They allege Shan fabricated letters at the behest of O’Sullivan, Marsalek and Bellenhaus.

Shan, who so far has been the main focus of the proceedings, admitted to falsifying documents in pre-trial interviews, but sought to blame others including Marsalek and O’Sullivan, according to testimony in court from investigators. He also accused EY of not doing enough to confirm with banks that the money from the Asian operations existed.

Defence lawyers have painted a picture of a flawed investigation to the court, claiming that key details are missing because of incomplete exchanges between individuals. The attention will turn to O’Sullivan next.