Wirecard: How 1.9 Billion Euros of Cash Did Not Exist

In June 2020, German payment processing titan Wirecard AG filed for insolvency after auditors confirmed that 1.9 billion euros ($2.1 billion) in cash, representing one-quarter of the company’s consolidated balance sheet and all of its cumulative operating profit over the prior decade, did not exist.

The collapse of a constituent of Germany’s blue-chip DAX 30 index exposed structural vulnerabilities in international bank confirmations and auditor verification procedures.

The Mirage: Third-Party Acquiring (TPA)

Wirecard claimed to process digital credit card transactions for merchants worldwide. In Europe, it operated through Wirecard Bank AG with direct licenses from Visa and Mastercard. But Wirecard reported that the overwhelming majority of its explosive growth and operating profit originated outside Europe in Southeast Asia and the Middle East.

Because Wirecard supposedly lacked local processing licenses in countries like the Philippines, Vietnam, and India, it claimed to route billions in transaction volumes through three “Third-Party Acquiring” (TPA) partners:

• Al Alam Solutions in Dubai
• Senjo Group in Singapore
• PayEasy Solutions in Manila

According to Wirecard, these local TPAs collected transaction fees from merchants, deducted their commissions, and transferred Wirecard’s net operating profit into segregated trustee escrow accounts held in Wirecard’s name at reputable commercial banks in the Philippines.

The Accounting Mechanism

On Wirecard’s consolidated balance sheet, these escrow balances were reported as “Cash and cash equivalents” or “Other current financial assets.”

Year after year, as Wirecard announced massive double-digit growth in Southeast Asia, the corresponding accounting entries were:

Debit:  Trustee Escrow Cash Account (Balance Sheet Asset)   €400,000,000
Credit: Processing Fee Revenue (Income Statement)           €400,000,000

Because the cash was supposedly locked in foreign escrow accounts to satisfy regulatory collateral requirements, Wirecard rarely withdrew any real money back to Europe. When Wirecard needed cash to pay employee salaries, acquire regional businesses, or service debt, it repeatedly raised fresh bank credit lines and issued corporate bonds in Frankfurt, creating a glaring forensic anomaly: a company reporting billions in cash reserves while constantly borrowing money at high interest rates.

The Confirmation Failure

Under International Standards on Auditing (ISA 505), independent auditors must obtain direct, independent confirmations from third-party financial institutions to verify the existence of bank balances.

For over a decade, Wirecard’s statutory auditor, Ernst & Young (EY) Germany, certified unqualified clean audit opinions without securing direct confirmations from the underlying commercial banks. Instead, EY accepted:

1. Copies and scans of trustee bank account statements provided by Wirecard executives or trustees.
2. Confirmation documents routed through third-party trustee lawyers (such as Mark Tolentino in Manila).
3. Online balance screenshots provided during supervised video conference calls.

The auditors failed to establish direct electronic communication channels with the bank branches or independently confirm the authorized signatory stamps.

The KPMG Forensic Audit and the Unraveling

In October 2019, following years of investigative reports by Dan McCrum in the Financial Times, Wirecard’s supervisory board succumbed to institutional investor pressure and engaged KPMG to conduct an independent special forensic audit.

KPMG was given a specific mandate: verify the authenticity of Wirecard’s TPA revenue and independently confirm the existence of €1.0 billion in trustee escrow balances at two major Philippine lenders: BDO Unibank and the Bank of the Philippine Islands (BPI).

When KPMG requested direct, bank-to-bank verification, Wirecard executives stalled for months, claiming the escrow funds had been transferred to a new trustee account at OCBC Bank in Singapore. When KPMG contacted BDO and BPI directly, both Philippine banks stated unequivocally that Wirecard did not hold those accounts and that bank officers whose signatures appeared on the confirmation documents had never signed them.

On April 28, 2020, KPMG published its report stating it could not obtain sufficient appropriate audit evidence to confirm either the existence of the TPA transaction volumes or the cash balances. Six weeks later, on June 18, 2020, EY officially refused to sign off on Wirecard’s 2019 annual report. Within seven days, CEO Markus Braun was arrested in Munich, COO Jan Marsalek fled to Belarus, and Wirecard collapsed with over €3.2 billion in unpaid debt.