EY came close to discovering fraud at the heart of Wirecard in 2016, when the collapsed payments firm’s trustee in Singapore accidentally told the auditor the truth, stating he did not hold any money on its behalf.
At the time, Wirecard’s accounts fraudulently stated that Citadelle Corporate Services in Singapore oversaw escrow accounts in Asia that held about €150 million in cash.
These escrow accounts were at the centre of the Wirecard fraud. Purportedly set up in 2015, the company said they held cash generated by its outsourced operations in Asia.
By June 2020 the amount in those accounts had supposedly risen to €1.9 billion, when Wirecard disclosed it did not exist. The business subsequently collapsed in one of Europe’s largest accounting scandals.
But the truth about Wirecard’s Asia escrow accounts was almost revealed by Citadelle director Shan Rajaratnam in March 2016, because of a lack of co-ordination between individuals in Singapore, Dubai and Munich, according to documents reviewed by the Financial Times and testimony by the chief witness in the Wirecard trial.
Wirecard managers scrambled to come up with an explanation for the trustee’s statement, who subsequently confirmed to EY that in fact he did hold the cash, according to people familiar with the details.
EY declined to comment.
The firm audited Wirecard’s accounts for close to a decade without finding big problems and has been criticised for failing to request documents directly from Singapore bank OCBC, where the trustee accounts were said to be held.
EY has previously cited Singapore’s bank secrecy laws and said it was legally required to rely on information from the trustee instead.
Documents reviewed by the FT show that EY wrote to Citadelle in February and March 2016, asking the firm “to confirm the balances for the whole group” and to provide a “split up of the balances for each company respectively”.
In late March, Mr Rajaratnam told the auditor in writing that “as of December 31st 2015, there was no monies of Wirecard AG or any of its subsidiaries being held by us in our accounts”.
In an email on March 29th, 2016, presented by criminal prosecutors at the Wirecard trial in Munich last week, EY asked Wirecard to “clarify the matter”. According to Oliver Bellenhaus, a senior executive who is standing trial for the fraud and has turned chief witness, Citadelle’s initial response “caused a lot of action” internally because it risked exposing the fraud.
Mr Bellenhaus told a panel of five judges that Wirecard’s head of accounting, Stephan von Erffa, was asked to resolve the problem. In an email reviewed by the FT, Mr von Erffa responded to EY’s email by stating that the trustee’s response only referred to “direct cash” rather than “trustee cash”, adding that the auditor would “surely” receive a second confirmation from Citadelle. “They always work on this in two departments,” Mr von Erffa stated.
A senior Wirecard employee who worked in the finance department later told prosecutors that they did not know what Mr von Erffa meant by “direct cash”.
Citadelle on the same day sent a second email to Wirecard, this time confirming that it did hold the €150 million reported by the payment company in escrow accounts.
In later years, Mr Bellenhaus created fake bank statements and balance confirmations on behalf of Citadelle, he told the Munich judges, adding that those documents were then passed to Citadelle, which sent them to EY.
Mr Rajaratnam has been charged with 14 cases of falsifying documents and sharing them with Wirecard and EY, Singapore police said in a statement last May.
The forged documents “falsely represented that Citadelle held large sums of money in its escrow accounts at various points in time between 2015 and 2017, when Citadelle did not maintain such accounts or hold such balances in its accounts”, the Singapore police said. Mr Rajaratnam’s case will be heard in a closed pretrial conference next week.
A lawyer for Mr von Erffa declined to comment. A lawyer for Rajaratnam did not respond to a request for comment. – The Financial Times Limited
