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A key suspect in the Wirecard fraud stated that the firm’s auditor EY was too gullible as it accepted fabricated letters confirming millions of euros in cash without any further checks, a court in Singapore heard on Tuesday.
Singapore-based consultant Shan Rajaratnam, who as Wirecard’s purported trustee oversaw escrow accounts in Asia, in pre-trial interviews admitted to the fabrication of documents.
But, in the latest criminal trial linked to the disgraced German payment firm’s collapse, he tried to shift the blame to former Wirecard managers and EY, investigators told a court in the Asian city state.
Prosecutors allege Shan falsified letters at the behest of Jan Marsalek, Wirecard’s second-in-command, who has since gone into hiding, and Oliver Bellenhaus, the head of a Dubai-based Wirecard subsidiary.
Once hailed as a rare German technology success story, Wirecard collapsed three years ago in one of Europe’s biggest accounting scandals.
The group filed for insolvency after disclosing that €1.9bn in cash it purportedly held on escrow accounts in Asia did not exist.
Wirecard’s auditor EY had validated those accounts over several years based on Shan’s documents.
The purported trustee, who now denies he was one, is facing trial in Singapore over the alleged falsification of documents alongside Wirecard’s longstanding business partner Henry O’Sullivan. If found guilty, they could be sentenced to 10 years in jail each.
The closely watched trial is the second at which people allegedly at the centre of the fraud are facing justice globally. Former chief executive Markus Braun and two other senior managers are currently facing trial in Munich.
Two previous smaller trials in Singapore earlier this year ended with the first criminal convictions against individuals. The country’s financial regulator in June also fined Singapore banks DBS and OCBC, US bank Citigroup and insurer Swiss Life.
The latest trial in Singapore centres around a series of falsified letters that helped persuade Wirecard’s auditors at EY that the company had extensive cash reserves. After Wirecard’s collapse, investigators uncovered that those bank accounts either did not exist or never held such large sums.
Prosecutors allege that Shan “knew that he was falsely representing Wirecard and its subsidiaries”. He claimed he was conned by Marsalek and O’Sullivan and was pressed to forge the documents, adding he wished he had never heard the name Wirecard.
According to people familiar with the case, Shan in March 2019 also travelled to Wirecard’s headquarters in Munich where he met in person with EY auditors, showing detailed documents over the purported escrow accounts.
He argued that he was not allowed to share a copy of the documents with EY due to Singapore’s strict banking secrecy laws.
Shan told investigators in pre-trial interviews that were disclosed to the court on Tuesday that the fraud could have been stopped by EY as early as 2016.
When EY had asked him about the escrow accounts for the first time, he initially truthfully stated that he did not hold any money on Wirecard’s behalf.
Managers of the German firm scrambled to come up with an explanation for that statement, and Shan subsequently confirmed to EY that he did hold the cash, adding that the initial statement was based on a misunderstanding.
He told investigators in Singapore that he was expecting a follow-up request by EY for an official confirmation directly from the bank. But that never happened as “nobody asked to confirm the amount in the bank account with the bank”, Shan said.
“As an auditor, how could EY simply rely on somebody’s letter and they should have confirmed directly with the bank?” he told his interviewers, adding that KPMG during its forensic audit into Wirecard’s Asian business “was smart” as they asked for bank confirmations.
Wirecard told KPMG in early 2020 that Shan had stopped working as their trustee, claiming that they had moved the monies to a new trustee in the Philippines.
EY defended its “extensive” audit activities in a statement: “The latest details arising out of ongoing criminal proceedings demonstrate that Wirecard’s highly collusive fraud included enlisting the support of third parties that supposedly were providing independent verification of Wirecard accounts.
“As a result, given the circumstances and with the information known at the time, there was no reason for the auditor to doubt the authenticity of the documents presented.”