The Pity of Wirecard, Part I: Oliver’s Army

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SINGAPORE — Few companies can explain their meteoric growth as alluringly as Wirecard AG.

In one preferred narrative, Wirecard presents as Europe’s leading financial technology innovator, a globe-spanning developer of white label code and applications that remove the friction from electronic payments for both merchants and consumers.

And in another, it’s a nimble bank, steadily generating low-risk revenues through the sale of integrated banking and credit-card processing services to businesses, and prepaid credit-cards to consumers.

Understandably, investors found the prospect of owning shares in a company that is simultaneously driving a technological shift in consumer behavior while growing profits irresistible. Last September, Wirecard entered the German corporate establishment when it displaced Commerzbank for inclusion alongside the likes of BMW and Bayer in the blue chip DAX index, a closely followed roster of 30 of Germany’s biggest companies.

By late January, Wirecard’s market capitalization was almost 24.6 billion euros.

And on January 30 that all changed, perhaps forever.

That’s the day the Financial Times published an exposé detailing a Singaporean law firm’s investigation into a host of alleged accounting irregularities in Wirecard’s Asian operations, and the stock price was pummeled. A German regulatory intervention that banned short-sales through April 18 — while leaving little to the imagination about what side they have settled on — did stabilize the stock price, but not before 10.6 billion euros of market cap was erased.

A close read of the law firm’s May 2018 preliminary findings suggests that a significant percentage of Wirecard’s success in the Asia Pacific region — the most striking component of its growth story for the past three years — may be attributable to dubious transactions that inflated both the balance sheet and income statement. (On April 18, Wirecard, through Herbert Smith Freehills L.P., a London-based law firm, demanded that the Southern Investigative Reporting Foundation remove the Singaporean law firm’s findings from this article, arguing the document doesn’t represent a formally concluded investigation and that its publication represents a breach of the expectation of attorney-client privilege.)

On March 26 Wirecard released a statement that said an external investigation had concluded that the suspect transactions would not have a material financial effect on the company’s 2018 results. It did acknowledge that “a few local employees” might have unspecified “criminal liability” under Singaporean law.

Documents obtained by the Southern Investigative Reporting Foundation show that Wirecard’s Asian success story is just that — a myth fed to investors to propel the share price ever higher. The only thing keeping the region’s operations from being revealed as a financial black hole is a single unit that Wirecard desperately wanted to be kept concealed.


Meet CardSystems Middle East FZ LLC, the tiny, Dubai-based box with a long name on Wirecard’s ever-expanding organizational chart. Don’t waste your time looking for information on CardSystems in Wirecard filings — apart from a few very brief mentions in annual reports, there’s nothing else.

There are two reasons why Wirecard avoids publicly discussing CardSystems: optics and economics.

Start with the fact that CardSystems built a complex ecosystem of payment processors and banks that economically gird a series of gambling, adult entertainment and dating/companionship websites whose content is problematic enough that Wirecard — with an established track record in working with this content — decided it can’t have its name associated with them.

Moral and reputational concerns aside, any business that can succeed only when hidden behind a daisy chain of lightly regulated banks and shell companies is probably going to cause investors a migraine one day.

Secondly, CardSystems’ profitability reveals that Wirecard’s management hasn’t been forthright about where its rapid earnings growth has come from. As recently as March 29 the company was telling investors that porn and gambling were around 10 percent of their total transactions.

Transaction volumes are beside the point though. Put bluntly, if Wirecard drops this line of business, then over one-third of its operating profit goes out the door. This is a fact set that Wirecard CEO Dr. Markus Braun doesn’t touch upon when he touts the importance of optimism to Europe’s digital business community.

CardSystems functions as essentially a veiled middleman, linking the content provider to a network of payment processors — many of whom operate behind a series of fake websites of the sort described in this June, 2017 Reuters investigation — and so called acquiring banks.

A brief aside: Deutsche Payment, the payment processor that used a network of fake websites to mask  illegal offshore gambling transactions, appears to have been controlled by Wirecard, which owned its trademark. According to the Internet Archive, for many years the Deutsche Payment website redirected to Wirecard Austria. Wirecard didn’t disclose this connection, but removed Deutsche Payment from their website shortly after the Reuters article was published.

In return for this matchmaking, CardSystems gets an agreed upon cut of the payment processing fee.

With this network in place, Wirecard can maintain a legal and reputational distance from what executives in its Alscheim headquarters outside of Munich call “emotional content.”

(To be fair, while many institutional investors won’t relish being even indirectly exposed to porn and gambling, processing payments for this subject matter is perfectly legal in many countries.)

CardSystems’ internal financial projections for 2018, obtained by the Southern Investigative Reporting Foundation, reveal it was budgeted to generate sales of between 450 million and 500 million euros, and earnings before interest, taxes, depreciation and amortization were slated to be an eye-popping 200 million euros. (Known by the acronym EBITDA, it’s a frequently controversial yardstick for profitability that leaves out capital expansion and financing costs.)

Drilling down, based on Wirecard’s 2018 preliminary results, CardSystems may have been responsible for about 22 percent of the company’s revenues and almost 35 percent of EBITDA. (Wirecard executives familiar with the unit’s performance last year believed that it met or slightly exceeded these targets.)

Still, that’s tiddlywinks compared to what CardSystems meant to Wirecard in 2017 as according to the Federal Gazette, a publication of Germany’s Ministry of Justice and Consumer Protection, CardSystems accounted for just 126.7 million euros, or just under 50 percent, of Wirecard’s net income.

For all its impressive sales and profits, CardSystems is practically a one-person operation, the brainchild of a longtime Wirecard veteran named Oliver Bellenhaus, who runs it out of his home office in what is currently the world’s tallest building, the 200-story Burj Khalifa.

While nailing down a specific number of CardSystem employees proved difficult, the consensus is there are less than a dozen employees dedicated to the unit’s business, according to current and former Wirecard officials who spoke on condition of anonymity over fear of litigation.

CardSystems is a goldmine but its structure checks most every box in the list of things guaranteed to raise any auditor’s hackles. The first issue is the size of its revenue relative to the size of its workforce, something that becomes more acute given the both the sheer size and global nature of CardSystem’s business. In order to pass muster with auditors, Wirecard officials said that around 60 Dubai-based company employees were classified on the company’s books as CardSystems employees, but in reality worked for a different subsidiary.

Bellenhaus has complete operational control over CardSystems and has managed to keep a few banks, primarily located in Eastern Europe, engaged in his referral network. This is no mean feat since most established acquiring banks have stopped processing payments connected to porn websites given the industry’s high charge-back rates. To that end, apart from a stray press release from 2010, just about the only place the 45-year old Bellenhaus is publicly quoted or referenced is on the websites of a Latvian bank and a Vilnius law firm.

(Charge-backs differ from traditional refund claims in that the consumer essentially goes over the merchant’s head and asks their bank to forcibly remove funds from the business’s bank account. When it happens often enough, the time and expense involved rapidly begins to outstrip profitability for the acquiring bank.)

Bellenhaus did not reply to an email seeking comment. For its part, in response to a question about CardSystems’ staffing levels, Wirecard spokeswoman Iris Stoeckl disputed that the unit’s headcount is small, stating that 200 sales and tech staff work at its Middle East and North Africa hub. She did not directly address a question about CardSystems’ virtual absence from company filings other than to note that “[Wirecard] cannot disclose any additional figures beside the figures disclosed in our annual audited report.

There’s little evidence that Wirecard’s profile in the Internet’s darker corners is diminishing. Consider this recent YouTube video where Alexis D. Vyne, a transgender adult entertainer and film actor, shows how the company processes payments on, a Canadian website popular with those seeking escorts and other sexual services. (In the past several months, ads placed on LeoList were linked to four separate human trafficking arrests in the Greater Toronto area.)

Bringing CardSystems into the daylight ought to prompt some pointed questions from investors, and one of the first orders of business should be establishing how much  business is really being done there.

Because some basic extrapolation suggests that without the profits from CardSystems, the region’s income statement would be awash in red ink.

In 2017 Wirecard’s annual report stated Asia Pacific’s sales and EBITDA were, respectively, 619.2 million euros and 153.4 million euros. Recall that CardSystems is included in Asia Pacific results however, so when its sales of 450 million euros and EBITDA of 175 million euro are backed out, it’s clear that the region lost money in 2017.

13 thoughts on “The Pity of Wirecard, Part I: Oliver’s Army

  1. Poor, real poor.

    Sloppily researched, hearsay,not the slightest hint of evidence.

    Praedikat particularly worthless.

    Too bad for the time I wasted reading.

  2. Keep up the great investigative work. And ignore the emotional haters, stick to the facts. Your ability / willingness to report objectively keeps our markets functioning. And I plan to make a donation to support it.

  3. Great research. It will be interesting to see if the German authorities will take up the case or if Singapore + E&Y will have to carry the load. Thank you for publishing the preliminary report of R&T. If it were not so sad, one would not stop laughing.

  4. Putting things together it is very reasonable to assume that Wirecard is big in money laundry for Eastern Europe states, i.e. Russian oligarchs. I like the lauding statement of Oliver in regard to the Lithuanian Law Firm how to open the financial gates to Europe. Wasn‘t it Swedbank, the biggest Lithuanian Bank, which laundered billions of Dollars/Euros for Russian business men ?

  5. “EBITDA a controversial yardstick”???

    Ok, you are a journalist and not a finance professional. Still, if what you write doesn’t make any sense, maybe just don’t write it at all. When reading such a statement, it just makes your entire article a joke.

    Also, where does the idea of regurgitating fake news from other journalists come from? The lazy guy at Bloomberg already stopped copy-pasting FT’s fake news articles, maybe you should do the same.

    Regarding digital payments at porn sites, online casinos or for bitcoin etc: how is paying for such services with a VISA credit card “bad” for the payment processor but not for VISA or the bank accepting the payment?

    You are barking up the wrong tree here, pal!

    • Mr. Schultz,
      I monitor all comments and as I was traveling without WiFi access, I was unable to process them until just recently; ordinarily, the comments are processed much more rapidly. Please observe however that several other critical comments have been posted, so perhaps that removes the conspiratorial aspect of your concerns.

      To the crux of your comments, I’d point you to the deep well of literature out there that disputes the concept of EBITDA as a valid cash-flow measure, especially for companies like Wirecard that are regularly active in capital markets. For example, this is from 2002, this is Charlie Munger from 2017 and this is Forbes from 2011.

      I’ll let the personal scorn and contempt that drips from your comments stand.

  6. Burj Khalifa does not have 200 floors! XD If you cant even get that right how can you expect anyone to take the rest of this article seriously.

  7. Why should CardSystems Middle East have any employees? The most of us software devs in this field are hired as freelancers. Wirdcards software devs sit in Germany in the headquarter of Wirecard of course and maintain the servers (=data processing) remotely. The data centers are scattered worldwide. The devs are scattered wordlwide. The sysadmins are scattered worldwide, i dont know anyone of them. The same goes for al alam of course. There is no need to host servers inhouse or have devs and sysadmins working there.

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