Commerzbank warned Germany’s financial watchdog about money laundering risks at Wirecard in early 2020, underlining how fears about the payments group were building months before it collapsed.
The stark assessment Commerzbank offered BaFin in January last year was based on the findings of an internal review the bank began into its relationship with Wirecard in early 2019, according to three people familiar with the matter.
The conclusions of the review, which Germany’s second-biggest listed bank launched after the Financial Times reported on alleged accounting manipulations at Wirecard’s Asian division, prompted Commerzbank to begin to sever business ties with the payments group in the second half of 2019, the people said.
One of a consortium of lenders to Wirecard, Commerzbank lost €175m when the company failed in June in one of Europe’s largest accounting frauds.
The revelation that Commerzbank had conducted its own review, and flagged the findings to BaFin, comes as a German parliamentary inquiry into Wirecard’s demise this week turns the spotlight on the backing the once high-flying company received from some of the country’s largest banks.
Martin Zielke, Commerzbank’s former chief executive, and Deutsche Bank chief executive Christian Sewing are among the witnesses set to testify before the inquiry on Thursday. The banks helped fund Wirecard’s acquisition in 2015 of two Indian payments companies that were referred to in the fraud allegations against the group.
Its role in the transaction was one of the disclosures Commerzbank made to BaFin in a detailed presentation at a meeting on January 14 last year, according to people familiar with the matter.
The bank also informed the regulator of suspicious transactions by clients at Wirecard Bank, for which it processed cross-border payments. In response, BaFin concluded that there was “no immediate regulatory reason to act” as it was already aware of most of the issues raised by Commerzbank, the people added.
Commerzbank abandoned its business relationship with Wirecard Bank, where it was a so-called correspondent bank, in 2019. However, the lender remained part of a consortium of 15 banks that provided Wirecard with a €1.75bn revolving credit facility.
The bank’s internal review and warning to BaFin “undermines the view” that the German government and Wirecard’s business partners, such as Commerzbank, were “powerless with regard to Wirecard’s criminal intent”, said Fabio De Masi, an MP from the hard-left party Die Linke.
“If Commerzbank pulled out of its correspondent banking relationship with Wirecard Bank in September 2019, why didn’t the lender also sever its credit relationship?” asked Mr De Masi.
Commerzbank wanted to terminate its lending relationship with Wirecard following its review, but the contract prevented an early exit from the consortium, which had committed the credit line until 2024, according to people familiar with the matter.
The findings of Commerzbank’s review were also at odds with the views of Heike Pauls, the bank’s analyst who covered Wirecard and had recommended investors buy the shares right up until the group collapsed.
In a statement, Commerzbank said there is a separation between the work of its analysts and other parts of the bank. It declined to comment further on its relationship with Wirecard.
BaFin confirmed in a statement to the FT that it had been briefed by Commerzbank about money laundering risks at Wirecard. The regulator added that it had already put Wirecard Bank’s anti-money laundering controls under close supervision in mid-2019.
“Commerzbank’s findings vindicated BaFin’s decision to do so and were taken into account in our work,” the watchdog said.