If a state is captured by sinister or corrupt forces, and nobody in the general population realises it, how is the pursuit of truth in such a society likely to be affected?
Chances are; very much the way FT journalist Dan McCrum’s investigation into Wirecard was.
On 25 July 2022, Jan Marsalek was apparently spotted in Moscow. The absconded COO of Wirecard fled once Germany’s largest tech unicorn was famously exposed by McCrum as a proto-criminal enterprise. He is now sporting a new name, new facial hair, and the same old taste for expensive restaurants. An unchanged but practical man, Marsalek now carries his spare change (€2,000, in four €500 notes) in his bushy beard.
That a payment processor in Germany with a market value of €24bn in 2018 turned out to be little more than a large launderette should, naturally, come as a surprise.
That German regulators opted to investigate Dan McCrum over allegations of market manipulation rather than Wirecard, or that the German media circus united in a strong defence of the insolvent payments processor, must however come to most people as a total shock.
When Dan, Paul Murphy, and Izabella Kaminska got together for the inaugural episode of Leaked Lunch in July they questioned whether, if not for Dan, could Wirecard have gotten away with it. Considering the reaction of German society, my answer would certainly be ‘yes’.
It’s not implausible that were it not for the final auditors’ report which finally proved Wirecard’s 2019 accounts missed $2.1bn in cash, Dan could still be facing the sharp end of a professional psyop operation focused on discrediting him and his employer. It was only when the payments processor finally collapsed that the full extent of the underhanded tactics against the British journalist and the Financial Times became evident to those on the outside. These included accusations of colluding with short-sellers, the unleashing of private investigators and several threats of lawsuits.
You can read all about the details in Dan’s new book, Money Men, or just wait for the Netflix documentary coming out soon for a catalogue of the whole sordid story. But the point stands that it could easily have gone the other way for Dan. What’s more, the story itself is hardly done and dusted.
What matters most at this point is the degree to which the entire German establishment became beholden to Wirecard’s “big lie” because it suited what they wanted to believe was true, not what actually was.
The question thus remains whether a much bigger story about German state capture is still to be told.
This, after all, is not the first time this sort of thing has happened in Germany.
As John Lanchester eloquently points out in a write up about Dan’s book in the August edition of the London Review of Books, it’s the disconnect between the perception of how the German state operates and the reality of what goes on the ground that is possibly the most sinister thing about it all (our emphasis):
The German version of capitalism is often seen as the world’s most grown-up. It is a capitalist society free from the excesses of Anglo-American speculation and financial engineering. It is famous for, inter alia, the level of worker representation at board level in its companies; the robustness and variety of its Mittelstand, the medium-size employers that are the backbone of the country’s manufacturing industry; the strength of that manufacturing sector and its unrivalled (for a rich country) success in export markets; its probity and responsible attitude to economic management, with individuals, households, companies and governments all equally determined to spend less than they earn. Nobody thinks Germany is the most exciting political-economic landscape in the world, and it is widely envied for exactly that reason. All of which makes it even more surprising that in the last ten years, two companies in the DAX, the stock-market index of Germany’s thirty (now forty) biggest corporations, have experienced colossal implosions, caused by fraud. For one of them, it was a near-death experience; for the other, it proved to be terminal.
So what is it about the Germany state, and possibly its culture too, that makes it so particularly partial to this sort of phenomenon?
Lanchester cleverly juxtaposes the Wirecard scandal with that of the near-death experience of Volkswagen on the back of its Dieselgate emissions episode of 2015. This was a corporate conspiracy initiated by the company’s engineering team to game US emissions tests. It was wilfully covered up for years at the organisation. Even so, this and Wirecard are only a small reflection of recent corporate failings in German.
Other notable scandals include the cum-ex tax affair (btw – using the hyphen is non-negotiable unless you want to end up on PornHub). Though it was Europe-wide, the cum-ex scandal mostly involved white-shoe German law firms, banks, traders, and other institutions, and the manipulation of fraudulent share receipts to receive state-funded tax reimbursements. Overall the scandal cost European treasuries an estimated €55 bn.
Then there was also what the FinCEN files revealed about Deutsche Bank (inadvertently confirming how suitable the alternative phonetics-friendly spelling DodgyBank is). You’d be surprised at how easy it is for a bank’s top management to miss over $1tn in suspicious transactions.
BMW, DaimlerChrysler, Infineon and Commerzbank have also had to deal with their own share of scandal.
Some might retort: “But every country has its corporate frauds!”
This is certainly true. But what makes the German variety unique is not just the reach of the institutional capture at the heart of the stories, but how teflon coated Germany’s wider reputation for doing business remains despite them. Nobody can believe that this sort of behaviour from hyper-efficient, prudent and resourceful Germans might be entrenched. So time and time again the scandals are dismissed as outliers.
It’s the same old tale with German geopolitics. When Germans mess up they tend to do so big. The most recent example of this was the harebrained plan to become a renewable-energy leader by eliminating its most significant emissions-free source of energy, nuclear power. They then opted to replace the energy source with fossil fuels originating from the only European state with an infuriating tendency to flatten cities along with their inhabitants. To make matters even more awkward, the whole scheme was overseen by one of the country’s former chancellors.
Time and time again the same old tale repeats; shock at how such an efficient and competent country with boring politics could carry out such dodgy affairs.
That’s why in this new occasional series, we are going to make the case that from a corporate investigation and risk perspective, it is time to view Germany as the ultimate wolf in sheep’s clothing.
We will also argue that investors should be as wary of efficient, competent and boring environments for doing business as much as they should be of dysfunctional, chaotic and dramatic ones. Those who do dodgy things more often than not know not to bring attention to themselves. They know that effective criminality means keeping a low profile.
Decades of coalition government may have castrated what little remained of passion in mainstream German politics. But it may have also paved the way toward the normalisation of a quid pro quo mentality.
Consider that if you’re going to do corruption efficiently and competently, it benefits all involved that the ruling government presents itself as being hyper boring.
And yet there is no escaping the fact that the politics of agreement, coalition-building, and consensus bring with it their own vulnerabilities. At worst they create a German Kabuki theatre where the actors look old, bloated and unexceptional, often prompting their audiences to fall asleep, while the real drama unfolds behind the scenes. You hear boring speeches, but in the background, Wirecard managers are tiptoeing around with Aldi and Lidl shopping bags filled with cash.
This is why it’s time to stop confusing German efficiency and competence with morality. There’s a bigger corporate governance story here. Consider this a mere primer for a deeper running dive into why exactly Germany is so darn dodgy.
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