Wirecard was a Russian Honeypot, and Ze Germans Fell In Headfirst
Wirecard was a Russian Honeypot, and Ze Germans Fell In Headfirst
Like BCCI before it, a "mainstream" financial institution became a vector for state crimes.
NEWS IN BRIEF
CoinDesk in Full Collapse: CoinDesk has effectively shuttered its amazing video department, laying off Joanne Po, who accomplished absolutely incredible things starting from zero. What was once a fantastic studio is now in the scrapheap, and years worth of work towards creating what could have been crypto’s answer to CNBC has gone down the toilet.
This seems like a particularly insane decision under new ownership by Bullish, who should maybe be more … bullish in their treatment of a new asset in a clearly expansionary crypto environment? It brings me no pleasure to report such dire news about my formerly respectable former employer, but if things keep going this direction, I see no future for what was just months ago the most legitimate news organization in crypto.
Rare Sams: December 22 is the last day of the auction of my Rare Sam NFTs, and the accompanying beautifully framed original courtroom sketches of major figures from the Sam Bankman-Fried trial. Sales support creation of my SBF book (first chapter here), and they’re amazing gifts for the crypto CEO in your life (though it’s too late for Christmas delivery). Remember, each one also comes with a lifetime subscription to the newsletter, and some are still available for around $70 U.S. Here are more details and images of all the sketches, and you can bid on the NFTs and pages here.
Nikola CEO Sentenced: Trevor Milton, perhaps the lowest-rent con-man of the entire ZIRP startup era, was sentenced to four years in prison yesterday. He deserved WAY more, not so much for the severity of his crimes, as their utter insipid shallowness. From the moment I heard of the company, it was clear it was some kind of scam – naming it “Nikola” as a brazen knockoff of “Tesla” was a ridiculous red flag.
That’s why in 2020, when I was covering tech for Fortune, I dug into their overblown claims of battery innovation. They were obvious bullshit, and when I got on the phone to talk to Milton directly, he was just patently a con artist to his bones. This was well before we knew about the whole rolling a nonfunctional truck down a hill thing.
Now, here’s the catch – Milton was convicted of defrauding investors. But which investors?
Nikola went public via SPAC in 2020 (Lol. Lmao.) The case seems to have centered on $660 million in losses to retail investors in that SPAC, but Nikola raised a *shitload* of money in private markets: their 2019 Series D was $250 million from industrials like Bosch and CNH Industrial. And given that the SPAC completed successfully, it seems plausible those early backers actually made money? Just one of the small perversities of the venture system.
Wirecard, Russia, and the Money Side of Intelligence
Last Friday, the Wall Street Journal dropped an absolute banger, revealing that Jan Marselek, fugitive former COO of fraudulent German payment processor Wirecard, was a Russian intelligence asset for many years before Wirecard’s fraud was uncovered by dogged reporters at the Financial Times. Marselek is suspected of using his position to monitor German intelligence agents, and Wirecard’s apparently extensive money-laundering services may have been used to do things like paying Russian assassins operating across Europe.
“The upshot is that Ze Comically Inept Germans spent half a decade actively assisting a Russian espionage and money-laundering campaign against themselves.”
Thinking about Wirecard has led me to something of a thesis statement for Flesh/Markets itself:
Fraud, failure, and psychosis reveal what is meant to be hidden about how the financial system actually works on a day-to-day basis.
In this case, it’s the fact that huge public financial firms are routinely criminal. Wirecard, like FTX, was just particularly egregious about it.
Wirecard also highlights the banal reality that banks and payment processors can spy on you, and probably are. Privacy and autonomy should be the default for financial systems, because tou never know who’s looking over your shoulder at a private, centrally-controlled entity like Wirecard.
Finally, Wirecard is the latest illustration of how important illicit access to financial institutions is to intelligence agencies, a new installment in the old story of BCCI, the C.I.A.’s favorite bank during the Iran-Contra era. What makes this story even more remarkable is that Wirecard was, for an almost absurdly long time, considered a darling of the German tech startup scene. In 2018, it had a market capitalization of $28 billion and was added to the DAX 30, Germany’s domestic version of the S&P 500.
Amazingly – and this is where the story gets truly interesting – those heights came after Wirecard’s fraud had begun to unravel in the face of dogged investigation by Dan McCrum at the Financial Times. The fraud was allowed to continue for another half-decade thanks almost entirely to the active intervention of the German state and regulators to protect Wirecard, through truly insane stuff like banning short-selling of Wirecard stock, and pursuing a criminal investigation of McCrum, effectively at the behest of the fraudsters and spies running Wirecard.
“Wirecard,” writes the New Yorker, “delegated legal authority to the Arcanum officers to act on its behalf ‘in any such way that they consider necessary and lawful.’ Arcanum’s vice-chairman at the time, Keith Bristow—who had served as the first director-general of the U.K.’s National Crime Agency—met with the [German] Financial Conduct Authority, as part of Wirecard’s effort to get the agency to investigate the F.T.”
(This may be the ultimate example of the maxim: if a company starts attacking short sellers it is a fraud. Full stop.)
The upshot is that Ze Comically Inept Germans spent half a decade actively assisting a Russian espionage and money-laundering campaign against themselves. They seem to have done it largely out of a sense of national pride: Wirecard was seen as Germany’s answer to Paypal, its sole $1 billion tech unicorn, and CEO Marcus Braun (still currently on trial for fraud) was even compared to Steve Jobs.
Even more than Do Kwon and Luna, Wirecard represents the illusory nature of financial capitalism – the ease with which a firm dealing in pure symbolism can simulate its own value and infiltrate the higher echelons of capital. It was an institution based on a narrative that had no basis in reality, and that narrative in turn supported an entire vision of the German state. And so the state attacked the journalists pushing the inconvenient narrative.
Wirecard also shows that much of the financial sector runs on particular illusions: We are led to believe that banks are staid, safe, even boring institutions, carefully overseen by responsible governments. Wirecard, which was allowed to operate for more than two decades and fell despite being protected by one of the most staid and boring governments on Earth, puts the lie to all of that.
Even if bankers are in some abstract sense “good people,” the contemporary acceleration of the profit motive turns all of them into potential money launderers working in aid of assassins and kleptocrats. As I argued in relation to the Pandora Papers, it shows that banks no longer deserve our deference or trust, if they ever did.
A State-Backed Institution
As early as 2014, Financial Times reporter Dan McCrum began reporting on allegations that Wirecard was something like a ponzi scheme. Its public valuation was built on a series of fake acquisitions of fake Asian payment processors that were generating fake revenues. McCrum and others tried to track down actual offices for these operations, but they quickly discovered many of the subsidiaries were simply fake.
McCrum’s reporting was not just ignored and dismissed by German authorities, they made him a legal target. Due to some (admittedly ill-advised) communication between McCrum and his sources, Wirecard asserted to the German government that he was engaged in a conspiracy with short-sellers. That led to a lengthy *criminal* investigation of a journalist. (It’s an attitude we’re also seeing in current speech crackdowns on Gaza – this medieval Bavarian confusion over the nature of speech goes far deeper than financial matters).
Then, on February 18 of 2019, Germany’s BaFin financial regulator “issued a ban on creating new short bets against Wirecard, citing the company’s ‘importance for the economy.’”
This should have been embarrassing enough to make every self-respecting German simply drop dead on the spot. Let me just repeat my prior observation, attained over years of watching depressingly predictable behavior: A company complaining about short sellers is definitely guilty as hell, and its executives are pissing their pants in fear that they’re about to be caught.
Short-sellers are high-risk heroes of capitalism. They aren’t always right, but they always have skin in the game, and a government *banning shorts* isn’t worthy of claiming authority over a trash can, much less what is supposedly the most advanced economy in Europe. Which, if that’s true, Jesus Christ.
Ze Germans are also clearly far worse than the Americans at financial spycraft (no surprise, since America largely appropriated Germany’s intelligence expertise after the war). Instead of being in the driver’s seat as the CIA was in its protection of BCCI, German spies were the ones being spied on by Marselek: according to the Journal, Wirecard issued credit and debit cards to German agents using aliases, and Marselek is now feared to have kept tabs on those agents through their financial activity. Many have reportedly been assigned new identities and relocated for fear of having been outed to Russia.
But that’s probably the least of Marselek’s activities for Russia. As previously detailed by the New Yorker, Wirecard was engaged in blatant money laundering facilitation long before there were any suspicions about its balance sheet, including doing crazy shit like issuing prepaid debit cards carrying as much as $150,000 balances. While public reporting is limited to speculation on such details, the New Yorker hypothesiizes that such tools would be ideal for spycraft activities, including the payment of Putin’s assassins internationally. This was just one detail in a rich tapestry of control evasions – Wirecard was a vast money laundering operation nearly from the start.
The failure of German oversight is even more amazing because Marselek’s formal role in Russian intelligence is not exactly a shock. Reporting has already established that Marselek had ties to the intelligence community worldwide, and that he spent a lot of time in Russia despite Wirecard having no official business presence there. Marselek in 2016 helped arrange one of the first deployments of Russian mercenaries in Libya, which purportedly became the thin edge of the now much larger deployments of groups like Prigozhin’s (R.I.P.) Wagner group. One report claimed that Marselek kept a small statue of Vladimir Putin on his desk, which certainly must have raised questions.
Germany didn’t just fail to notice any of this – it willingly handed over incredibly sensitive information to Wirecard. BOTH the German Federal Criminal Police Office and the B.N.D., Germany’s foreign-intelligence service, picked Wirecard to issue credit cards under false names for use in undercover operations starting in 2013, apparently because more reputable banks were understandably hesitant.
It’s the same reason BCCI was useful for the CIA, the same reason FTX might have proven useful for intelligence, and more generally a synechdoche for the convergence of state intelligence and organized crime. There are accompanying parallels: like BCCI’s (foiled) attempts to buy a U.S. bank, Wirecard in 2005 acquired a small German bank, instead of applying for its own licenses, as a way to evade scrutiny. Like FTX, Wirecard was caught just before it penetrated the U.S. financial system at scale: By 2019, it had bought CitiGroup’s North American prepaid debit card operation, in and of itself a thing practically designed for mass-scale fraud and money laundering.
The question in all such cases boils down to this: Was Wirecard fraudulent because it was conceived as an ally of an intelligence apparatus? Or was its alliance with an intelligence apparatus invited by its fraudulent nature?
As with many frauds, it seems to have been a destructive cycle: As WireCard realized it had government protection, its crimes got worse. It’s what we could have expected if FTX hadn’t been stopped in its tracks before it bought a U.S. bank and became fully the pet exchange of U.S. regulators like Gary Gensler … and maybe some lower-profile powers, as well.