Dubai – a popular place for its secrecy – is a hot spot for Wirecard. In recent years, the tax haven has developed into a payment hub that is strongly linked to the Asian region as well as to Israel. The Financial Times revealed in 2019 that actually a significant part of Wirecard‘s processed transaction volume is acquired and processed via its subsidiary in Dubai. More precisely, the business was conducted via the Dubai-based third-party acquirer Al Alam Solutions . Since the publication of the KPMG audit report, we have been aware that a considerable proportion of the unidentifiable or unverifiable transactions have passed through Dubai. Along with Manila and Singapore, Dubai is one of the black holes in Wirecard´s financial statements.
Liquidation of CardSystems
On May 5, 2020, Wirecard announced that there would be a material change in connection with the EUR 500 million listed bond issued in September 2019. The concise announcement published on the website of the Luxembourg Stock Exchange says that Wirecard will liquidate its Dubai subsidiary CardSystems Middle-East FZ-LLC, one of the key entities in the Wirecard group.
Much of these [Wirecard] profits from the three partners were booked through Wirecard’s largest business, CardSystems Middle East, in Dubai in 2016 and 2017 … But the importance of CardSystems and the three partners to Wirecard’s financial ecosystem has never been flagged to shareholders.Financial Times – Wirecard relied on three opaque partners for almost all its profit (April 2019)
According to Reuters, CardSystems has not been audited by Wirecard auditors EY “on an individual level but had been subject to a higher-level full-scope audit” said CFO Alexander von Knoop. Well, now the company is gone anyway.
The business and assets of the company have already been transferred to Wirecard Processing FZ-LLC. The latter replaces CardSystems, which has been put into liquidation, also as a guarantor of the bond. Since Wirecard Processing already acts as a guarantor of the bond, it is possible that the bond subscriber may in fact lose a guarantor. This rearrangement may or may not be a worse position for the bondholders.
The Monopoly Approach
In recent years, we have repeatedly observed that regulated and unregulated payment processors move their brands, businesses, and assets between companies and jurisdictions at will. In most cases, the reason for this is to avoid regulatory sanctions or to seek protection from customers or aggrieved investors. We call this business practice the “Monopoly Approach.”
This Monopoly Approach was also deployed by the FCA-regulated e-money institution Moorwand Ltd in 2019, for example. After intense public criticism and reports on FinTelegram, Moorwand transferred its brand and platform “UpayCard” (www.upaycard.com) to the unregulated Cypriot PAP ONPOINT SERVICES LTD. The transfer was done with a short announcement without any details. Whether and how this was coordinated with the FCA is currently beyond our knowledge. The British subsidiary of Moorwand, UPC Consulting Ltd, formerly in charge of the business of UPAYCARD was intended to be liquidated by Moorwand Ltd. Up to now we – EFRI and its victims – prevented the liquidation.
Regarding Wirecard´s closing down of one of its main subsidiaries, – after being under massive criticism in the special audit report of KPMG issued only a week ago – we only can recommend that BAFIN resp. the Munich prosecutor finally starts to fulfill its duties and to assure that the documentation of the transactions processed remains still available for investigations.