Once a jewel in Germany’s business crown, Wirecard is now in the process of being wound up after the discovery of an audacious fraud involving senior executives inside the payment-processing company and hidden losses of €3.2 billion ($3.7 billion). The scale of the fraud and how it happened offer some key lessons for anyone conducting an investigation into potential fraud.
Here are four learning points for investigators (and for compliance professionals and lawyers):
Look for a “personnel leak.” The leak in this case is the steady trickle of staff leaving Legal, or Legal & Compliance, or Finance departments within a business. High staff turnover in these two departments may indicate that all is not as it seems and that there may be a problem. Legal and Finance are the departments most likely to uncover a fraud or have it brought to their attention by other people. Conversely, Legal and Finance may also be complicit in perpetrating the fraud or facilitating it.
Those who uncover a fraud and refuse to be a party to it have two choices: blow the whistle by reporting directly to external authorities; or raise the issue quietly through the management structure. It may be that senior management will be unwilling to address the concerns raised, and staff from these two departments will choose to leave quickly and quietly.
Stay curious. One of the hallmarks of a good investigator is being curious, probing, inquisitive, and seeing beyond the buzzwords and jargon. The essence of curiosity is the ability to ask difficult questions and reflect on whether what you have been told or shown actually makes sense. Further, curiosity is essential to the scope of an investigation. Every investigation needs a defined scope, but there should be some flexibility to move outside the investigation scope if it is justifiable in the circumstances to do so. A cautious approach should be taken to investigations that are so narrow in scope that their only purpose is to provide legitimacy and a cover for a business that may, like Wirecard, be in the crosshairs of a major scandal.
No shortcuts. In the pursuit of new investigation clients and mandates, the Know Your Client process can fall by the wayside. When a potential investigation client expresses an interest in our services, it can be tempting to seal the deal quickly, without examining what we are being asked to do in light of who the client is. The onboarding of new investigation clients should include consideration of your client’s reputation, both publicly and privately, and peer opinions and media reports about the organization. In the Wirecard case, for example, the Financial Times and others had been reporting their concerns about the company’s viability for almost 18 months before the firm finally collapsed. Further, if there was a previous investigation related to the matter that you have been instructed on, you must understand the scope and the outcome of that investigation. Inquiries should also be made in relation to implementing earlier findings or recommendations and, if they have not been actioned, the reasons for the delay.
Take the bird’s eye view. Naturally, as investigations progress, they may become more complicated as new lines of inquiries are developed. The pressure to deliver may also become more pronounced. The combination of these two factors can mean that investigators lose perspective and objectivity in their investigation. A loss of perspective presents two potential issues. The first is that it may affect the investigator’s ability to identify some obvious red flags as they are so focused on particular elements of the investigation. The second issue is that the investigator may be unable to see some of the deficiencies in their investigation strategy, focus, or outcomes. It is important that investigators take regular opportunities to review their investigation from a bird’s eye perspective.
Further, consider taking some time to do an evidential and investigative evaluation and, if, appropriate subject the investigation to a peer review. This pause and review will help ensure that the investigation is on the right track and will continue with renewed clarity and focus.
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