For at least ten years, Germany’s financial regulator heard detailed complaints from reliable sources about a $2 billion accounting fraud at Wirecard AG but failed to act.
The Wall Street Journal said the warnings to BaFin (the Federal Financial Supervisory Authority) came from U.S. authorities, investors, journalists, and possibly even company insiders. Instead of investigating the red flags, BaFin attacked Wirecard’s critics.
The Journal’s report then said, “Germany has a patchy record in fighting corporate crime. Volkswagen AG’s giant emissions-cheating scandal was uncovered by California. The U.S. has imposed more money-laundering fines on troubled German lender Deutsche Bank AG than Germany has.”
The Journal didn’t mention anti-bribery enforcement but should have. It’s an excellent way to measure the robustness of a country’s commitment to fighting corporate crime.
Here’s the record: Since 2008, the DOJ and SEC have prosecuted ten German firms for FCPA offenses, imposing total financial penalties of $1.4 billion. The enforcement streak started with Siemens. That was followed by FCPA cases against SAP, Allianz, Linde Group, Zimmer Biomet, Bilfinger, Deutsche Telekom, and Daimler. The two most recent FCPA cases against German companies, both in 2019, involved Fresenius and Deutsche Bank.
In other words, the United States, not Germany, has led anti-bribery enforcement against German companies. If Germany had prosecuted those ten companies first, it’s unlikely the DOJ and SEC would have stepped in.
So, what’s the problem with German enforcement? Berlin-based Transparency International said, “Wirecard is not an isolated case.” TI blamed “structural problems in the German legal system” and the lack of legal protections for whistleblowers.
Meanwhile, the German government fired BaFin from its role in overseeing financial markets. A Justice Ministry spokesman said Germany is reviewing the extent of reforms needed to ensure “functioning and transparent capital markets.”
Are German regulators entirely to blame? No. BaFin didn’t cause the Wirecard scandal, just as German prosecutors didn’t cause the FCPA violations. Company executives and employees committed the crimes that underlie the scandals.
So another question arises: What’s wrong with German compliance? There’s no simple answer. Who can say which came first: The laissez-faire attitude of German regulators toward corporate lawbreakers, or the lawbreaking attitude of German executives?
Whatever the root cause, it’s clear that changes are needed in the cultures of both government and business. Otherwise, Germany won’t overcome what appears to be a weird tolerance for white-collar lawlessness.
Am I being unfair to Germany? After all, the United States has prosecuted a dozen UK-based companies for FCPA offenses since 2008, compared with ten German companies. True. But, the UK responded with the powerful Bribery Act, and with SFO enforcement actions against Rolls-Royce, Airbus, Alstom, Unaoil, Innospec, F.H. Bertling, and many others.
France? Six French companies have faced FCPA charges since 2008. And like the UK, France has responded by enacting Sapin II, a potentially far-reaching anti-corruption law.
Both the UK Bribery Act and Sapin II signaled cultural shifts toward enforcement, and both laws have been driving UK and French companies to adopt more effective compliance programs. Is there any similar cultural shift happening today in Germany? Perhaps the Wirecard scandal, which rivals Enron’s rise and fall for gruesome corporate and regulatory behavior, will be the catalyst for change that Germany needs.