EY partners are facing mounting pressure to provide detailed evidence to Germany’s parliament about a decade of their work auditing Wirecard after the defunct payments provider’s management and supervisory boards released the Big Four firm from its duty of confidentiality.
EY had said that it may refuse to testify before Thursday’s parliamentary investigation into the collapse of Wirecard on the grounds that its auditors could become liable for breaches of secrecy, which carry a prison sentence or large fine.
The decision by Wirecard’s boards to end EY’s duty of confidentiality to its former client could lead to problems for the accounting giant. It is already facing a number of investor lawsuits over alleged negligence in its audits of the company’s finances, which meant it failed to identify a criminal racket that defrauded creditors of €3.2bn.
In a letter dated November 23, the management board informed the parliamentary inquiry that it had lifted the secrecy obligations on EY. The letter was signed by Wirecard’s chief financial officer Alexander von Knoop and chief product officer Susanne Steidl. The group’s supervisory board took a similar decision on Wednesday, according to people familiar with the decision.
Fabio De Masi, an MP for Germany’s leftwing Die Linke party, who published the letter on Twitter on Tuesday night, said: “The door should now be left open for testimony by the auditors.”
Wirecard’s administrator Michael Jaffé, who is winding down the company that collapsed in June in one of Germany’s biggest accounting frauds, had already released the company’s auditors from its confidentiality obligations.
However, EY has continued to argue that a ruling by Germany’s highest court is needed before its staff can reveal details about their audit work.
The firm said it was unclear under existing German laws if an administrator is entitled to release auditors of defunct companies from their confidentiality duty, or if decisions by both the former executive and supervisory boards are needed.
EY’s challenge has raised concerns that it is trying to extricate itself from the parliamentary investigation amid criticism that it made repeated failures over a decade of auditing Wirecard.
The firm has disputed this. Andy Baldwin, EY’s global managing partner for client service, said this week: “We are hopeful that the witnesses invited in a personal capacity can be fully released from confidentiality so they can best assist the inquiry.”
EY said in a statement that it “welcomes” the letter from Wirecard’s board but argued that it was not sufficient to remove the legal risk on its partners.
“The release [from confidentiality obligations] needs to be given by the individual members of the supervisory board and the executive board who commissioned the audit in the relevant year or, respectively, were members of the management board,” EY said.
This would mean that signatures from former chief executive Markus Braun and former chief operating officer Jan Marsalek are required. The whereabouts of Mr Marsalek are unknown. He has been on the run since the company collapsed in late June and is currently on Interpol’s most wanted list.
“My sympathy for EY, which seems to be hiding behind Braun and Marsalek, is very limited,” said Danyal Bayaz, an MP for Germany’s Green party. He said that detailed testimony by the company’s auditors was crucial to get to the bottom of the Wirecard affair.
“We are currently evaluating all legal means available to get comprehensive testimony from EY,” said Mr Bayaz. The committee can issue fines of up to €10,000 and even impose prison sentences for contempt of the investigation.
Matthias Hauer, an MP for Angela Merkel’s conservative CDU, told the Financial Times that EY was showing a “blockade mentality” that could not be justified and that the insistence on a decision by Germany’s highest court was “used as a pretext”. “The witnesses will have to thoroughly answer questions tomorrow,” said Mr Hauer.
Cansel Kiziltepe, a MP for the Social Democrats, called EY’s defence strategy “flimsy” and said the audit firm apparently lacked the “willingness to come clean”.
KPMG, which conducted a special audit into Wirecard’s financial reporting, told the FT that its employees will give full testimony to the parliamentary investigation this week as it does not believe there are legal issues regarding client confidentiality.
On Monday, EY struck an informal deal with the inquiry to seek a clarification by the court, which would delay its testimony. “I am hoping that the Federal Court of Justice will come to a swift decision,” the committee’s chairman Kay Gottschalk, a politician for far-right Alternative für Deutschland, told the FT.
The parliamentary inquiry is working under intense time pressure as its work needs to be concluded during the current parliamentary term, which ends in less than a year.
EY is preparing for a backlash as the hearing approaches as it fears more criticism of its work for Wirecard. The firm wrote to its partners last weekend to warn them that it expected new details to emerge during KPMG’s testimony and “negative comments”.
One partner said it had caused tensions within some parts of the firm. “There’s a growing population of non-audit partners who don’t want to be attached to this audit practice for a nanosecond longer than is necessary,” he said.
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