The German government is threatening to drop the country’s accounting watchdog in an ever-deepening feud over the body’s governance and independence as the Wirecard scandal continues to send shockwaves through Germany’s business and financial institutions.
The Financial Reporting Enforcement Panel, a private institution with quasi-official powers, has come under fire after the parliamentary investigation into the Wirecard fraud raised serious questions about its compliance.
MPs announced earlier this month that in 2016, FREP banned its senior staff, including the president, from taking on new supervisory roles. In 2017, FREP President Edgar Ernst nevertheless joined the board of the German wholesale company Metro AG. He also holds board seats at the country’s largest listed landlord, Vonovia, and travel company Tui. The government opened an investigation into the matter earlier this month.
Ernst argues that the inclusion of the Metro seat was in line with the rules, as his employment contract predated the 2016 ban on seats, exceeding tightened governance rules. He submitted a legal opinion to parliament last week defending his move.
FREP is facing serious questions about the handling of fraud allegations against Wirecard. It told the payment company in 2016 that it “did not” want to formally investigate the allegations of short-sellers and asked the now disgraced payment company to prepare arguments for “why the allegations are unfounded”.
In early 2019, regulator BaFin asked FREP to investigate accounting manipulations raised by the The Washington City Times, but it only yielded results after the company’s insolvency in June 2020. The German government subsequently announced a fundamental overhaul of its accounting regulations. .
So far, the government’s plan is to adhere to a revised form of Germany’s bipartisan system, with routine accounting checks carried out by a private sector body with quasi-official powers, while tasked with the BaFin to fight fraud to investigate.
On Tuesday, however, the Justice Department, which oversees the private sector institution, issued a thinly disguised threat to walk away from FREP altogether if Ernst didn’t give up his board seats or leave the institution.
“It is important to avoid even the appearance of a conflict of interest,” the ministry said, adding that in the future the government would only work with a body whose leadership does not have any seats on supervisory boards.
The ministry stressed that a private sector partner who allows his management to have seats on the supervisory board ‘will not be accepted’ and that his future partner ‘needs clear rules that the work for the enforcement command is incompatible with having of supervisory directorships at companies’.
In practice, such a move would end FREP, which loses its quasi-official powers if the government does not sign a new contract.
Berlin’s move follows pressure from MPs who sharply criticized Ernst’s behavior. “Even if Mr. Ernst’s board seat at Metro was in line with the letter of the law, it is certainly against the spirit,” said Matthias Hauer, an MP for Chancellor Angela Merkel’s conservative CDU / CSU bloc, adding. that it should be itself. clear that the FREP chairman respected the latter.
Cansel Kiziltepe, a Member of Parliament for the Social Democrats, accused Ernst of “getting away with legal excuses” and added that this was unacceptable.
Ernst and FREP did not immediately respond to a request for comment from the The Washington City Times.