EY has reached a deal with German politicians to give its auditors protection from the legal risk of giving evidence at a Wirecard inquiry and warned its staff to prepare for more fallout from hearings taking place this week.
The German parliamentary inquiry committee has called several senior managers from the Big Four firm to give evidence at its inquiry into the high-profile collapse of the payments group. EY audited the group for more than a decade and had questioned how its senior staff could adhere to client privacy rules if they had to reveal details.
Wirecard’s administrator has released EY partners from all confidentiality obligations but, in the past, some German courts ruled that such a waiver was not sufficient.
According to people with direct knowledge of the matter, the parliamentary inquiry committee and EY informally agreed to seek a clarification from Germany’s federal court of justice to allow EY staff to reveal previously confidential details about their work for Wirecard without breaking any rules.
In the informal deal, EY partners will on Thursday decline to testify and will be issued with a fine by the committee. The witnesses will then challenge the fine at the federal court, which will decide if the administrator’s waiver is sufficient.
“We fully understand that the witnesses do not want to face the risk of a criminal investigation should they violate their confidentiality duties by giving testimony,” Kay Gottschalk, a politician for far-right Alternative für Deutschland and the chairman of the inquiry committee, told the Financial Times, adding that he hoped for a swift court decision.
Last week, Wirecard’s former chief executive Markus Braun caused a stir by refusing to answer even basic questions from MPs, citing his right to remain silent.
EY has been criticised for its repeated failures to spot problems at Wirecard. It faces a number of investor lawsuits over the scandal and has already lost two clients, DWS and Commerzbank, as a result.
The committee has summoned EY partners Martin Dahmen and Christian Orth as well as Deutsche Bank’s head of accounting Andreas Loetscher, who left EY in 2018.
On Monday, the firm said its staff were willing to give full evidence in parliament only if they were sure that they were legally allowed to do so.
It added that the “legal situation was controversial”, pointing to past rulings by German courts concluding that a waiver by the administrator was “not sufficient” and needed to be granted by the company’s management or supervisory board instead. At Wirecard, both bodies ceased to exist this summer.
Andy Baldwin, EY’s global managing partner for client service, said: “EY is fully supportive of all official investigations and inquiries including those by the German Bundestag. 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 it had taken this position because of the “high criminal and professional risks” for auditors. “Violations may result in imprisonment of up to a year or fines of up to €10m,” the firm said.
“The predominant majority of court rulings asserts that the administrator is able to waive the confidentiality. We think that it is extremely important that EY testifies, also in its self-interest,” said Florian Toncar, a MP for the liberal Free Democrats (FDP).
An internal email sent to EY partners this weekend also revealed that the firm is braced for the testimony of a number of partners from KPMG, which was hired by Wirecard’s supervisory board to do a special audit of the group after allegations reported by the Financial Times.
The email said that “not all of KPMG’s findings have been made public to date” and said it expects “negative comments . . . related to EY Germany’s audit work” during the KPMG witness evidence.
EY said it would provide EY partners with “talking points” for their clients “once we know the scope of KPMG’s testimony”.
“We expect to see continuing media coverage on EY, and it is important that we remain proactive in having conversations with clients,” the EY email to partners said. “Please remember that this is an isolated incident, and we must not let it detract . . . from the resilience of our global network.”