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Comment by paxys | Hacker News Reader

I remember reading about the Wirecard scandal when it happened, and the key learning wasn't that it was some very complex financial scam that no one could have seen coming (quite the opposite in fact), but rather that the entire state machinery – politicians, regulators, intelligence agencies, banks – was complicit in the fraud because they wanted to take credit for a German company making its name among the silicon valley elites.

A passage from the article:

> On February 18, 2019, Germany’s financial regulator, known as BaFin, issued a ban on creating new short bets against Wirecard, citing the company’s “importance for the economy.”

> The same day, prosecutors in Munich confirmed to a German newspaper that they had opened a criminal investigation. But they weren’t going after Wirecard—they were going after the F.T.

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A similar thing happened with FlowTex [0]. FlowTex was founded in 1994 by Manfred "Big Manni" Schmider [1, second on the right] and Klaus Kleiser as a business for selling horizontal drilling machines. After a few years, they claimed to have sold over 3000 machines, each for 1.5 million marks. In reality, they had only sold around 270. They sold non-existing machines to leasing companies and immediately leased them back, without ever delivering the machines. This made it look like there was actually demand for these machines, which encouraged banks to give FlowTex more loans to buy (non-existing) machines. When the banks wanted to see the machines, they showed them a few in one hall and then served dinner. During dinner, they replaced the serial numbers on the machines, drove them to the next hall, showed them again to the bank representatives, created another disruption, replaced the serial numbers again, and so on. This went on for years.

When the scam collapsed in 2000, "Big Manni" was living in a palatial mansion on 15 acres of land [2], had houses in Cannes, Miami, Ibiza and St. Moritz, and owned a 55 meter yacht that previously belonged to the prince of Brunei. He had 2 private jets and a helicopter to fly him 10 km to work every day. In total, FlowTex had received over 4 billion DM (over 2 billion euros) of loans for buying fake machines. It quickly became clear that people in the ministry of finance and the tax office knew about the scam for years and did nothing to stop it. FlowTex paid taxes on the money "earned" from selling the fake machines to the leasing companies, politicians were proud to have such a successful company in their home state, and he was a large donor to the governing parties. I recall seeing a documentary once where it was hinted that even people inside the banks at least suspected it, but profited from provisions for giving out the loans and did not raise any alarms.

[0] https://en.wikipedia.org/wiki/FlowTex

[1] https://www.bbheute.de/fileadmin/news/56352147.jpeg

[2] https://www.durlach.org/data/media/35/flowtex2.jpg

> 2 billion euros

I think you meant DM here.

No, in DM the damage was actually way over 4 billion. I made it clearer above.

Ah, fair enough. It is a little confusing taking the changing currency, and then potentially also inflation into account. Interesting story overall though.

The EURO was introduced on January 1st 1999

2002 for Germany mate.

Euro as a currency and unit of accounting was introduced in 1999, including in Germany. Euro notes and coins were released in 2002.

I googled this, and it seems like you're right! I had the false memory (since I was a child at the time), that the DM-EUR exchange rate was determined when the EUR came out. But I still do vividly remember the number 1.95583, which was the exchange for DM:EUR.

Kinda weird how they celebrated it, but I think Nutella burnt it into my brain :)

Technically you are right, but I would argue that the date when the Euro actually started to be used as a currency by people was much more significant than the introduction as an abstract financial term (especially considering that this "abstract Euro" was actually only another name for the ECU - https://en.wikipedia.org/wiki/European_Currency_Unit - which had been in use since 1979, with initially 8 and then 12 currencies pegged to it).

Not really. Pre-1999 ECU it's on a crawl peg to multiple currencies, post-1999 euro it's a reverse hard peg (since while ECU is pegged to its currencies and some more including British Pound and US Dollar, post-1999 the currencies that were in ECU (except for Greek drachma) are now pegged in euro) and are being used by some pan-European companies (for example Airbus) to denote their accounting. Technically some of the currencies that are on EMU still exists until this day (although you'll get confused faces when you used old notes, only the central banks that issued them are the ones currently redeeming them).

(edit: didn't noticed that drachma autocorrected to dharma)

> politicians were proud to have such a successful company in their home state

How would most politicians know?? They are going to do an audit. Why would they? Make the minister of finance might know, but you didn't say that.

In both of these cases, it is just stupidity to blame the politicians when the experts were fooled.

It's not so clear-cut. Seeing the minister of finance, the minister president, and the former minister president being friendly with someone might certainly stop a low-level tax office servant from following his instinct and investigate further. Fear of public disgrace for a high-ranking party friend who repeatedly endorsed the company might certainly be enough for a politician to ignore any rumors, and not actively encourage further investigations.

which is why separate watchdog organizations must exist to watch gov't departments.

And the media must be free to publish things like scandals. the fear of public outrage will often prevent such things.

> This made it look like there was actually demand for these machines, which encouraged banks to give FlowTex more loans to buy (non-existing) machines. When the banks wanted to see the machines, they showed them a few in one hall and then served dinner. During dinner, they replaced the serial numbers on the machines, drove them to the next hall, showed them again to the bank representatives, created another disruption, replaced the serial numbers again, and so on. This went on for years.

I see sitcom potential here. Maybe an episode of Seinfeld: George, actually trying his hand at being a real importer/exporter for once, manages to stumble upon a similar idea, that of buying and renting drilling equipment, shipping it, etc. Of course then he overbooks and has to play elaborate games to hide the systems when customers come looking for it, etc. etc.

> but rather that the entire state machinery – politicians, regulators, intelligence agencies, banks – was complicit in the fraud because they wanted to take credit for a German company

It's interesting how The New Yorker still made the "links to Russian intelligence" the lead in their headline. Foreign boogiemen are always more palatable than blaming regular old politicians/businessmen domestically. Or at least the more juicy tidbit for clickbait.

> It's interesting how The New Yorker still made the "links to Russian intelligence" the lead in their headline. Foreign boogiemen are always more palatable than blaming regular old politicians/businessmen domestically. Or at least the more juicy tidbit for clickbait.

I don't see Russia anywhere in the headline, only a passing mention in the subheadline after mentioning the German elite and a facade of innovation. The subheadline correctly prioritizes the two according to how they appear in the story, in the exact manner which you suggest it does not. Lol.

You, on the other hand, were very quick to "Russia Hoax!" post. Agenda much?

https://i.imgur.com/uXJRq74.png

It's relevant you think anyone questioning this well established instinct by national papers is pro-Russian though. Pretty standard these days. I don't feel the need to defend my support of Ukraine or being anti-Russia or w/e, I've done that enough elsewhere. I tend to give HN enough credit where I don't feel the need to make that sort of thing apparent (similar to using /s for the subset who always miss the obvious). But I guess nuance is potentially lost among Twitter-brained social media users which risks derailing threads.

Your post was a knee-jerk repeat of a very common conservative talking point. It had no nuance to lose.

Jan Marsalek, who shoulders much of the responsibility of this criminal enterprise was extremely cosy with the GRU and is now living in Moscow. I do think the fact that russian intelligence services are involved is pretty important.

It provides additional evidence to the hostility of the russian government to western countries long before the Ukraine war which is of public interest.

But this does not absolve the german corrupt poltical and buerocratic underbelly of this affair.

> and is now living in Moscow.

Do you have a source for this ?

https://dossier.center/yan-german-en/

It looks like he was living there and had at least one Russian passport in 2021. The Dossier Center site is funded Khodorkovsky for anyone who cares this seems to be the source for several of the other articles about him being in Moscow.

Regulatory capture & open transparent fraud are not necessarily a new or new or unique combination.

The golden child is often given the benefit-of-the-doubt in human culture. Especially when people bet their horse on them being the golden child. And especially in tech (humans inherently love their popular stories and stereotypes).

It makes it easy for the golden-child to skate off their early reputation for years, before it comes time to really ask whether they became the golden-adult everyone expected them to become.

Yes. WeWork, Theranos, FTX, RE bubble era banks, Dotcom tech, etc.

Really just go back and read a "30 under 30" or "40 under 40" list 5 years later and I'm sure you'll find a handful on the list, every time.

The difference is that other than Theranos, none of those had politicians backing them up and protecting them from regulatory investigations like Wirecard had.

Theranos didn't either. There were a few influential people on the board, but they were more for providing prestige and legitimacy in front of investors and customers than pulling any strings in the government. The FDA and other agencies more or less did their job (which wasn't enough, but that's how regulation works in general in the USA).

Tell me again about all of that money that FTX donated, and then tell me there weren't politicians backing them up

> the entire state machinery – politicians, regulators, intelligence agencies, banks – was complicit in the fraud because they wanted to take credit for a German company making its name among the silicon valley elites.

I like how we all seem to accept this as a fact, like Germany couldn't actually have a great financial company, and seem to completely ignore the possibility of good old real corruption. But yeah, corruption luckily doesn't exist in this country.

> I like how we all seem to accept this as a fact, like Germany couldn't actually have a great financial company

what, Deutsche Bank doesn't count?

When you're looking for a national champion fintech company, a 150-year-old stodgy bank doesn't quite fit the bill

In the Netherlands stodgy banks are responsible for 80% plastic card use, SEPA instant money transfers and internet banking.

I think you should probably poll some current and former DB employees on this one.

I guess obvious sarcasm isn't so obvious

The commercial side of DB is rock solid. They are considered a powerhouse corporate lender, deeply embedded within the German economy. On the whole (compared to other highly advanced economies), Germany companies prefer to borrow money from corporate banks directly, instead of issue bonds. (The aversion to capital markets in Germany is bizarre to me.) And corporate borrowers prefer a national champion, rather than a foreign competitor. (Massive lending [infra, etc.] that requires syndicates of commercial banks are another story.)

On the other hand, the investment bank side of DB... Sigh, that is another story. Wildly incompetent management. (See also: Credit Suisse) I cannot believe that the regulator or Bundestag (Parliment) did not force them to spin out the IB. If the corporate bank sinks with the IB, it would cause serious economic damage in Germany.

European culture largely precludes big leaps in innovation, especially corporate innovation.

I say this as a Canadian. Our culture has the same problem for different reasons.

Google could never have arisen in Canada. Not Tesla.

> European culture largely precludes big leaps in innovation

This is such a bizarrely popular statement on here. It's a huge claim and usually presented without evidence or nuance. Just start deconstructing it by asking simple things like, "what are the biggest innovations to come out of Europe that Google relies on?" and start from there.

You missed this part: > , especially corporate innovation.

And it's true. Europe is great at inventing the stuff that the US then uses to make billions.

That’s not what I responded to which is why I left it out. The main claim is explicitly stating Europe cannot innovate due to culture. Which is just ridiculous and I wish that such claims weren’t so prevalent. By all means lets have discussions about relative levels of financing, entrepreneurship, research and development. But let’s not be lazy in our comparisons and also present even just the tiniest little bit of evidence when making a dramatic claim. Let’s be curious in the spirit of this forum but not let hyperbole pollute the discussions.

It's a Tax problem and a Socialism problem more than culture problem. Socialism means taxes, and high taxes stifle innovation.

Do you think total tax burden is materially higher in Canada than the United States? For high earners, I doubt it.

And this:

    high taxes stifle innovation

I laugh when I read comments like that. If that is true, why are the most innovative countries also the richest and have high tax burdens? The top half of OECD (GDP per capita) all have high tax burden. It's hard to have a highly developed economy with a gov't that provides a good social safety net on less than 30% of GDP collected as taxes. Ref: https://www.oecd.org/coronavirus/en/data-insights/tax-to-gdp...

I would chalk it up to size of internal market -- only ~30 million -- more than anything else. Canada has produced loads (loads!) of brilliant computer scientists over the years. Sadly, they all seem to move to the US and get rich.

I'm talking about corporate tax and VAT, I'm not talking about personal income tax. EU has quite higher corporate tax and VAT than US' corporate tax and sales tax.

My argument is not against high taxes through personal income tax and property tax. It's against corporate tax and VAT/sales tax.

Ireland has one of the lowest corporate tax rates in among highly developed nations. And, in Holland, it is so easy to avoid corporate tax with transfer pricing via the Carribean. But yes, corporate taxes are high in France, and hard to avoid.

...He/she posted on the World Wide Web, invented by a Brit in Switzerland.

There's a fair chance you even used an ARM-powered device to do it. Also British.

Tesla, of course, based their first car on a Lotus. British.

They were probably not complicit in the fraud. They just looked the other way, because a scam in that scale was unthinkable for them. As far as I know there are no cases of bad faith or corruption known. They „just“ didn’t do their job carefully enough.

If that's the public attitude it's going to keep happening.

Sure, but technically you need to know about the fraud, or at least that you are doing something wrong, to be complicit in it. I think they genuinely though they were doing the right thing.

>I think they genuinely though they were doing the right thing

Your job as a government regulator/agency isn't "to believe", it's to be impartial, do your due diligence and apply the law indiscriminately. Selectively looking the other way is blatant corruption.

Ask any accountant at any company. They double check everything. If you miss something and fuck up you can't just tell your boss "well, I didn't check it because I believed there couldn't be anything wrong here". It doesn't matter what you believe, your job is to check.

To commit fraud you need an intent. That’s how fraud is defined. You can’t commit fraud if you don’t intend to.

Same goes for being complicit in a crime. Just by doing some things in good faith, you can’t be complicit. For example: if you help somebody carrying stolen goods, you are not a complicit, if you don’t know (and don’t have to suspect) that it’s stolen.

See Wikipedia: In law, fraud is intentional deception to secure unfair or unlawful gain, …

https://en.wikipedia.org/wiki/Fraud

> If you miss something and fuck up you can't just tell your boss "well, I didn't check it because I believed there couldn't be anything wrong here". It doesn't matter what you believe, your job is to check.

Fraud and conspiracy require intent. So yes, if you are accused of fraud, “I didn’t check as I didn’t suspect anything was wrong” is a defence.

If you genuinely think you are doing the right thing then don't do insane things like suing the whistle blowers.

Selectively prohibiting certain types of bets in an allegedly "free market" system is complicity regardless of knowledge. Rules for thee but not for me!

Just like parent wrote: complicit for wanting to take credit, not (necessarily) complicit for participation in a material sense. They wanted to believe, wanted to believe very hard.

>They „just“ didn’t do their job carefully enough.

How is selectively not doing your job carefully enough a.k.a. looking the other way, different than corruption?

That's literally corruption. You bribe people or pull strings for authorities to look the other way when you comit your illegal activities.

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