One of the stranger elements of the Wirecard scandal has been the involvement – or, apparently, lack of involvement – of the Philippines in handling much of the troubled payment processor’s disputed funds.
It’s tempting to think that this is damaging for the reputation of the Philippines and its financial services industry. And it might be. But it’s also possible it may prove the country’s systems to be more resilient than they have been given credit for.
A brief primer, for those who haven’t followed the intricacies of Wirecard’s alleged deceit, as unearthed by the FT’s investigations team: Wirecard, the Germany-based payments processor, claimed to have held €1.9 billion of funds through two Philippine banks, BDO Unibank and Bank of the Philippine Islands.
It now appears that the money never existed, and that Wirecard’s auditors, EY, were deceived by fraudulent documents.
Clearly, the Philippines still has questions to answer … but as a response to a fast-moving and damaging scandal, you have to say it has been both open and swift
The temptation here is to think of a certain emerging-market grubbiness in all this: that, if you wish to deceive auditors and give the illusion of having funds you don’t have, you turn to emerging Asia and set your scam there.
But let’s look at the response in the Philippines.
Almost immediately after news broke of the scandal, pretty much every relevant arm of the country’s financial services sector went into action and reported openly about what they believed had happened, promising investigations at every level.
Attorney Mel Georgie Racela, head of the Anti-Money Laundering Council, immediately announced a probe looking at local partner businesses of Wirecard in the Philippines and has given interviews to local and international press, including Euromoney, on progress and direction.
Bangko Sentral ng Pilipinas (BSP) was equally swift in determining, and then announcing, that none of the missing money had ever entered the Philippines.
BSP governor Benjamin Diokno held a call – a Viber, to be precise – with reporters after having established from BDO and BPI that neither bank had a relationship with Wirecard, and that documents claiming such a relationship were fraudulent, with forged signatures of bank officers.
Both banks put out swift statements, conducted internal investigations and suspended junior staff members through whom the forged documents appear to have passed.
The country’s justice department has also managed to confirm that immigration records were falsified to indicate that Wirecard’s former second-in-command Jan Marsalek passed through the country in June, drawing upon airline manifests and video footage to prove that he was never there.
Clearly, the Philippines still has questions to answer, and a probe is only of any use if it actually finds things out and reports them. It appears, at the very least, that there has been some collusion at a junior level with the scandal; two immigration staff have been suspended, for example.
It will be important to answer the question how these documents were able to pass muster without being noticed by other members of bank staff or their supervisors. It’s also fair to note that the FT raised questions about Wirecard’s partner businesses in the Philippines last year, apparently without action being taken.
But as a response to a fast-moving and damaging scandal, you have to say the Philippines has been both open and swift.
This rigour isn’t as much of a surprise as you might think. BSP, an institution that has weathered no end of political and financial crises since its 1993 formation, is one of the most robust central banks in all emerging markets.
When Amando Tetangco, the governor for 12 years to widespread acclaim, stepped down in 2017, he had able deputies to choose from as his successor and went for one, Nestor Espenilla, who had a reputation as an attack dog who held a hard line with the banks.
Espenilla was sadly lost to cancer last year and there were concerns that his successor, Diokno, was too close to president Rodrigo Duterte to be independent, but so far he too has impressed with rigour and discipline.
It is very much in the Philippines’ interest to front up to this. Its standing with international credit rating agencies has been improving for several years – Fitch upgraded its outlook for the country in February – and, with a BBB+ rating from S&P, it is within sight of a coveted A rating.
Covid obviously won’t help with that, but in the long term the Philippines is well placed in terms of financial resilience, and it will want to maintain an impression of good governance as part of that push for recognition.
The handling of these inquiries will be closely watched. They represent an opportunity as much as a burden.