Bogus firms use banks to process drug buys; branches wrestle with mask mandates

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The scandal deepens

Wirecard’s former CEO Markus Braun and other executives of the defunct payments company were arrested by German prosecutors Wednesday who say they “colluded to inflate the company’s results by booking fake income as early as 2015, as the scandal spilled further into German politics,” the Wall Street Journal said. “The arrests came after government officials said German Chancellor Angela Merkel had promoted Wirecard to Chinese officials in September even though her top aides were aware of probes into possible irregularities at the German company.”

Also taken into custody were Wirecard’s former finance boss, Burkhard Ley, and the group’s head of accounting, Stephan von Erffa, the Financial Times said. “The new arrests mean four Wirecard employees have now been detained by German authorities. Mr. Braun’s €5 million bail has been revoked.”

“The new arrests came as the German government revealed that a former official in the German chancellery had personally lobbied for the disgraced payments company, a revelation that could prove embarrassing to the administration of Angela Merkel.”

“Ms. Merkel brought up Wirecard’s plans to acquire Beijing-based AllScore Payments Systems during a state visit to China in early September 2019, according to her spokesman,” the Journal reported. “Two months after her visit, Wirecard announced a roughly €100 million ($115 million) deal to gradually acquire AllScore. The spokesman said the chancellor didn’t know of any possible serious irregularities at Wirecard at the time, adding that the German leader regularly lobbied for German business interests on state visits to China.”

“The accusations significantly increase the scale of the financial wreckage left by Wirecard, and will add to the pressure on German regulators and outside auditors who failed to uncover irregularities despite warning signs going back more than a decade,” the New York Times said.

Wall Street Journal

Weak links

“The Justice Department and the Federal Trade Commission have recently brought a string of criminal and civil cases accusing individuals and companies of using legitimate-looking websites to deceive financial firms into processing unsavory purchases. Such schemes are often called credit-card laundering or transaction laundering.”

“Illegal purchases, including drugs, are being processed unwittingly by banks and payments networks including Visa, Mastercard and American Express. ... Financial cops are zeroing in on a weak link in the online-payments system: middlemen that connect merchants to the banks that help approve and settle transactions.”

Cyber failure

The New York State Department of Financial Services “filed charges Wednesday against a subsidiary of insurance company First American Financial Corp. in the first enforcement action by the regulator under a set of rules requiring banks and other financial services companies to maintain cybersecurity protections.” The regulator “alleged that First American Title Insurance Co., the second-largest real-estate title insurer in the U.S., exposed hundreds of millions of documents containing sensitive information such as Social Security numbers and bank account information over the course of several years.”

“DFS alleged that First American violated six sections of its rules. The company could face steep fines if found guilty—the regulator said it considers each instance of exposed personal information a separate violation, attracting a penalty of $1,000 each.” The company said it “strongly disagrees” with the charges and plans to contest them.

Financial Times

Take the hit

European banks "should heed the lessons of the 2008 crisis” and “tackle bad loans now instead of waiting,” an FT editorial says. “Given the severity of today’s financial crisis regulators have relaxed audit rules to allow lenders greater freedom to trim loss-absorbing buffers. Such forbearance from regulators is inevitable over the short term, but the concern is some banks will try to avoid booking large provisions now. They should resist the urge to do so. First-quarter results already showed a wide range of reported loan provisions, underlining the delicate balancing act lenders are being forced into.”

Europe’s banks … are less profitable than their U.S. peers — which benefit from their large investment banking arms in the current market — and many, in particular those in southern Europe, remain burdened by high levels of legacy debt. Timely loss recognition is critical. Research shows it allows regulators to intervene early if necessary and also helps to prevent excessive risk-taking.”

Washington Post

Friend or foe?

“Face masks are mandatory at Walmart, Target and a growing number of retailers, … but for U.S. banks, widespread adoption has been trickier. The small pieces of cloth public health officials consider one of the best defenses against the growing novel coronavirus threat could double as a handy disguise for would-be bank robbers, they say.”

“Wearing a mask at any businesses, especially a bank, just a few months ago would have raised a lot of eyebrows,” said Richard Hunt, president of the Consumer Bankers Association.

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