article banner

Corporate frauds & failures in 2020

2020 - the advent of COVID-19 is a stark reminder that anything can happen and no one is immune. Modern man’s pre-disposition to making social connections, leading to globalisation and the new economy, has been a strength that has also exposed us to more risks than we can potentially keep up with.

This year is turning out to be a watershed; 9 corporate collapses in 9 months have left more than $13 billion afloat in very dangerous waters, and that is just what has bubbled to the surface. The IMF, in its latest World Economic Outlook Report for October[1], says “the COVID-19 pandemic has had a more negative impact on activity in the first half of 2020 than anticipated, and the recovery is projected to be more gradual than previously forecast”.

Trillions in government stimulus funds have been pumped into the global economy to keep businesses afloat, but what happens when the money runs out? How do businesses which are already over-geared keep things together?

We turn the spotlight on corporate fraud and financial manipulations employed to paint a rosier picture of financial health when the reality is anything but. These typically take the form of overstatements of Revenue and/or Assets and understatements of Expenses and/or Liabilities. Like a pyramid scheme, the objective is to obtain funding in any form that keeps the business running, because as soon as the flow of money stops, the pyramid collapses and creditors are often left with nothing but a big hole in the ground.

These acts of fraud are not possible without an internal structure that supports them. As with the saying “a fish rots from the head down”, if the tone from the top appears lackadaisical or opaque, together with a body of overly complex company structures and unclear checks and balances, the radar for signalling a need for greater scrutiny is turned on.

Take for instance, the sudden and complete collapse of Wirecard, Germany’s answer to PayPal. Within 8 months from November 2019 to June of this year, the DAX 30 company and German FinTech darling went from negotiating to buy over Deutsche Bank to a complete collapse. Investigations by way of a special audit into Wirecard’s business revealed a raft of poor fiscal stewardship.

The Financial Times (FT) reported, in their 23 September article[2], that only one portion of Wirecard’s distributed business models, based in Asia, was actually profitable, but “the losses were never disclosed because Wirecard only reported numbers for the whole group rather than its individual operations”. It was further revealed that the revenues of Wirecard’s business operations in Asia were largely fabricated by way of round-tripping transactions and collusion with third-party acquiring partners.

In fact, Wirecard had been no stranger to controversy as the FT had written about the company since 2015, and in 2019, numerous raids were conducted at its Singapore offices.

In an article on 25 August about Wirecard’s final months[3], the FT hypothesized that the proposed plan to buy over Deutsche Bank was nothing more than an elaborate attempt to hide Wirecard’s missing assets within Deutsche’s vast balance sheet. The article documents how €1.9 billion in cash that were supposedly held in escrow accounts via a trustee in Singapore were discovered to be non-existent. When attempts were made to obtain documents to verify the funds directly from the Singapore bank, the auditors were told the funds had been transferred to a new trustee based in the Philippines. Over multiple attempts to contact both the new trustee as well as the banks directly, the auditors discovered that both the relationships and the cash were merely a figment of the imagination.

Closer to home at Hin Leong Trading, $800 million in losses over a 10-year period were covered up and its current liabilities stand at $3.5 billion while its assets add up to a mere 7% of the liabilities.

The report of the Interim Judicial Managers[4] records how a complex system of “teeming and lading”, where amounts from a subsequent debtor are allocated to a previous debtor to give the impression that accounts receivables are current when there is actually no hope of collecting on these debts, was used to cover up inflated accounts receivables and secure liquidity from lending institutions to keep the business afloat. Forged inward remittance advices were used to cover up inter-bank transfers from within the group’s own accounts, giving the impression of inward cash flows from “customers” when money was merely flowing within the group.

As we enter 2021 in a post-stimulus territory, the already intense pressure on the global economy is set to increase. Some economies will feel this more acutely than others. Warren Buffet once said, “only when the tide goes out do you discover who’s been swimming naked”. Hindsight is 2020 and so this year is proving to be. Our advice is to hold your head above water, keep your eyes peeled, and hang onto your pants.

If you have any further enquiries, please email us at





[4] Report of IJMs HC/OS 417/2020 Hin Leong Trading (under Judicial Management)