In Conversation: Decoding a "Skandal''

[Music] edn thank you so much for joining us today so D when I was reading your book there were parts that sounded like they were like they were even scary to read I'm just wondering what it was like to actually live through that and how you actually got through that on a on a day-to-day basis when you were working on the story um thank you I mean it there were some pretty scary moments in it because I mean it unfolds over the course of six years and you know you're always told as a journalist don't become the story well this one kind of picked me up by the ankles and left me with no choice and so I start digging and the more I dig the weirder things get hackers start trying to break into our remail uh private detectives are following people around um then wire card sets the German government on me and my colleagues we start getting investigated for supposedly leaking our stories to stock market manipulators and it becomes crazier and crazier so I thought I share there's there's one moment which always sticks in my mind which isn't actually in the book because it didn't fit putting it in but so one of my colleagues Sam Jones who is this very uh Suave character who appears in the documentary he's been off reporting on the chief operating officer's connections to Russian intelligence and he's told us he's got some stuff but it's too sensitive to even put in electronic form we have to wait until we see him so I sort of go into this meeting with him and uh ruler kff who is uh our current editor and sit down and he starts to tell us this story about how the guy who by day is running a finance company has these extracurricular activities and he has cement plants in Libya and he describes a meeting at which there's a general currently serving in the Austrian Armed Forces who goes along to this as well as some other guys who are connected to Russian intelligence at yam Mar's kind of mansion in Munich which is his sort of base of operations and they're discussing building a Libyan border Force exactly you're like I I remember sitting there just my drawer on the floor going what on Earth are you talking about and yam Mar like this meeting you know he's talking about all the wonderful weapons and kits they can get for this border force and he starts watching video taken by Russian mercenaries which is extremely violent and so at that point we kind of start to think is W car protected in some way I mean because the Russians have a certain reputation and that was incredibly intimidating but the thing is what's important to realize about this is because wiard was a criminal company it couldn't think like a normal company it always sort of resorted to the most bizarre tactics so there are moments in the story where had wiard just come clean and said yes you got us it could have sort of stopped the story you said oh no we'll clean house but because they went down this this approach of accusing the financial times of being corrupt the only way through it was to prove that we were innocent and that they were the bad guys so that was very motivating and I kind of sort of knew if I walked away from the story or if anything happened then my career was over I'd have to find something else to do so it's sort of we knew that we had to do that and also I had you know you can't do anything difficult in life without sort of mentors and the support of a good organization and I had the trust of my boss and he had the trust of the big boss and so the Ft always knew partly because everything was so weird that we were really on to something but yeah there were moments where you just I mean it just seemed absolutely crazy it's interesting actually because we heard from John before saying about how the financial crime piece is actually just the the Apex it's like the Tipping Point it's all the the fraud and everything else that is underneath it's almost like with wire card it was the same the financial crime was at the top and underneath that just was very strange pillars I thought his point everyone cares about the money and not about the crime was very was very true yeah and and how about your maybe just follow on from that point everyone cares about the money not the crime you obviously founded themus what were some of your motivations to do that in terms of like uncovering all of this and maybe talk about that layered approach absolutely thank you Rachel so for us the most important perspective was that criminal activity and stopping criminals from being able to profit from their illicit activity and when you open a window into the criminal world as Dan very successfully did through his investigation and then through the the book moneymen and what you realize very quickly is that Financial crime is not a minor issue and also it's not a victimless issue and I'd be willing to wager that everyone in this room yourselves have either directly through yourself or through your businesses being exposed to some form of fraud or had families friends or colleagues that have had data identities or even money stolen in some way shape or another so this is a big problem and really one that affects us all so if we think about the scale of the problem um within moneymen itself Dan uncovers a fraud where payment records are being routinely doctored to disguise the true nature of the services being purchased whether that's gambling or pornography or others um but also um 1.9 billion euros were missing from wiard's Company accounts so that's just one company but if you then look at this on a global scale the unodc estimates that 2.7% of global GDP is lost every single year to money launderers or other forms of financial crime so again that's 2.7 C of global GDP that is lining the pockets of criminals that are deliberately causing harm to you as people to businesses to environment in some cases to society and the rule of law for the sole purpose of making that their own profit um and that's a really significant issue and in my view it's actually one of the biggest um perhaps most hidden societal issues of our time and that's what we we really wanted to do at Themis was build a platform that makes it so easy to detect um that criminal activity um if we can all be doing due diligence every day then it becomes really really hard for criminals to be able to go on undetected and profiting from those elicit activities and I guess it's I mean you mentioned the the financial cost there but it's like and this is a very minute example but like if you lose your phone it's not just the hassle of paying for new phone it's everything else that goes alongside that right that's just the Tipping Point and so how do we get to some how do we start to detect these things earlier and maybe we go back to the wire card story briefly and what were some of the early warning indicators to you that there something was misaligned because you published the first report back in 2015 and it was still a number of years before it all came to fr yeah I mean it was one of those long running ones and so the first story 2015 um you can't use the F-word impr print uh fraud and so um that first those first series of articles I had to sort of treat wi card as a puzzle well hey there's a bunch of weird things going on here and you know investigators call these um red flags um I also like to call them cockroaches um I talked about this earlier the uh there's this great saying from um a short seller uh there's never just one cockroach if you find one in the kitchen that's going to be some more hiding somewhere so I think there's two different ways you can think about these there's some Financial ones and there's some thematic ones now Financial ones some of them are slightly Arcane you know one of the big tells was um wi card had this very large receivables balance it was booking a lot of sales wasn't getting paid for them but it hit this in the complexity of its financial statements and looking back you could actually there was one really simple thing which anybody could have spotted doesn't take much wiard for years and years was very profitable growing really quickly supposedly had huge amounts of cash on hand and yet every year the amount of its debt went up it's kind of weird huh what does it need all this debt for now it had lots of reasons and explanations but if you had just looked at that one thing you might have scratched your head and thought huh something's a bit off but there were also those softer things so like I spoke to the chief executive he seemed like a liar to me um you know you know I am actually I've definitely met some Psychopaths I recently was lucky to uh interview Andy McNab um the former SAS guy who's written lots of history books about it who's admitted psychopath and him talking about the um that mentality you know he would sort of you know he would kill people and uh he'd forget about it you know wasn't a big deal he'd collect bags of heads that kind of thing so that's the sort of mentality you're dealing with and in the corporate world you also find Psychopaths there who have are very happy to lie but at the same time they lie in predictable ways because people prefer not to lie directly if they can they lie indirectly so they point to all the people around them surely these guys wouldn't be involved if it was a fraud but the but the other really simple thing to think about as you're looking at businesses and looking for fraud does the business make sense how are these guys making so much more money and doing it so much better than everyone else because if you picked up wire cards annual report and this was one of the first things that I did with it's one of the first things I do with any company start reading the anger report and it was really really hard to work out how wire card made its money what it did and it turned out there was an explanation for this which was why card's business had started off in the money laundering used to launder huge amounts of money for online gambling eventually that went away which left a problem so they switched to accounting fraud to make up the difference and the fraud got bigger and bigger and bigger as these things do but that kind of became an excuse they don't talk about their business because they operate in Gray areas so let's not push them too hard on that it seems to be very profitable it's it's crazy as well that this is a publicly listed company I mean I'm not giving any excuse to FDX but that was Private it was harder to get any more information like it's it's mind blowing that a public company could I think that helps though that's what you see in these big complex accounting frauds like wire card like FDX um like erron is once you reach a certain size and scale everyone looks at it and goes nah it couldn't possibly have got to this point if it was a fraud right and it's this sort of social proof everyone looks around the table the bankers The Regulators the lawyers all big br names and they all assume that someone somewhere must have checked and what you always find out at the end is actually nobody checked because usually it's an enormous waste of time but that's how these guys get away with it well that's actually a great point right there were so many stakeholders that did let it go unchecked so you had the Auditors you had The Regulators you had the politicians from your perspective dickan like what could all those stakeholders have been doing to ensure that it was caught earlier with a short answer is is an awful lot um I would agree entirely with what Dan is saying and actually I feel somewhat inferior being on stage next to Dan because investigative journalists have quite a Kudos around them they they're sort of quite cool and brave you put your own life at risk whereas us compliance professionals are are not quite held in the same uh same cach but essentially the job we're doing is the same thing and we have to apply the same lens so we have to be continuously questioning does this make sense why has a business set this up in this way and for me wiard is a great um example and so I thank you very much for persisting in in uncovering it but it's a great example um to show us in the corporate sector why that level of um due diligence and screening is so fundamentally important not just when you open a new relationship but actually all the way through that element of continuous monitoring and continuously understanding what your client is doing or what your supplier or third party is doing and I think in this case there were um you know frankly some things that could have been uncovered they were uncovered by Dan but they could have been uncovered by the corporate sector had they used the right tools and had they followed the right due diligence processes I think with wire card we saw um the dialing of the German Stock Exchange it was the young fintech business that Germany was so proud of everyone was fetting record profits overtaking um Deutsche Bank at certain stages I think so I think people perhaps were blinded by that um but actually if you looked under the covers as Dan did you saw some fairly um sort of unscrupulous practices that would have immediately set some alarm Bells going if if they were my clients so we talk about um sort of allegations of suspicious transactions with um questionable companies or dodgy individuals operating with higher risk um sectors um rooted through bogus companies often in out of the way places that made no sense um with with bogus directors and actually there's a really good example um Dan that you talk about in the book which is um that thousands and thousands of um these payments were being rooted through a small um depr W mining town in the north of England uh called concert and it's a place where frankly nobody goes unless they're born there um and uh unemployment is very high industry is dead there there are no jobs and not many prospects there um but what we saw through this and what Dan uncovered was that thousands of payments were being rooted through companies often at the same address in a residential area in this Northern Town in England and you had bored unemployed Housewives who suddenly had thousands of directorships in the British Virgin Islands now I mean concert is a very rainy cold depressed place so I can understand the need to go to the British Virgin Islands but you have to ask yourselves why that link is there and and what makes that happen so I think if as companies we apply the same principles as an investigative journalist um we can very easily screen clients suppliers third parties anybody we're dealing with to see if there are these anomalies that don't make sense and I think in this case there were lots and actually there's there's examples where you know even um the sort of uh adverse media was there beforehand and here we actually see um you know one of the the gentlemen who was operating those front companies in coner so the the the data was there the material was there but nobody was necessarily adding one plus one together yeah there was that great piece in the movie where they they go to one of the houses were the registered address and they say have you heard of wire card and the guy says no I haven't and he's like oh hang on a moment and he comes out with that pile of letters and he goes I'm a director there it's just it's just brilliant so we do have we we have less than 10 minutes left I do have a number of more questions but I would like to open up for the audience if there are any questions as [Music] well yes if we could get a microphone or maybe just ask loudly hi my name is H I was just looking at just digging into Financial Times article about Wei Works come back as flow so I would love to hear your point of that uh as a potential fraudulent activity that might get other people scammed as we work it might be controversial but should be interesting so um we work as that amazing example of Adam Newman taking as much money as people would give him with their eyes open um and you know SoftBank has incinerated tens of billions of dollars for various reasons um idiocy Chief amongst them um and I can't speak to the fraud usually because as I mentioned um if you start throwing that fword around without uh caution the lawyers get involved and it's a whole thing so let's try and avoid that but um what sters me and always tager me is I remember looking at Wei work 10 years ago and going it's office leasing business right and the flaws inherent in that business were obvious then and they should be obvious now and so really I think this is a question for masaan at SoftBank you know what on Earth were you thinking and why did you give these guys so much money auditing firms I think they complicit to many of these compan I mean I've been an investigator for 20 years in many instances we have seen that auditing firms they do not do what they're expected to do so what's your take on that what um I mean in some respects it's very simple incompetence um I think ernston Young audited wire card for a decade so you have cognitive biases develop you sort of made all the big decisions you've been persuaded and so when you start the next year you're not revisiting your past assumptions and to revisit it to ask yourself hang on a second are these guys lying to me brings into question all your previous work so you're kind of sunk and the Auditors never catch these things um they claim that you know they're supposed to take management at their word their job isn't to you know go are these guys lying to me but I think if you look at sort of the principles which underpin accounting regulation fby those sorts of things they do say You're supposed to adopt a skeptical Manner and there's this amazing moment in 2016 so the entire thing hinges on where is Ward's money this 1.9 billion which disappears they come up with this convoluted thing which says Ah it's not an our bank accounts it's in some trustee bank accounts they look after it details don't really matter for there our purposes what happens in 2016 is wiard tells them hey why yeah go talk to this guy over here he's the trustee who's looking after the money e get in touch and he says you what I have no idea what you're talking about andway go oh go back to Wi card and then they say go back to talk to is like oh no sorry yeah my mistake yes yes now I'm looking after all of wire card's money how did I forget and that right there was the moment that the whole thing could have just stopped ey could have gone huh something's funny going on here and they basically broke rule one of being an auditor which is check the cash balances they didn't go to the banks they went to this guy and I tend towards the incompetence theory of humanity that it was simp simply idiocy but I do realize that explanation is unsatisfying and there are ongoing criminal procceedings in Germany although not much has happened in that respect with the Auditors yet can I just add to that point though because I also think there's a a very simple trick here which is often when people are looking at due diligence they look just at the Target themselves just at the company themselves so in this C case wi card if you expand that risk map and you look at all of their Associated counterparties and connections you look at who you're working with um their suppliers their third parties as well at that point you can also say does this all make sense and in The Wire card case there again were lots of payment companies that were located in sort of far off parts of um Asia in again cities you wouldn't expect their sort of head office is to be and often I think they were sort of Fairly ramshackle buildings in in back streets of of a Backwater and so sometimes by looking at the Target company or individual alone actually it's quite easy to miss that there are other red flags there but if you expand that and you look at all of their Associated counterparties and connections you can spot those hidden patterns very very quickly and it makes your investigation much easier and one way that we can really leverage technology for good and try and make those connections we have time for one more question I saw this lady first so I have two very quick questions one for you Dan and one for you dickin so Dan earlier on I was listening to your um to your presentation and you said that this investigation took six years so I just wondered within that time frame was there ever a time when you questioned your work or was there ever a time when you kind of just wanted to give up and stop right in your tracks especially with some of the difficulties that you were facing with being investigated yourself and then dickon um you touched on the fact that you know people wanted Ward to be the sort of darling of German fintech and we've seen examples of that quite recently with Elizabeth Hol with arinos and with s bman fried with FTX so I wondered what are your thoughts in terms of why people are so Keen to push some of these companies and make them work when they're clearly quite fraudulent Co well um uh on me yeah there was a moment in the middle there the sort of the third act uh where I basically do give up like my career was not going very well at that point and nobody I felt I had sort of thrown everything I could against the wall and nothing had stuck you know people just didn't seem to care and I was supposed to be doing another job entirely at that point the wi card share price tripled I think in 2017 and so I was like well there are other easier stories out there but it always had this sense of Unfinished Business about it like the bastards are getting away with it and I knew that I was going to start on the ft inves ation team and wiard was the first name on the list and I hadn't even started that job yet when the miraculous amazing wonderful thing happened where the Whistleblower in Singapore gets in touch or actually I mean I don't have time to go to now but his mom gets in touch that's a whole another thing which is uh brilliant um and in some respects I mean quite you know the fourth and fifth act quite a lot happened but uh the rest as they say is history so thank you um so a hard question so why do people not ask the right questions I guess um look in my career I've advised um many many banks across different countries and I think in this room there's a lot of people who work in this field so it's your job to ask questions which is great um and the fact that you're here listening to this story means you have a certain interest in uncovering criminal activity um but there are um many people that will put profit over that level of questioning so sometimes it is easier not to ask the questions because there might be a sort of multi-million dollar fee um being associated with that client um and actually being able to say no to a client can be very very difficult um but again um with the clients that we've advised we now talk a lot about reputational risk um and I think since particularly the war in Ukraine a lot more Business Leaders and executives are much more attuned to both the reputational and ethical risks of doing business with perhaps the wrong sort of people or the wrong sort of companies so I think things are changing very quickly which is great um and we want to see more and more of of that momentum we want to see more and more businesses with the confidence to say no I'm not going to do business with this company or actually I'm going to challenge them as to why um these red flags are here and what they mean excellent well gentlemen we are overtime it's been an absolute pleasure thanks so much for coming on really enjoyed the discussion please thank Dan