From Enron to Wirecard: How Blockchain Tech Could Have Helped

Adam Traidman is CEO of BRD, a cellular cryptocurrency pockets.

If a world firm can efficiently conceal billions of {dollars} in a single day, we’ve an issue. If it’s rigorously audited by a number one accounting agency, and controlled by some of the thorough regulatory businesses on the earth, but nonetheless manages to cowl up the disappearance of billions of {dollars}, then we’ve an excellent larger drawback. I’m after all speaking in regards to the evident reports that thrust the steadiness sheets of German-based card issuer Wirecard into the highlight in latest weeks – uncovering some ugly truths and a culture of mistruths pertaining to monetary record-keeping.

How may a globally acknowledged firm get away with $2.1 billion value of fraud for therefore lengthy? To put it bluntly, this can be a case of a largely legit public-facing enterprise fronting for shrewd cash laundering operations. Hiding in plain sight, because it had been.

Related: CoinDesk’s Twitter Hack Proved the Media Can’t Rely on Web 2.0

The Wirecard scandal highlights how an optically upstanding and regulatory compliant firm can expose sure strands of data, whereas tactically omitting essential particulars, permitting it to navigate tight regulatory and audit constraints. The fraud appears to have been enabled by an expansive community of subsidiaries, and a convoluted company construction. 

See additionally: New Blockchain Tool Promises Verifiable Audits in 30 Seconds

The 2006 buy of XCOM Bank AG broadened Wirecard’s remit significantly, making it eligible to problem bank cards, whereas additionally dealing with cash on behalf of retailers, a spectrum of exercise that historically blurs the road between non-banking and easy banking operations. 

Between 2011 and 2014, Wirecard started buying quite a lot of Asian funds corporations, additional including layers of complexity to the corporate’s construction and steadiness sheet. The Financial Times honed in on this growth, which continued all through the last decade, pointing to quite a lot of inconsistencies in Wirecard’s accounts. Some of those subsidiaries had been reportedly processing funds on behalf of the corporate, enabling Wirecard to tactfully assemble a protect for suspicious accounting practices – together with a $2 billion steadiness sheet gap.

Related: Money Reimagined: China’s ‘Cold War’ Blockchain Strategy

Fast ahead to 2020: an investigation by German and Singaporean regulators led authorities to 2 belief accounts within the Philippines, which supposedly held the lacking cash. The auditors, after all, had been unable to search out the money.

The unraveling of Wirecard’s gross malpractice needs to be a watershed second, one which initiates a technology-driven change.

The doubtful findings led many to consider the corporate was inflating its worth by way of simulating enterprise with quite a lot of third celebration acquirers. A barely divergent principle means that maybe a few of this “business” was legit, nevertheless it wasn’t essentially being carried out on behalf of Wirecard, and the cash was by no means held the place it was imagined to be.

Blockchain may have helped

The unraveling of Wirecard’s gross malpractice needs to be a watershed second, one which initiates a technology-driven change to mitigate the danger of those sorts of scandals. Ideally, each time a agency tries to suppress fund particulars, they need to pop up some other place, dissuading entities from participating within the alteration of economic data.

Blockchain expertise permits real-time, cross-organizational intelligence sharing that may mitigate the danger of economic crimes flying beneath the radar. This is true additionally in instances the place prison networks are geographically distributed, with a number of banks getting used to cover-up illicit exercise, because it was within the Wirecard case.

See additionally: Leah Callon-Butler – Is Crypto Fintech? It Depends Who You Ask

As prison networks grow to be more and more subtle, blockchain expertise could be leveraged to assist regulators corroborate proof throughout an expansive ecosystem. Cryptographically-secure instruments comparable to non-public set intersection – which permit events to match two or extra information units and determine matching components with out revealing any underlying info – can be utilized to assist regulators determine cases of cash laundering and different monetary crime. 

While the Wirecard scandal illustrates the necessity for the next stage of disclosure, notably to regulators, I’m not selling the concept all the pieces must be accessible. Companies will at all times want a level of privateness for regulatory or aggressive causes. We can strike the suitable steadiness by making main corporations accountable for his or her actions, and achieve this in a extra environment friendly means than any authorities or regulated physique at present can, utilizing blockchain expertise and new cryptographic strategies that assist flag spurious transactions. 

Clearly, within the case of Lehman Brothers, Enron, and now Wirecard, the related regulatory our bodies failed in a really public method and had been left to choose up the items. Even although Wirecard was totally audited, the corporate’s multi-layered subsidiaries allowed them to muddle monetary info and sidestep regulatory reprimands. At some level, both the auditors weren’t paid sufficient to maintain digging, or they ended up taking info on religion.

When all the pieces is laid out on a public ledger, irrespective of how deep auditors have to excavate, the knowledge is at all times accessible. With blockchain being deployed inside the context of a regulated monetary system, we are able to pivot in direction of extra decentralized and clear cost and accounting methods, sparing future regulatory blushes and dissuading company entities from dishonest the system.

Related Stories

LEAVE A REPLY

Please enter your comment!
Please enter your name here