In Germany, auditors may only testify in public, criminal or civil proceedings if expressly released from confidentiality obligations by their clients. Otherwise, they incur criminal and civil liability. In the context of the Wirecard scandal, the insolvency administrator had granted such a release in an investigation carried out by the German Parliament, but Wirecard's auditors, Ernst & Young (EY), still refused to testify in the absence of a further express release by Wirecard's former management. EY's position led to the imposition of a fine for contempt against two individuals and EY took the case to the Federal Supreme Court to seek clarification on this undecided point.
The Federal Supreme Court has now confirmed that release by a receiver is sufficient to relieve auditors of the confidentiality obligations owed to their clients and that EY were indeed obligated to testify. The court, however, did not uphold the fine because it acknowledged that the individuals faced a real dilemma given the untested legal position. The decision is not yet published.
On 25 June 2020, Wirecard filed for insolvency after revelations that EUR 1.9 billion was "missing" and it's CEO was subsequently terminated and arrested. In order to investigate the case, the German Bundestag established an audit committee (parlamentarischer Prüfungsausschuss). EY refused to testify before this audit committee claiming that they were not released from their confidentiality obligations. This resulted in a fine in the amount of EUR 1,000; the audit committee considered that the accountants were indeed obligated to testify as they had been released from their confidentiality obligations by Wirecard's insolvency administrator. EY's lawyers opposed this assessment and the fine imposed, arguing that there was no decision of principle in Germany setting out the preconditions for the release of confidentiality in this situation.
EY considered that the legal uncertainty on this point warranted referral to the Federal Court of Justice seeking a declaration. The primary question was: Is the release by the insolvency administrator sufficient, or does the former management of Wirecard have to release EY themselves? If the latter, the court was asked whether former management can successfully obstruct investigation of the case by denying the release of the confidentiality.
The Federal Supreme Court concluded that the release from confidentiality obligations by the insolvency administrator is sufficient thereby eliminating the uncertainty on this point. This decision paves the way for further interrogation of the former accountants of Wirecard before the German Bundestag and, potentially, extensive clarification of the case.
The decision rationale is not yet published, therefore it is yet to been seen to what extent the decision will also affect the release of confidentiality in other criminal investigations. Nevertheless, the decision is ground breaking as the court's reasoning will very likely be applied in criminal proceedings and civil litigation against BaFin, insurers and the auditors themselves, just to name a few. It has to be noted that the case concerns the specific role of auditors and cannot per se be applied to other professionals advisors, notably lawyers.
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