One hundred financial institutions linked to decade-long fraud that exploited tax code flaw
Cologne prosecutors have raided Commerzbank’s Frankfurt headquarters as part of a criminal investigation into a decade-long tax fraud that cost the country billions of euros. The latest raid is one of a number of nationwide investigations into the “cum-ex” scandal, described as the worst tax scam in German history, whereby financial groups and their clients allegedly exploited a design flaw in the tax code to trick authorities into refunding dividend tax that had never actually been paid. In a statement, the prosecutor’s office said that “investigative measures” were carried out on Tuesday “within the framework of the procedure complex around the cum-ex transactions”. It said that “due to tax secrecy”, no further information could be provided. “We cannot comment on ongoing investigations,” Commerzbank said. “We are fully co-operating with the authorities and hope the matter is resolved as quickly as possible.” Commerzbank said in its most recent financial report it had “initiated a forensic analysis of cum-ex transactions” between 2015 and 2018 and handed over the results to authorities. However, its internal probe into the cum-ex linked equity transactions of Dresdner Bank, the rival German lender it bought in 2009, had not yet been completed and disclosed to prosecutors. A cum-ex deal typically involved a trader borrowing a block of shares to bet against them using a technique called short selling in the run-up to dividend day and then selling them across national borders to another investor. A loophole meant parties on both sides of the trade could successfully claim a refund of withholding taxes paid on the dividend — even though authorities say in reality only a single rebate was due. Germany’s finance ministry has said that 499 deals worth €5.5bn that took place between 2001 and 2011 are being investigated, and €2.4bn has already been recovered by tax authorities Commerzbank is not the only organisation under scrutiny. About 100 financial institutions have been linked to cum-ex deals, including crosstown rival Deutsche Bank, DZ Bank and HypoVereinsbank, the German division of Italian lender UniCredit. Last week, two British former stockbrokers went on trial in Bonn accused of defrauding German taxpayers of €440m in lost tax, and face up to 10 years in jail. Cologne investigators are also probing Deutsche’s former investment banking boss Garth Ritchie, as well as other current and former employees, over any knowledge of and involvement in illicit tax transactions, the Financial Times reported in June. Mr Ritchie has said he is confident the investigation will show no wrongdoing by him. Late last year Deutsche paid €4m to settle a separate cum-ex investigation by the Frankfurt general prosecutor’s office that looked into how the bank helped clients agree the illicit deals. Deutsche maintains it never actively participated in such transactions “as a short seller nor as cum-ex purchaser”, but acknowledges that “as a big market participant, [it] was involved in cum-ex deals of customers”.
Stephen Morris in Frankfurt and Guy Chazan in Berlin – ft.com