30/11/21

IRELAND: Finance officials raised ‘reputational’ concerns over cum-ex fraud.

As published on irishtimes.com, Tuesday 30 November, 2021.

Department of Finance officials raised concerns that evidence of Irish involvement in a multibillion euro fraudulent financial trading scheme would pose a “reputational” issue for Ireland, internal emails show.

The scheme, known as cum-ex, involved a network of traders, hedge funds, asset managers and banks claiming multiple refunds on dividend withholding tax that was only paid once, or not at all, through a complex series of trades.

The trades are estimated to have cost European tax authorities billions of euro over two decades.

A recent investigation by The Irish Times, in partnership with German newsroom Correctiv and 15 other media organisations, examined a large leak of documents related to the scheme, called the cum-ex files.

The leak revealed a number of investment funds registered in Ireland were used to carry out the trades, which mainly targeted tax authorities in large EU countries such as Germany. A former Bank of Ireland subsidiary and the Dublin offices of two international banks, Investec and BNP Paribas, were used by those involved in the scheme.

Department of Finance officials discussed how to respond to media reports of Irish funds’ involvement in cum-ex trades with Central Bank officials, internal correspondence shows.

One department principal officer described the cum-ex controversy as a “reputational” issue, according to emails released under the Freedom of Information Act.

In an October 21st email, department staff queried if an individual could “be banned from operating” in the Irish financial sector, if they had been convicted of tax fraud in another jurisdiction.

The regulator said although someone convicted of tax fraud was not automatically barred from acting for a financial firm, they would be likely to find it “very difficult to obtain approval” to do so, under its fitness and probity standards regime.

Department officials sought a briefing for Minister for Finance Paschal Donohoe on the Central Bank’s understanding of “the use of Irish-based funds for some of the alleged activities”.

The briefing outlined that if the Central Bank became aware of “serious misconduct or dishonest activity” from Irish directors or senior financial executives, it had powers to investigate “and potentially sanction such individuals”.

The department briefing notes stated Ireland had adopted an EU anti-tax-avoidance directive in 2019, which included measures to address cum-ex and similar dividend withholding tax schemes. The speaking points were also shared with the Department of Foreign Affairs’ EU office in Brussels.

While Irish tax authorities were not targeted by the trades, since deemed illegal by Germany’s Federal Court of Justice, Irish funds were used as vehicles for trades targeting tax authorities in other EU countries.

Ireland’s embassy in Belgium noted the involvement of Irish funds in the trades had been reported in the Belgian media, in internal correspondence to other Irish diplomats. The email stated Belgium’s finance minister had criticised challenges in investigating the cum-ex scheme “due to the international dimensions” of the trades.

The scheme worked by buying and selling huge volumes of shares in a co-ordinated circuit, at key times around the date companies paid out dividends. This resulted in confusion over who was entitled to a refund on dividend withholding tax, allowing it to be claimed multiple times.

More than 1,000 individuals, including a number of Irish residents, are under investigation by prosecutors across several European countries over the trades, as well as a large number of financial institutions.