UK: UK banks caught up in Europe's biggest-ever tax fraud of £10billion

As published on: thisismoney.co.uk, Monday 13 November, 2023.

Europe's biggest ever tax scandal is about to engulf banks in London - and is already worth £10billion in Germany alone.

The multi-billion pound scam, which has already rocked Germany, is likely to lead to more claims against banks and individuals operating in the City.

The so-called Cum-Ex case involves alleged dividend tax frauds that are estimated to have cost German taxpayers alone nearly £10billion.

Up to 2,000 suspects are implicated, many of them bankers, brokers and hedge fund managers based in the City of London. More than a dozen convictions already have been secured in German courts.

Banks under investigation include Britain's Barclays, Bank of America Merrill Lynch, Morgan Stanley of the US, France's BNP and Japan's Nomura, as well as law firms and auditors.

The epicentre of the long-running cross-border probe is Cologne, but it extends much further afield – and is escalating. In a significant development, Danish authorities last week won the right to pursue a £1.4billion alleged Cum-Ex fraud in London after the Supreme Court ruled it could be heard in England.

Experts say the judgment will have profound implications for similar cases being heard. 'This ruling is likely to open the floodgates to claims by other European regulators,' said Prateek Swaika, partner at law firm Boies Schiller Flexner. Banks implicated in Cum-Ex were 'low-hanging fruit', he added.

Cum-Ex was a controversial 'double-dipping' trading strategy that exploited a loophole in how dividend tax was collected so that multiple investors could claim refunds on a tax that was only paid once.

Shares were borrowed just before a company was scheduled to pay dividends. This meant more than one investor could claim bogus tax refunds. The dividend-stripping practice was abolished in Germany in 2012.

Ulrich Bremer, chief public prosecutor in Cologne, told the Mail on Sunday his office had '120 investigations pending against at least 1,700 defendants'. The backlog is such that a new, £40million courthouse dedicated to hearing Cum-Ex cases is being built near Bonn.

In the latest conviction, an ex-Fortis banker last week was sentenced to three years and three months for his role in the trading scandal. The German, who can only be identified as Frank H, was found guilty in a Frankfurt court of siphoning off around £59million through dodgy Cum-Ex deals.

Dutch bank ABN Amro, which took over the part of Fortis that carried out the trades, has returned the money to the tax authorities. German authorities have recovered about £2.7billion in total so far.

UK taxpayers were not defrauded in the Cum-Ex scam because dividends are not subject to withholding tax.

However, British banks have been caught up in the scandal.

Barclays employed 124 bankers who were later named as suspects and charges may come early next year, according to financial newswire Bloomberg. The bank declined to comment.

City watchdog, the Financial Conduct Authority, is also investigating firms and individuals over conduct in London which may have supported Cum-Ex trades done in Europe.

'We are now at the stage where we are starting to see the tip of the iceberg – and more of that tip is becoming visible,' said Aziz Rahman, senior partner at financial crime specialists Rahman Ravelli.


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