Judiciary deals with Cum-Ex scandal

Finances - Judiciary deals with Cum-Ex scandal

The heyday of the illegal cum-ex share deals was more than a decade ago, but the tax authorities have only recovered part of the billions in lost tax revenue. Now, the Bürgerbewegung Finanzwende association is calling for the biggest tax scandal in Germany to be investigated more quickly in light of the budget crisis. In addition, investigations into related cum-cum-deals must make progress in 2024.

"Billions are currently being desperately sought for savings, but unauthorized bank profits are not being consistently recovered," Gerhard Schick, Chairman of the Bürgerbewegung Finanzwende, told dpa. "This is a political issue."

"Will never know the full extent"

Schick called for more ambition from politicians. "The longer it takes to deal with cases and conclude proceedings, the more difficult it will be to punish perpetrators and recover money." In any case, the full extent of cum-ex will never be known and all the tax money will never be recovered. "The sums lost before 2007 will never be recovered," says the former Green MP.

In cum-ex share transactions, banks and other investors had capital gains tax paid on dividends refunded several times by the state. Investors took advantage of a loophole in the law at the time: around the dividend record date, shares with ("cum") and without ("ex") dividend entitlement were shifted back and forth between participants in order to confuse the tax authorities. The estimated tax loss was at least ten billion euros.

The loophole was only closed in 2012, and in 2021 the Federal Court of Justice classified cum-ex as tax evasion. More and more defendants were convicted, such as tax lawyer Hanno Berger and former employees of Maple Bank and Hamburg-based Warburg Bank. Warburg banker Christian Olearius is also on trial.

Although there are now more public prosecutors for cum-ex proceedings, there is a lack of investigators and criminal investigators, criticizes Schick. In addition, there is still a lack of political backing. This is shown by the "attempted disempowerment" of Cologne public prosecutor Anne Brorhilker.

According to figures from the Federal Ministry of Finance, 149 cum-ex cases have been legally concluded to date. In the process, 3.4 billion euros in capital gains tax and solidarity surcharge have been reclaimed or corresponding refund applications rejected. According to the latest data from the end of 2022, 418 suspected cum-ex cases with a tax volume of around 3.9 billion euros were reported as being processed.

Even greater tax loss from cum-cum transactions

The state lost even more money in related cum-cum deals, which were more widespread and have hardly been legally investigated. Mannheim-based financial expert Christoph Spengel estimates the tax loss between 2000 and 2020 at 28.5 billion euros.

In cum-cum deals, shares held by foreign investors were transferred to domestic shareholders, such as banks, shortly before the dividend record date. They were able to have the capital gains tax credited or refunded. The shares and dividends were then returned and the tax saved was shared. At the beginning of 2020, the Hesse Fiscal Court ruled that cum-cum deals were abusive tax arrangements.

To date, only a fraction of the €237 million in capital gains tax has been reclaimed or not offset against the tax liability. According to the Federal Ministry of Finance, 237 suspected cases were being processed at the end of 2022 with a volume of around 6.4 billion euros. The political leaders in the federal states must set the course in tax investigation and public prosecutor's offices so that these billions can be recovered, Schick demanded.

A recent letter from the Federal Ministry of Finance to the Finance Committee of the Bundestag shows the extent to which German banks were involved in cum-cum deals. According to the letter, the banks' charges for tax reclaims amounted to a good 4 billion euros in 2022. Around 1.33 billion euros of this was offset and provisions of around 740 million euros were set aside for tax back payments.

New rulings expected in 2024

New cum-ex players are likely to come to the fore in the new year. "I expect, for example, an indictment against bankers from the former Landesbank WestLB, which was probably the biggest player in the cum-ex scandal in Germany, at Bonn Regional Court," said Schick.

Schick not only expects a verdict in the trial against the Warburg banker Olearius in 2024. A trial against a former top lawyer from the law firm Freshfields at Frankfurt Regional Court is also about to be concluded. A verdict would have a signal effect for other proceedings against legal advisors, says Schick. "The public prosecutor's office in Cologne could then bring other accomplices to justice."