CumEx-Files - Countries affected by the fraud

The CumEx-Files is an investigation by a number of European news media outlets into a

tax fraud Tax evasion is an illegal attempt to defeat the imposition of taxes by individuals, corporations, trusts, and others. Tax evasion often entails the deliberate misrepresentation of the taxpayer's affairs to the tax authorities to reduce the taxp ...

scheme discovered by them in 2017. A network of banks, stock traders, and lawyers had obtained billions from European treasuries through suspected fraud and speculation involving

dividend tax A dividend tax is a tax imposed by a jurisdiction on dividends paid by a corporation to its shareholders (stockholders). The primary tax liability is that of the shareholder, though a tax obligation may also be imposed on the corporation in the f ...

es. The five hardest hit countries may have lost at least $62.9 billion.

Germany Germany,, officially the Federal Republic of Germany, is a country in Central Europe. It is the second most populous country in Europe after Russia, and the most populous member state of the European Union. Germany is situated betwe ...

is the hardest hit country, with around $36.2 billion withdrawn from the German treasury. Estimated losses for other countries include at least €17 billion for France, €4.5 billion in Italy, €1.7 billion in Denmark and €201 million for Belgium. The name "cum-ex" is derived from

Latin Latin (, or , ) is a classical language belonging to the Italic branch of the Indo-European languages. Latin was originally a dialect spoken in the lower Tiber area (then known as Latium) around present-day Rome, but through the power of the ...

, meaning "with without", and refers to the disappearing nature of the fraudulent dividend payments.

Method

The network stole several billion Euros from the treasury, through what

Correctiv The CORRECTIV (or CORRECT!V) is a German nonprofit investigative journalism newsroom whose stated goal is "to give citizens access to information." With about 20 staff members, CORRECT!V is the only nonpartisan, nonprofit investigative center ...

calls a "cum-ex" trade: The participants in the network would lend each other shares in large companies, so that to tax authorities there would appear to be two owners of the shares, when there was only one. The bank that was used in stock trading would then issue a "confirmation" to the investor that tax on the dividend payment had been paid, without it being done. "It’s a bit like parents claiming a child benefit for two – or more – children when there is only one child in the family." writes Correctiv. This practice was outlawed in 2012. The name "cum-ex" is derived from

, meaning "with without", and refers to the disappearing nature of the fraudulent dividend payments. In cum-ex trades, shares with and without dividend rights were quickly traded between various market participants just before the payout date for the dividend, allowing traders to reclaim double the taxes. Financial institutions in essence allowed two parties to simultaneously claim ownership of the same shares, therefore allowing both to claim tax rebates to which they were not entitled. Authorities have since deemed the reclaims illegitimate, but at the time of the trades, this was less black and white, and a vast network of traders, analysts and lawyers were thought to be involved in the practice throughout the continent. The elite tax firm

Freshfields Bruckhaus Deringer Freshfields Bruckhaus Deringer LLP (informally Freshfields, or FBD) is an international law firm headquartered in London, and a member of the Magic Circle. The firm has 28 offices in 17 jurisdictions across Asia, Europe, the Middle East and North ...

gave tax advice which was used to justify the legality of the scheme. In November 2019, Ulf Johannemann, a former Freshfield lawyer was arrested. In May 2020, the

European Banking Authority The European Banking Authority (EBA) is a regulatory agency of the European Union headquartered in Paris. Its activities include conducting stress tests on European banks to increase transparency in the European financial system and identifying ...

announced a 10-point action plan to enhance the future regulatory framework surrounding dividend arbitrage trading schemes. According to the report, in some countries, the cum ex deals are not criminal offences.

Danish dividend scandal

In 2010, in an audit report, the Danish Ministry of Taxation was found to have ignored warnings on multiple occasions of a tax loophole concerning

. In June 2020, it was reported by investigators that such transactions took advantage of European rules on the taxing of dividends, which made it possible to get refunds by using a combination of short sales and future transactions.

Lawsuits in France

At the end of October 2018, the Socialist deputy

Boris Vallaud Boris Vallaud (born 25 July 1975) is a French politician of the Socialist Party (France), Socialist Party who was elected to the National Assembly (France), French National Assembly in the 2017 French legislative election, 2017 elections, repre ...

filed a complaint against X for fraud and aggravated tax fraud laundering with the . A parliamentary information mission on

tax evasion Tax evasion is an illegal attempt to defeat the imposition of taxes by individuals, corporations, trusts, and others. Tax evasion often entails the deliberate misrepresentation of the taxpayer's affairs to the tax authorities to reduce the taxp ...

of the National Assembly has also published a report on the results of the fight against cross-border malicious

financial engineering Financial engineering is a multidisciplinary field involving financial theory, methods of engineering, tools of mathematics and the practice of programming. It has also been defined as the application of technical methods, especially from mathema ...

Discovery

The Danish State Commissioner August Schäfer first warned of the practice in 1992, after the testimony of five whistleblowers. However, the practice remained widespread until an administrative assistant in the German

Federal Central Tax Office The Federal Central Tax Office (german: Bundeszentralamt für Steuern, abbreviated BZSt) is a German federal agency (Germany), federal agency responsible for administering various sections of the country's tax code. It was created out of its cu ...

noticed abnormally large tax rebate claims from a US pension fund.

Implicated institutions

Various banks and other financial institutions were involved in these alleged trades. Among those named in the leaked files include

Macquarie Bank Macquarie Group Limited () is an Australian global financial services group. Headquartered and listed in Australia (), Macquarie employs more than 17,000 staff in 33 markets, is the world's largest infrastructure asset manager and Australia's ...

Deutsche Bank Deutsche Bank AG (), sometimes referred to simply as Deutsche, is a German multinational investment bank and financial services company headquartered in Frankfurt, Germany, and dual-listed on the Frankfurt Stock Exchange and the New York Sto ...

HypoVereinsbank UniCredit Bank AG, better known under its brand name HypoVereinsbank (HVB), is the fifth-largest of the German financial institutions, ranked according to its total assets, and the fourth-largest bank in Germany according to the number of its e ...

, M. M. Warburg, Maple Bank,

Merrill Lynch Merrill (officially Merrill Lynch, Pierce, Fenner & Smith Incorporated), previously branded Merrill Lynch, is an American investment management and wealth management division of Bank of America. Along with BofA Securities, the investment bank ...

KPMG KPMG International Limited (or simply KPMG) is a multinational professional services network, and one of the Big Four accounting organizations. Headquartered in Amstelveen, Netherlands, although incorporated in London, England, KPMG is a net ...

Ernst & Young Ernst & Young Global Limited, trade name EY, is a multinational professional services partnership headquartered in London, England. EY is one of the largest professional services networks in the world. Along with Deloitte, KPMG and Pricewaterh ...

Investec Investec is an Anglo-South African international banking and wealth management group. It provides a range of financial products and services to a client base in Europe, Southern Africa, and Asia-Pacific. Investec is dual-listed on the London ...

, and

Freshfields Freshfields Bruckhaus Deringer LLP (informally Freshfields, or FBD) is an multinational corporation, international law firm headquartered in London, and a member of the Magic Circle (law firms), Magic Circle. The firm has 28 offices in 17 jurisdi ...

. Investigations revealed that since 2012 Investec had provided the Dutch broker Frank Vogel with more than €12 billion to facilitate his alleged tax arbitrage scheme.

References

External links

*{{Official website from

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