Big global banks could have to repay millions made in “cum-ex” deals
, for trades between banks and private customers; kd-1-11, a code for payments, which confuses his translator. But on September 18th, the first of two days’ testimony at a court in Bonn, the British investment banker does his best, with slides and a laser pointer, to explain to the judge the complexities of dividend arbitrage in general and “cum-ex” deals in particular.
Mr Shields and Nicholas Diable, another British banker, are the main defendants in Germany’s biggest post-war tax-fraud trial. They are accused of “aggravated tax evasion” for helping engineer 33 deals that cost taxpayers almost €450m between 2006 and 2011. The charge sheet runs to 651 pages. Cum-ex trades are share transactions done at high speed on or just before the day dividend payments are recorded.
Also in the courtroom were representatives of M.M. Warburg, Warburg Invest, Hansainvest Hanseatische,Mellon and Société Generale. All five banks played parts in cum-ex deals masterminded by Mr Shields, with Mr Diable in a supporting role. If the court rules that the tax reimbursements were fraudulent, they may be on the hook for tens of millions of euros.
Estimates for the total cost of cum-ex trades in Germany vary wildly. At the low end the finance ministry, which has identified 499 suspected cases, puts the damage at €5.5bn, of which the taxman has recovered €2.4bn. The ministry says it closed the loophole in 2012. Critics say it should have done so much sooner.
Christoph Spengel of Mannheim University reckons the bill is far higher: €31.8bn between 2001 and 2016. And a team of investigative journalists gathered by Correctiv, an investigative-journalism group, from newspapers in several countries, including
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