UK Bankers Slammed with Suspended Prison Sentences & Fines for German Cum-Ex Tax Scandal
FYI as a courtesy from EA TAXES, [email protected]
Two UK bankers were given suspended prison sentences with one receiving a 14 million Euro fine as a result of their roles in the cum-ex tax fraud scandal in Germany.
In what German judge Roland Zickler called “a collective case of thievery from state coffers,” the two British professionals were found guilty of setting up “a network of traders and lenders to make double tax reclaims with sham share trades.”
According to Reuters, bankers Martin Shields and Nicholas Diable “targeted companies - including carmaker BMW and airline Lufthansa - with large trades, triggering tax rebate vouchers, outlining more than 30 instances of double-tax reclaims totaling 447 million euros.”
More specifically, the cum-ex scheme, which ran from 2005 to 2012 and has been deemed by Bloomberg as “a key moment for the banking industry,” allowed investors to benefit from “a glitch in the mechanics of trading and reclaiming withholding tax [that] made it possible to generate virtual dividends by short-selling stocks.”
This, in turn, writes Reuters, “triggered a voucher to reclaim the tax that had never been paid” and led to shares being “rapidly moved around a group of banks and investors to give the impression of numerous owners, each entitled to a tax rebate.”
Shields was hit with a 14 million Euro penalty and a one year and ten-month suspended sentence, while Diable received a one year suspended sentence. Both men cooperated with prosecutors and disclosed how the elaborate tax fraud was set up and put in motion.
“We are pleased that the court’s ruling has acknowledged the extent of his cooperation, vital contribution, and his willingness to accept both responsibilities and make good the harm he has done,” Hellen Schilling, who represented Shields, said about the verdict.
Chief prosecutor Anne Brorhilker agreed with the sentence, stating that if it had been harsher, it would have “covered up the fact that the greatest tax robbery in German history was not conducted by two individuals but hundreds of people.”
According to David Sterns, Joint Head of Business Crime at 5 St Andrew’s Hill in the UK, Shields and Diable’s “first-mover position and co-operation brought reward.”
In an article for Lexology, Sterns explains: “Ordinarily, under German sentencing law it is understood that there would be no possibility of a suspended sentence for causing tax evasion of several million Euros. However, in this case, the court sought to understand how the financial services industry was able to obtain multiple tax refunds on dividend payments. Because the complex practice required the interplay of many characters, the case led to a closer examination of the wider industry. Both defendants provided significant assistance, which helped identify crucial details of the strategy.”
The German court also confiscated close to 180 million Euros from MM Warburg Group, a private lender involved in many of these illegal but highly lucrative deals.
Analysts suggest Germany might have lost anywhere between 5 and 55 billion Euros in taxes as a result of the cum-ex scheme, one which the German government had tried to stamp out on multiple occasions only to finally ban it in 2012.
Following this decision’s overall success, the German government will continue its pursuit of another 600 individuals who were potentially involved in the cum-ex scheme. These include bankers, traders, lawyers, and financial consultants, among others.
Speaking about the case’s magnitude and the number of people involved, Nick Barnard, a lawyer with Corker Binning in the UK, said Shields and Diable “were only two actors in a cast of hundreds, if not thousands, involved in the Cum-Ex process…Every tax reclaim was the end product of a long chain of transactions, each involving a facilitating institution, many of whom are household names.”