The money house comes under pressure in the cum-ex affair.
(Photo: imago images/Mattias Christ)
Frankfurt Raid in the twin towers: Public prosecutors, tax investigators and police officers have been searching the headquarters of Deutsche Bank in Frankfurt since Tuesday. The officials also frisked the private homes of some of the suspects.
The searches are being carried out as part of a five-year investigation into suspected serious tax evasion (reference number 213 Js 375/17). The procedure is directed against around 80 suspects.
The Cologne public prosecutor’s office is in charge of the search and has not yet responded to a request at short notice. On request, Deutsche Bank stated: “We confirm that the Cologne public prosecutor’s office is currently carrying out official measures at our Frankfurt location as part of the investigations against the bank that have been ongoing since 2017 in the matter of cum/ex. As has been the case since the investigations began in 2017, the bank continues to cooperate fully with the investigating authority. Please understand that we will not comment further due to the ongoing proceedings.”
The Latin term cum-ex refers to share group transactions around the dividend record date with (cum) and without (ex) profit distribution. The aim was double or multiple reimbursement of capital gains tax. Numerous banks were involved, and more than 130 investigations are underway in Germany, especially at the Cologne public prosecutor’s office. She managed to decipher the entire system according to which the transactions worth billions were processed.
Top jobs of the day
Find the best jobs now and
be notified by email.
Short sales, debt capital, hedging transactions and custodian banks were central to the business. Through the short sale, those involved fooled the tax authorities into believing that one share was attributable to two shareholders. The existing equity was partly leveraged with borrowed capital by a factor of 20. Derivatives specially created for the transactions hedged the price risks and served to distribute the spoils. Custodian banks willingly issued tax receipts that could be redeemed at the tax office.
Participation in various positions
Deutsche Bank – that much is clear – was involved in various places. Many allegations are known, but the investigators are apparently still missing a few pieces of the puzzle in order to get the overall picture. Apparently, it has been shown that the clarification carried out by the bank with the help of the law firm Freshfields Bruckhaus Deringer only painted an inadequate picture of the cum-ex involvement of Deutsche Bank.
That’s not surprising: Freshfields was already advising Deutsche Bank in the phase when the deals were in progress. “The bank tried to turn the buck into a gardener here,” says a person familiar with the processes. The project called “Xenon” was headed by Ulf Johannemann, of all people, who himself is accused of aiding and abetting tax evasion in another cum-ex case.
While Deutsche Bank was not on the sell or buy side, it otherwise provided all sorts of services required in the cum-ex deal. The previous investigations brought this to light. Deutsche Bank acted as prime broker for various funds. As such, it provided outside capital. For individual transactions, that was many hundreds of millions of euros.
Dispute with MM Warburg
Deutsche Bank also acted as custodian, which is why they are at odds with MM Warburg. Hamburg’s accusation: the big bank should have ensured that the capital gains tax was paid. From Warburg’s point of view, Deutsche Bank knew very well that the profits came from the tax coffers. This is also supported by the fact that many short sellers stocked up on German shares after the dividend deadline.
In addition, Deutsche Bank secured the transactions for the short sellers. It thus fulfilled an important control function. In this way, the participants shared the profits. In later years, the bank then outsourced the business to the finance firm Ballance. Two former Deutschbankers worked there, Simon P. and Joe P. Observers speak of outsourcing.
The search brings the Cum-Ex affair closer to Deutsche Bank itself.
More: Illegal share deals: Citizens’ movement Finanzwende calls for EU state aid procedures