Raid on the bank’s Frankfurt offices.
(Photo: AFP)
Frankfurt A squad of 75 prosecutors, tax investigators and police officers have been searching the German branch of the US bank Morgan Stanley and the private homes of two suspects since Tuesday morning. The investigations into the institute’s environment have been going on for about five years, and the evidence of involvement in tax evasion has apparently increased. The public prosecutor’s office is now looking specifically for evidence of illegal tax transactions.
A spokesman for the lead public prosecutor’s office in Cologne confirmed a search in Frankfurt, but did not name the bank. The spokesman confirmed that the raid is related to cum-ex transactions. When asked, Morgan Stanley said: “The investigation relates to past activity and we continue to cooperate with the German authorities.”
The US investment bank has a lot of company. The offices of Bank of America/Merrill Lynch and Barclays were only searched in March, and in December 2021 the officials targeted the major Swedish bank SEB. The high frequency of the assignments shows once again that cum-ex deals are an industry-wide phenomenon. Almost all major financial institutions were involved.
The aim of the business was to fraudulently obtain double tax refunds. So-called short sales were characteristic of this. The participants traded shares in circles to make it appear as if there were two owners of the same share at any given time. One of them paid the capital gains tax, both of them had it refunded.
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At the same time, other banks hedged price risks with derivatives. The business had no other purpose than reaching into the tax coffers.
130 financial institutions under suspicion, 1400 suspects
The Morgan Stanley name kept popping up in connection with Cum-Ex. He was also on the list of around 130 financial institutions that a whistleblower sold to the North Rhine-Westphalian tax authorities at the end of 2015. At that time, NRW paid the record price of five million euros.
It was a worthwhile investment – just one year later, the authorities had collected more than 100 million euros with the information. Today, the list and the associated USB stick are considered an important basis for the investigations, which have expanded significantly since then. The senior prosecutor Anne Brorhilker is now coordinating almost 100 officials in the fight against the tax evasion model. There are more than 1,400 suspects, some of whom worked in the stock business at Morgan Stanley.
In the first criminal proceedings and in interrogations by the public prosecutor, those involved reported on the alleged cum-ex activities of the US bank. Morgan Stanley is said to have played a variety of roles, most notably on the short seller side. According to insiders, Morgan Stanley is said to have been there again and again when stocking other short sellers with shares after the dividend date.
The big bank apparently often relied on the opinions of the law firm Freshfields. Again, this would not be a surprise. Several former Freshfields attorneys, including the global tax chief, are now themselves accused of aiding and abetting tax evasion. NRW Finance Minister Peter Biesenbach sees the years of cooperation between banks, lawyers and consultants as organized white-collar crime.
Read more about the Cum-Ex scandal:
What financial consequences the affair will have for Morgan Stanley is not yet foreseeable. So far, mainly short buyers such as Hamburger Bank MM Warburg or custodian banks have been used. As a rule, the investment banks did not have the tax refunded themselves, but instead participated indirectly in the cum-ex profits. Criminal law also provides countermeasures for this. Nobody is allowed to keep profits from illegal transactions. In addition to the official measures, Morgan Stanley may also face claims from customers.
The history of the cum-ex story ran in three stages. At first, countless banks, law firms and investors scrambled for such deals. After that, nobody wanted to be there – at least not during the deliberate tax evasion. In the ongoing third phase, numerous participants shift the responsibility – and the bill – to one another.
Hear more about the Cum-Ex scandal:
At Hypo-Vereinsbank, for example, there were lawsuits between the bank and its customers, as well as claims for damages by the bank against its former board members. At Maple Bank, cum-ex deals even led to its downfall. Insolvency administrator Michael Frege then sued the law firm Freshfields, then Deutsche Börse.
Freshfields paid 50 million euros and stressed that this did not mean that they were guilty. A spokesman for Deutsche Börse said: “We do not expect to be able to be successfully claimed.”
Everything indicates that the processing of the Cum-Ex affair will take years. A spokeswoman for Morgan Stanley declined to answer the question of whether there were any claims for damages in addition to the criminal investigation.
More: Before the start of the trial against Hanno Berger: Former law firm partner should pay millions