Raid on KPMG in Frankfurt

Cologne The auditing and consulting company KPMG has investigators in the house: According to information from the Handelsblatt, a group of 60 public prosecutors, tax investigators and police officers are searching the KPMG offices in “The Squaire” at Frankfurt Airport. The officers also visited the homes of suspects.

She is being investigated on suspicion of aiding and abetting tax evasion. A spokesman for KPMG confirmed the searches but did not answer further questions. “We are fully cooperating with the authorities,” he said simply.

The reason for the raid are tax evasion services using the Cum-Ex method. “The Cologne public prosecutor’s office has been executing search warrants against a consulting company in Frankfurt am Main since yesterday,” confirmed a spokesman for the Cologne public prosecutor’s office when asked.

In addition, the private homes of five (formerly) employed lawyers and tax consultants would also be searched as suspects. “The measures are related to cum-ex transactions that are the subject of the proceedings and related tax evasion models,” said the spokesman.

The Latin term Cum-Ex is a code for the largest tax fraud in German post-war history. It designates share group transactions with (cum) and without (ex) dividends around the distribution date.

Banks and investors aimed to have capital gains tax paid only once reimbursed twice. Lawyers, tax consultants and auditors played an important role. Financial institutions had them write reports to prove the alleged legality of the transactions.

big operation

60

investigator

search the KPMG offices in The Squaire at Frankfurt Airport.

The Cologne Finance Court described the Cum-Ex method as a “criminal tour de force” because it worked for around 20 years. Former North Rhine-Westphalia Minister of Justice Peter Biesenbach spoke of “industrial tax evasion”. The Federal Fiscal Court and the Federal Court of Justice have condemned cum-ex transactions as illegal and punishable under tax law. The Federal Constitutional Court ruled that all profits from cum-ex deals can be confiscated – wherever they accrued.

Two-digit number of tenants

Accounting and consulting firms also made money from cum-ex. Apparently KPMG was particularly conspicuous. Experts report that KPMG has looked after a double-digit number of cum-ex clients. The company is said to have written pleasing reports and advised customers on them.

Apparently, auditors also audited financial statements that included cum-ex profits. A statement by KPMG on the Cum-Ex investigation committee read: The auditing company “always followed the applicable law when providing tax advice to its clients”.

KPMG is not the only accounting firm where this is in question. Competitor EY, for example, was involved in the Maple cum-ex case and was therefore sued by the bank’s insolvency administrator.

The dispute has since been settled out of court. EY paid an amount in the double-digit millions. A spokesman emphasized at the time that this had happened “without acknowledgment of a legal obligation and without any prejudice”.

At KPMG there are indications that the consultants may have been very closely involved in cum-ex deals over a long period of time. Beginning in 2004, the Big Four company is said to have operated the business for more than a decade.

According to information from the Handelsblatt, five former KPMG consultants have been accused. For this reason, the investigators not only visited KPMG offices at Frankfurt Airport, but also several private apartments.

The investigative files show that the relationship between KPMG and the Deutsche Börse Group was particularly intense when it came to Cum-Ex. Here, too, there are several suspects, two of whom were first employed by KPMG and then switched to Deutsche Börse.

Risks identified early

Internal documents suggest that KPMG was aware of the risks early on. In 2004, the auditors wrote in a report for the Deutsche Börse Group that the business models examined were dangerous.

The “problem of double tax refunds” arises in the case of the tested share trading with short sales – i.e. typical cum-ex deals. Banks involved would be liable to prosecution.

After reading it, an employee from the Deutsche Börse Group wrote: “You know that it is punishable and that at some point you will be held accountable for it.”

The auditors at KPMG were therefore aware of the risk their client faced and expressly pointed out the tax and criminal law risks of cum-ex transactions. But the warnings went unheeded. And KPMG?

“You know it’s a criminal offense and you’ll be held accountable for it at some point.” Employee of the Deutsche Börse Group after reading a KPMG report

Nevertheless, the company remained loyal to its important customer for many years. When it came to Cum-Ex, she continued to provide advice to the stock exchange, but now with a different tongue.

The matter was just complicated, it was said from then on in the auditing company. Neither the participating stock exchange subsidiaries Euroclearing nor Clearing Banking Frankfurt are obliged to withhold and pay capital gains tax. The prerequisite: They must not have been aware that there were short sales in the cum-ex trades.

However, short sellers are an integral part of cum-ex trades. The parties involved sold shares that they did not even own at the time of the sale. This was the only way to achieve the actual goal of all those involved: double-digit returns, financed from the state treasury with a double tax refund.

Expert opinion as fig leaves

For the public prosecutor, there is no question that the alleged cluelessness of individual participants in cum-ex deals was only played. Written assurances that she was unaware of short sales are now viewed as “acting in accordance with the plan.” Many observers say today that the reports served as fig leaves.

“The measures are related to cum-ex transactions that are the subject of the proceedings and related tax evasion models.” Spokesman for the Cologne public prosecutor

The Deutsche Börse Group was an important customer of KPMG when it came to questions about Cum-Ex, but by no means the only one. It is known from investigation files that the Baden-Württemberg Landesbank LBBW also requested expert opinions from KPMG, as did the Benelux bank ABN Amro.

Dekabank and Varengold Bank were also among KPMG’s clients. They have all come under the spotlight of prosecutors because of the deals themselves.

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There are signs that the cum-ex problem will haunt KPMG for a number of years to come. Apparently there was a group of advisors who advised on this not only exceptionally, but systematically.

So far, individual law firms in particular have attracted negative attention, above all the law firm Freshfields Bruckhaus Deringer. She had more than 20 financial service providers on her cum-ex client list.

Investigators searched the office four times. Several former tax partners have been accused or even charged, including the firm’s former global tax chief.

Financial experts see it as a great evil that the years of tax evasion, amounting to billions, were done with the help of top addresses. Former member of the Bundestag Gerhard Schick wrote in the final report of the Bundestag investigative committee: “Without the commercial provision of tax reports, in particular by the large commercial law firms such as Freshfields or auditing firms such as KPMG, these transactions would not have been possible.”

More: Landesbanks sink into the cum-ex swamp