Hearing before the BGH Are CumEx transactions a criminal offense?

Status: 15.06.2021 4:41 p.m.

The first proceedings on CumEx transactions have begun at the Federal Court of Justice. The judges must decide whether the deals are a criminal offense as tax evasion. The verdict will have far-reaching consequences. From Klaus Hempel, ARD legal editors They led to one of the biggest tax scandals in German history, in which the German tax authorities were duped and the state suffered billions in damage: the CumEx business. Investors used loopholes in legal regulations to make big money. They were supported by banks and top lawyers who work in large commercial law firms.

The state escapes taxes running into billions

Essentially, these CumEx deals were about stock dividends. These are profits from stock corporations that are distributed to shareholders. Taxes are deducted directly from this and transferred to the tax office. The shareholders can get the money back under certain conditions. In the CumEx business, investors have used an extremely sophisticated system and have taxes reimbursed that were never paid. At some point the dizziness was exposed. In March 2020, the first defendants were convicted by the Bonn District Court: two British stock traders involved in such transactions. Because they cooperated closely with the prosecutor, they were sentenced to relatively mild suspended sentences. Nevertheless, they appealed to the Federal Court of Justice. He must now clarify in a landmark judgment whether the CumEx business is actually a criminal tax evasion. “In the present proceedings, the Federal Court of Justice is dealing for the first time with so-called CumEx transactions from the point of view of tax evasion,” explains Chief Public Prosecutor Thomas Heise from the Federal Prosecutor’s Office. “He will decide whether the peculiarities of these transactions allow a tax that has not actually been paid to be reclaimed from the tax authorities.”

June 15, 2021

Warburg-Bank rejects responsibility

One of the two stock traders had earned 14 million euros from the deals, which he is supposed to repay. The private bank MM Warburg was also involved in the business. According to the judgment of the Bonn Regional Court, 176 million euros are to be collected from her. The bank is defending itself against this at the BGH. Your lawyer Ali Norouzi believes that the law does not justify skimming off the funds. “There were no representatives of the bank in the dock, but traders from other companies who traded for their own account and not for the bank,” argues Norouzi. “They made substantial profits and damaged the bank considerably. Their actions cannot be attributed to the bank.”

06/01/2021

Judgment expected at the end of July with far-reaching consequences

Nevertheless, the public prosecutor said that the millions in profits would have to be collected. The Bonn Regional Court followed this legal opinion. The Federal Court of Justice now has the final say. He plans to announce his verdict at the end of July. His decision is very significant for the lower level of justice. Hundreds of suspects are being investigated for tax evasion nationwide. If the BGH evaluates the CumEx transactions as criminal tax evasion, there will probably be further convictions in which those primarily responsible must expect long prison sentences. File number: 1 StR 519/20

The Bonn Regional Court has sentenced a former employee of the Hamburg private bank MM Warburg to a prison term of five years and six months for so-called cum-ex transactions. The public prosecutor had accused the man of serious tax evasion in 13 cases. The court found him guilty on five counts. In view of the length of the proceedings, however, two months of the sentence are already enforced, said a court spokeswoman. The judgment is not yet final. The proceedings had started on November 17, 2020, according to the spokeswoman, the judgment was made on the 29th day of the hearing.

Bank continues to reject guilt

After the announced judgment, the Warburg Bank stated that the decision would not surprise after the stipulations of March 2020. “The primary responsibility of the domestic custodian banks and the initiators of the transactions is not sufficiently taken into account,” she said. “It is questionable whether the judgment will stand up to a possible revision in view of the numerous rejected bias requests and rejected requests for evidence.” The bank had already paid tax claims in connection with the cum-ex scandal last year, but always emphasized that the additional claims were unjustified. They are “not to be understood as an admission of guilt”. The money house always emphasized that it had adhered to the legal rules in all transactions. Several proceedings are ongoing at the Bonn Regional Court in connection with the Cum-Ex scandal, and investigations are being pooled at the Cologne Public Prosecutor’s Office. The court last admitted the indictment against a former employee of a Swiss private bank in May.

Decision on revision in the first Cum-Ex judgment

The German state suffered billions in damage in the cum-ex deals. Investors have a capital gains tax paid once on stock dividends reimbursed several times with the help of banks. To do this, they moved shares with – that is, cum – and without – ex – dividend entitlement to one another around the cut-off date for the dividend payment. The cases had spread widely, so banks and law firms are constantly being searched. In the first major criminal case nationwide, the court in Bonn imposed suspended sentences against two British stock traders in March 2020. The Federal Court of Justice (BGH) is reviewing the judgment and wants to negotiate an appeal on June 15. According to the BGH, all those involved have appealed. Until the first judgment, it was unclear whether cum-ex transactions are only inadmissible under tax law or whether they are also punishable by law.