In what seems to be Europe’s biggest tax scandal, the ‘cum-ex’ scheme fraud valued at £10 billion (around ₹1.0196 trillion) in Germany alone, is now poised to impact UK banks. Nearly 2,000 suspects, including bankers, brokers and hedge fund managers in London, find themselves implicated, according to the financial website This Is Money.

Notably, the scandal also ensnares several law firms and auditors. The investigation has also found links to an Indian-origin tycoon, who recently lost a final legal bid against proceedings.

Hedge fund founder Sanjay Shah was charged, along with six others, to settle their German money-laundering cases over the proceeds of ‘cum-ex’ tax deals. In a recent development, Sanjay Shah faced a setback as he lost his final attempt to prevent Denmark’s tax authority from pursuing him and fellow individuals in London regarding the alleged tax fraud. Senior judges ruled in favour of allowing the case to proceed, the report added.

The institutions under scrutiny span international giants like Barclays, Merrill Lynch from the UK, Bank of America, BNP from France, Morgan Stanley from the US, and Nomura from Japan.

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High-profile individuals entangled in the investigation face severe legal consequences if found guilty as already many people have faced imprisonment or fine. Christian Olearius, the ex-CEO of MM Warburg, faced charges in July 2022. German tax attorney Hanno Berger, extradited from Switzerland, received an eight-year sentence. Paul Mora, a former New Zealand investment banker, earned a spot on Interpol’s Most-Wanted list in 2021. Furthermore, executives from London-based Duet Group and four investment bankers associated with the now-defunct Maple Bank find themselves behind bars.

Allegedly commencing in 2001, the scandal was uncovered in Germany in 2012 through a comprehensive investigation known as the ‘cum-ex’ files, led by the German Correctiv group and collaborated with various European media outlets, according to a European Parliament report. Besides Germany and the UK, countries such as Denmark, Belgium, Austria, Switzerland, and Norway have also been affected, with repercussions expected to linger for years.

The total expense for European taxpayers stemming from cum-ex schemes implemented between 2001 and 2012 is projected to surpass €55 billion (approx. ₹4.8985 trillion), the European Parliament report added.

What is a ‘cum-ex’ scam?

The cum-ex scam, as explained by an old Washington Post report, exploited a tax code loophole, allowing multiple individuals to claim ownership of a stock and receive refunds on a dividend tax paid only once. The term ‘cum-ex’ originates from the Latin term cum/ex, signifying with/without, as the stock was sold with a dividend but delivered without one. In 2012, Germany prohibited this practice.

(Edited by : Sudarsanan Mani)