UK Banks Accused of $12 Billion Tax Fraud, Europe's Largest Financial Scandal
Europe is grappling with its largest-ever tax scandal—the Cum-Ex Files case, a multi-billion-pound dividend tax fraud scheme, has already sent shockwaves through Germany, where it is estimated to have cost taxpayers nearly £10 billion ($12 million). Moreover, the scandal is likely to lead to more claims against banks and individuals operating in London.
The Cum-Ex scandal involves alleged dividend tax frauds executed through a controversial trading strategy. This strategy, known as "double-dipping," exploited a tax collection loophole, allowing multiple investors to claim refunds on a tax paid only once. Shares were borrowed just before a company was set to pay dividends, enabling more than one investor to claim bogus tax refunds. However, this dividend-stripping practice was outlawed in Germany in 2012.
The scandal has cast a shadow over some of the most prominent banks and financial institutions, including Barclays, Bank of America Merrill Lynch, Morgan Stanley, BNP Paribas, Nomura, and others. A substantial number of suspects—up to 2,000—are implicated, comprising bankers, brokers, and hedge fund managers, many of whom operate in London.
Already, more than a dozen convictions have been secured in German courts. The investigation extends beyond Germany, with Danish authorities recently winning the right to pursue a £1.4 billion ($1.7 billion) alleged Cum-Ex fraud in London. The Supreme Court's ruling in favor of the Danish authorities is expected to open the floodgates for similar claims by regulators from across Europe.
The epicenter of the ongoing investigation is in Cologne, Germany, with Danish authorities now expanding the scope by pursuing claims in London. Furthermore, legal experts anticipate significant implications for ongoing and future cases, as the Cum-Ex scandal exposes vulnerabilities in international financial systems.
The Financial Conduct Authority (FCA), the City's watchdog, is actively investigating firms and individuals involved in the scandal, examining potential misconduct in London that may have facilitated Cum-Ex trades in Europe. The recent ruling in favor of Danish authorities raises questions about the involvement of British banks and financial professionals.
Barclays, one of the most renowned names caught in the Cum-Ex web, reportedly employed 124 bankers who are now suspects in the scandal. The bank, however, has chosen not to comment on the ongoing investigation. The FCA's inquiry into the conduct of firms and individuals linked to Cum-Ex trades could bring further challenges for these institutions.
The Cum-Ex scandal has overwhelmed legal systems, leading to an extensive backlog of cases. The chief public prosecutor in Cologne, Ulrich Bremer, revealed that his office has 120 investigations pending against at least 1,700 defendants. To address the sheer volume of cases, a new £40 million ($50 million) courthouse dedicated to Cum-Ex cases is under construction near Bonn.