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Tax fraud case: Indian-origin tycoon adds twist to Europe's largest tax fraud investigation

The strategy derived its name from the Latin term and enabled multiple individuals to assert ownership of a stock, allowing them to claim refunds on dividend tax that had been paid only once

Written by  Annesha Barua -- November 13th 2023 12:41 PM
Tax fraud case: Indian-origin tycoon adds twist to Europe's largest tax fraud investigation

Tax fraud case: Indian-origin tycoon adds twist to Europe's largest tax fraud investigation

Tax fraud case:  A tax fraud scandal, touted as Europe's most significant, is poised to impact banks in the UK. The 'cum-ex' tax fraud, valued at £10 billion in Germany alone, has implicated nearly 2,000 suspects in London, spanning bankers, brokers, and hedge fund managers, according to financial website This Is Money.

The institutions under scrutiny include Barclays and Bank of America Merrill Lynch from the UK, Morgan Stanley from the US, BNP from France, and Nomura from Japan. Notably, several law firms, auditors, and an Indian-origin tycoon, who lost a final legal bid against proceedings, are also entangled in the scandal.

Cum-ex scam: A closer look

The 'cum-ex' scam, as explained by an old Washington Post report, was essentially a double-dipping strategy exploiting a tax code loophole. This loophole permitted multiple individuals to claim ownership of a stock and receive refunds on a dividend tax paid only once. The name 'cum-ex' originates from the Latin terms cum/ex, signifying with/without, as the stock was sold with a dividend but delivered without one. The practice was officially abolished in Germany in 2012.

Discovery and global impact

The scandal is alleged to have commenced in 2001 and was unearthed in Germany in 2012. It was brought to light through a comprehensive investigation known as the 'cum-ex files,' led by the German Correctiv group and collaborated on by various European media outlets. Aside from Germany and the UK, countries such as Denmark, Belgium, Austria, Switzerland, and Norway have also been affected. The repercussions of the cases are expected to linger for years.

Financial implications

The cumulative cost to European taxpayers of cum-ex schemes deployed between 2001 and 2012 is estimated to exceed €55 billion, as per the European Parliament report.

Legal actions and convictions

Several individuals involved in the scam have faced legal consequences. Christian Olearius, the former CEO of MM Warburg, became the first prominent banker charged in July 2022. Hanno Berger, a German tax attorney, received an eight-year sentence after extradition from Switzerland. Paul Mora, a former investment banker from New Zealand, landed on Interpol's Most-Wanted list in 2021.

Executives of London-based asset manager Duet Group and four investment bankers from the now-defunct Maple Bank were also imprisoned. Hedge fund founder Sanjay Shah, along with six others, faced charges related to German money-laundering cases tied to Cum-Ex tax deals. Shah recently lost a final bid to halt Denmark's tax authority from pursuing the case in London.

- With inputs from agencies


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