Cum ex-banker in court: The largest tax theft of German history

At the very beginning of the trial, which could write German judicial history, there is for a moment the fear that not all who want to participate in the historical event, can be there. So enormous on Wednesday morning is the rush in the Bonn district court, which has reserved for the spectacle of the legal processing of the so-called cum-ex-stores its Great Hall. But ultimately everyone gets a place - lawyers, reporters, cameramen. Even the Danish television has arrived.

The interest is astonishing on the one hand. After all, until a few years ago only experts knew the term Cum-Ex, and still hardly anyone can explain without accident, what exactly is behind it. On the other hand, and this explains the casserole, is the cute combination of words, with the complex stock transactions is described to the detriment of German taxpayers, in public like hardly anything else for semi-rigid behavior in the financial industry. (Read here what's behind the Cum Ex trades)

Since this Wednesday, the 12th Grand Criminal Court in Bonn is looking for the first time for legal responsible for the business practice, which has cost the German state, depending on the reading of five, twelve or even 55 billion euros in tax losses.

The procedure in the old federal capital is the biggest economic process of the year in Germany. The Briton Nicholas D. (38) and the Nordire Martin S. (41), two former stock traders in the service of the Munich HypoVereinsbank (HVB) and later the Ballance Group, have to answer for at least 32 negotiating days on suspicion of serious tax evasion.

In 34 cases, it says in the 651-page indictment, the accused between 2006 and 2011 have caused a tax damage of about 400 million euros. Beneficiaries were other banks for which D. and S. had cum-ex-transactions; you probably also cashed yourself (Az .: 62 KLs 1/19).

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Regional Court Bonn: The biggest tax robbery in German history?

D. and S. are the faces of the spectacular process, which has the signal effect for the legal processing of the cum-ex-complex in the coming years.

Since the two British do not understand German, their interpreters translate simultaneously and to some extent loudly everything that Chairman Judge Roland Zickler has to say about the procedure; correspondingly large is the unrest that spreads in the court. This is even more so when prosecutor Anne Brorhilker reads the 50-page indictment in a monotone voice.

Preppy harmlessness

The defendants listen attentively to all this. And do not act as protagonists of the "biggest tax robbery in German history," as the cum-ex-deals are often referred to, but more like the neatly frozen dream of all mothers-in-law. Both wear glasses and dark business suits, D. with a striped tie, S. no tie, but with a beige sweater over the white shirt. In their neat harmlessness, they could pass smoothly as a study traveler who accidentally flopped on a trip to the Rhine in the Bonn district court.

That this is not the case is clear from Brorhilker's indictment. She cites with great care all incriminated stock deals, there are dozens, and peppered her talk with abbreviations such as "Kest" (investment tax) and "Solz" (solidarity surcharge). Brorhilker has worked with stoic meticulousness into the unknown cum-ex-world and made sure that the now in Bonn is being tried in court. She is something like the unknown heroine of German business law.

FRIEDEMANN BIRD / EPA-EFE / REX

Prosecutor Anne Brorhilker (r.): Unknown heroine of German business law

Just last week, the cum-ex-shops had returned with force in the public consciousness, as the Cologne prosecutor's office rooms of the Deutsche Börse subsidiary Clearstream in Eschborn near Frankfurt and Luxembourg was searched. The raid once again provided evidence of how interwoven almost all the financial industry was in this very special, now forbidden way of earning money.

Clearstream played a key role in the case as the central repository of stocks - and stocks were the focus of attention. Cum Ex trades were lightning quick purchases and sales of mostly borrowed dividend-bearing shares ("cum"), which were delivered after the dividend-free payout ("ex").

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The clou: On dividends, stockholders generally have to pay 25 percent capital gains tax, which they could have previously reimbursed by the Treasury. By lending stocks to each other and swapping the papers at lightning speed, banks and investors veiled true ownership, confused the treasury, and issued several tax certificates and refunded money for the same paper. For many banks and their wealthy clients, this was a bubbling source of income from the beginning of the 1990s.

Did the cum-ex-shops violate paragraphs?

A loophole made the business possible, discovered by tax expert Hanno Berger, who now lives in Switzerland. Legally represented by Bundestag Vice President Wolfgang Kubicki (FDP), Berger insists to this day that the business was legal. This view outrages many; After all, the system could only work for years because banks, traders and lawyers had plotted to exempt the state.

On the other hand, court hearings do not deal with morality but the interpretation of laws. And to what extent Cum-Ex transactions violate paragraphs is still unclear, also because of the enigmatic reluctance of the legislature to provide clarity. The district court Bonn could now decide for the first time whether the deals, which are forbidden only since 2012, have penal consequences.

more on the subject

Billions of Tax Tricks That's Behind Cum Ex Shops

Not in court is the legislature, who played a delicate role in the Cum-Ex-carousel in two ways. Because he failed for years to make the relevant laws watertight and to stop cum-ex-deals; and because he got the information needed for the Enlightenment and legal prosecution in an unusual way: The state government of North Rhine-Westphalia acquired over dark men tax CDs, on which hundreds of banks were listed, which had enriched by Cum-Ex at the Treasury. Norbert Walter-Borjans, who is currently applying as the new SPD chief, was the lead author of the then NRW finance minister.

The CD purchase caused political debates at that time. Ultimately, however, the view prevailed that the purpose of sanctifying the means and the procedure increases the public pressure on those involved. For example, HVB has now repaid a good 100 million euros to the tax authorities, even though there is no final verdict against them. She wants to get the money back from former board members.

The bank has a key role to play in the event that its former colleague Paul Mora took the dividend business to a whole new level and later became self-employed with the Ballance Group, which was also run by defendants D. and S. Today, Mora, unlike his former employees, who are now in court in Bonn, no longer look in Europe. He is being investigated in several countries.

The district court also brought in five banks involved in the proceedings of the defendants: the Hamburg private bank MM Warburg, its subsidiary Warburg Invest, the American BNY Mellon, the French major bank Société Générale and the fund company Hansa Invest. You may have to pay for the damage caused by the multiple reimbursement of any taxes paid.

The two defendants, as witnesses, can hope for a lenient sentence. After all, the findings which they have provided to the investigators should pave the way for further charges and judgments following a ruling in Bonn with a correspondingly clear legal position. Only the Cologne prosecutor investigates in 50 other cases.

This Wednesday in Bonn marks the legal start of a process, at the end either the largest tax theft of German history is atoned for - or the failure of the legislature at the expense of the taxpayer is on record.