(m +) Cum-ex affair in Hamburg: Why the tax authorities waived millions from MM Warburg

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Trutzburg that was sold by the city to financial investors:

The Hamburg financial authority on Gänsemarkt

Photo: imago stock & people / imago / imagebroker

At Hamburg's Gänsemarkt, surrounded by boutiques of glittering luxury brands, there is a monument of special official architecture. Eight stories high, made of dark, grim brick, unobtrusive, but by no means modest. The impressively high round arches at the entrance, the bars, the heavy wooden door - they all have the same message: Mandatory appointments are held here, when it's better to have your belongings together.

The city's finances have been administered in this authoritarian building for 95 years. With city-state importance, after all, the Hanseatic people consider themselves resourceful and particularly competent in dealing with the money things in life.

(55; SPD) was the Senator for Finance and thus the head of the house before he became the first mayor of the Hanseatic city in 2018 as the successor to

(63; SPD).

The fortress is so unimpressive that it seems difficult to imagine the dramas that took place behind its walls a few years ago. The result is now known: The city of Hamburg waived 47 million euros in tax refunds from the private bank Warburg in 2016. A lot of money on the one hand, but a small amount on the other in view of the much larger questions that have arisen around the million dollar waiver. What has the former mayor Olaf Scholz, who has since become chancellor, to do with it, who met with the bank owners before the resignation? And what is Tschentscher's responsibility?

A parliamentary committee of inquiry of the Hamburg citizenship has been dealing with these questions for over a year. The investigation is still ongoing, and more witnesses will be heard over the next few months. However, it is already clear:

The work of the committee of inquiry, the files and statements of more than 20 witnesses and experts, uncover an example of an alarming maladministration in the top German bureaucracy: It is about overburdened civil servants, poor organization, lack of control and how fearful the work of civil servants is can determine.

This is a story about organizational and management failure, led by Peter Tschentscher and Olaf Scholz.

It shows: You don't need direct orders from politics to influence an authority.

In an overburdened and fearful administration, a hint of the finger might be enough.

Chapter 1: By committed and overwhelmed officials

In 2010 the big cum-ex machine was still running: banks and investors made billions by swapping shares around the dividend date in such a way that tax authorities would reimburse them for a tax that was never paid. The tax authorities know about it, and politicians are also informed. But nobody manages to stop the hustle and bustle.

At that time, Hamburg discovered one of these businesses earlier than other federal states - and took action. In January 2010, the Altona tax office refused to pay taxes to the Hamburg fund company DWH because the authorities suspected that taxes that were not paid should be reimbursed here. The tax authorities then organize a meeting with experts from other federal states, two officials write a decree to the tax offices on how such cases can be discovered.

One of the authors is the tax officer

, a business lawyer, then in his early thirties. He has just switched to the civil service and previously worked as a consultant for investment tax law at KPMG. In October 2010, Bruns published one of the very first technical articles on the subject of cum-ex. He represents the legal opinion that is consensus today: Cum-ex is illegal. If there are doubts about the transactions, the taxpayer must resolve them.

In the case of DWH, for cum-ex conditions, it is a mere 2.6 million euros. The fund company defends itself vehemently and is represented by the major law firm Flick Gocke Schaumburg. The Hamburg financial administration remains tough. For years the city argued through the courts, in the end, with the support of the federal government, one pulls before the Federal Fiscal Court, the highest instance of the financial jurisdiction. And wins. That is in spring 2014.

is particularly involved in the proceedings

. The lawyer has a doctorate on tax fraud and has excellent contacts with the Federal Ministry of Finance. He works as the head of the "Tax Policy, Federal Council Coordination, Subsidy Acts, Capital Gains Tax, Complaint Management" department in the tax authority, which in the city-state of Hamburg is the ministry of finance and the supervisory authority of the tax offices. He is also responsible for Cum-ex, among other things. He's very committed to the subject, his superiors will tell the committee later.

Cum-ex was not a huge public issue at the time, but experts know that many banks made quick money here. In 2013 in Hamburg, of all things, the state-owned HSH Nordbank had to admit that it was involved in the big tax tricks - the states of Hamburg and Schleswig-Holstein had only recently saved them with billions in taxpayers' money during the financial crisis. The bank initiates an internal audit and in February 2014 it will voluntarily repay 126 million euros.

Other banks quickly come under suspicion, including a Hamburg institution early on: the private bank Warburg MM Warburg.

The fine institute not far from the Inner Alster is the first address for the wealthy of the Hanseatic city, the main owners

(79) and

(73) are very well networked with the mighty of the city.

In August 2013, the Federal Ministry of Finance informed the Hamburg tax administration that a fund of a subsidiary of the bank may have carried out cum-ex transactions.

Head of department Schulte-Rummel forwards the letter to the responsible tax office for large companies with a request for examination.

He queries several times, points out parallels to the Altona case, and sends them interpretations of files.

In November 2014, the auditors from the tax office stated in an interim conclusion that there is a lot of money at stake, an amount in the mid double-digit million range. However, it is not possible to provide unequivocal evidence for Cum-ex. Nothing can be reclaimed directly from the funds because they have already been dissolved. Before an extensive check, it must be clarified whether it is even possible to get the money back.

The topic of cum-ex is becoming more and more present in these years. In other federal states, special units are being set up, specialized tax investigators screen bank balance sheets, track business developments, and check tax returns. It's a well-known problem: cum-ex deals are difficult to solve. The confusion of the tax authorities is part of the principle, only because of this, taxes were accidentally refunded that were not paid at all. In Hamburg, too, officials are campaigning to take more care of the huge tax robbery. But they fail.

At that time, Michael Wagner

was Björn Schulte-Rummel's line manager as a department head. He had tried to find additional staff, he reported to the committee of inquiry. "But nothing came of it." The then head of the tax administration,

, rejected the proposal. She does not want the "management at this stage to deal with such complex issues," the administration must find other ways to clear up Cum-ex.

A department head of the authority reported to the committee that he had proposed to Nottelmann that the competent and committed officer Jan-Willem Bruns be assigned to the public prosecutor's office for a period of time.

The head of the tax administration also rejected that for reasons of capacity.

Bruns now works in a tax office, where he normally has nothing to do with Cum-ex.

Head of Office Nottelmann, as her employees in the committee describe it, was under massive pressure at the time.

Olaf Scholz and Peter Tschentscher want to streamline the authority.

In January 2015, Unit 520, which was responsible for cum-ex transactions, among other things, will be closed.

As part of the measure, the committed department head Björn Schulte-Rummel will be transferred.

Since then he has been responsible for the IT of the tax authorities.

"The decision was made by Ms. Nottelmann," Schulte-Rummel's supervisor at the time, Michael Wagner, explained to the committee. "We also tried to convince her not to do that. But she didn't let that put her off." Unfortunately, it is not the only time that the administration has "shot away expertise".

If you believe the witnesses in the investigative committee, the tax administration lacks staff everywhere at the time. She herself did not have the time to "kneel into everything as deeply as it would be necessary in case of doubt," explained

, the tax authority's adviser on the committee of inquiry who is responsible for capital gains tax. Her job is done by four people in other federal states. There were too few staff to "really take priority and delve deeper into the subject" and to "really properly clear up the cases".

The problem is not just with the superior authority.

In Hamburg - unlike in other federal states - there is a special tax office that is responsible for large companies and banks.

In the years after 2010, the office lost numerous auditors to the Federal Central Tax Office because the federal government pays better, reported witnesses in the committee.

Above all, good people have gone.

The authority defends the planning today: "The optimization of the deployment of search and inspection personnel is a permanent task in the tax administration."

Concentrating on one aspect should not lead to "other areas becoming distressed".

Or in other words: Cum-ex was not that important under Tschentscher and Scholz.

Chapter 2: A reputable bank comes into focus

While the tax authorities are struggling with staff shortages and the departure of their most capable officials, suspicions against the Warburg Bank are widening. Investigators also stumble upon suspicious transactions by the bank in Hesse. In September 2014, the Cum-ex special unit of the Hessian tax investigation team, the Duplo investigation group, wrote a so-called control report to the Hamburg tax authorities. In a short letter, she explains that Warburg may have wrongly recovered taxes as part of cum-ex deals. In a 22-page appendix, the investigators explain how the business worked. The corresponding letter accidentally lands in Bremen at first, and on October 22, 2014 it arrives at the Hamburg tax office for large companies.

In another letter, the investigators from Hesse send additional documents a few weeks later: Excerpts from internal emails from Warburg's business partners. It shows that Warburg representatives had contact with the masterminds behind Cum-ex:

and

. You can also read how Warburg employees specifically negotiated deals. The same mistake happens again, the letter is sent to Bremen. It is unclear whether it will ever arrive in Hamburg.

The tax auditors at the Hamburg tax office take almost eight months for large companies. Then they state in a note: Even if no taxes were paid on these transactions, Warburg would not be responsible. In any case, the bank would have done the right thing. The responsible examiner

will later deeply regret it. "We could not imagine that the bank would have done something like that," he will explain in a court case.

Gerhard H. is an experienced bank auditor, but never had anything to do with Cum-ex in 2015. His boss

explained in the committee that the tax office simply did not have the experience. "One must never forget that we were all in large parts not necessarily well versed in the subject." At that time there was no further education or training in Hamburg.

But elsewhere, the cum-ex investigations continue. In North Rhine-Westphalia, too, the investigators now come across the Warburg Bank. The investigative authorities there are very committed to clearing up the cum-ex crimes - and received a tip at the end of 2015: The Swiss banker

wants to save his own skin and is bringing the investigators on the trail of the Hamburg private bank. He gives the public prosecutor's office evidence that Warburg Hanno Berger apparently transferred millions to accounts in a tax haven via bogus bills.

In January 2016, investigators from NRW search the bank.

In the responsible tax office, the officials hope that Warburg will now voluntarily repay the money.

But the bank is defending itself, hiring the law firm Flick Gocke Schaumburg like the DWH fund company before.

The bank considers itself innocent.

And the bankers explain to the tax office that repaying the cum-ex-million would endanger the economic existence of the bank.

In October 2016, the tax office made a decision: The officials want the millions from Warburg back.

At that time, 47 million euros threaten to expire at the end of the year if the authorities do not intervene.

In a 28-page report to the tax authorities, Daniela P. explains the state of knowledge at the time:

• Warburg's stores were structured like typical cum-ex stores: shares worth many hundreds of millions of euros were bought immediately before the dividends were paid out and sold again a few days later.

• The profit undoubtedly came from tax refunds.

  The bank claims to have done no cum-ex deals, but rather less disreputable cum-cum deals.

  According to Ms. P. analyzes, this is probably a protective claim.

  The course of business already speaks against it.

• The bank worked together with the well-known cum-ex masterminds Hanno Berger and Paul Mora.

  Millions of sums were transferred to both of them.

  At least these advisors knew how the business worked, writes the official.

• There is some evidence that the Warburg bankers also understood the mechanism. The bank had already carried out cum-ex transactions in 2006, but not as a buyer, as it did later, but as a so-called short seller -

  i.e.

  elsewhere in the cum-ex machinery. In addition, the bankers have dealt intensively with the new requirements of the Federal Ministry of Finance to avoid cum-ex transactions and checked whether their own transactions are covered by the regulation. Finally, the business was stopped in 2011 out of concern that the tax office would no longer reimburse the taxes.

There is a considerable suspicion, summarizes Daniela P.

The facts have not yet been fully clarified, but from the point of view of the tax office, the evidence would be sufficient to bring the Warburg Bank into the burden of proof.

One could rely on a judgment of the Hesse Finance Court that was only a few months old.

She also mentions that the testimony of a key witness to the public prosecutor's office is imminent.

The tax officer argues very carefully.

She also cites the counter-arguments: It is unclear whether a court will consider the evidence against the bank to be sufficient, the bank pledges its innocence, and the Hesse case is somewhat different.

In addition, the bank stated that its existence would be threatened if it were reclaimed.

But her conclusion is clear: she asks for consent to the recovery.

Six weeks later, she will retract her 28-page, in-depth argument with a dry two-page note.

What happened in the meantime?

That is the core question of the committee of inquiry.

One thing is clear: there is hectic activity.

In the authority it is clear to everyone that this is a special case.

Angela Nottelmann informed Finance Senator Peter Tschentscher in mid-October 2016: The case is difficult, no matter how you decide, you make yourself vulnerable.

In the meantime, the tax office's proposal is being legally examined in the responsible department.

The officials made a note there: The facts could not be assessed in more detail, there were no legal concerns.

The bank also learned about the tax office's plans through a tip from the authorities and absolutely wants to prevent the payment of millions.

The two well-connected main owners, Olearius and Warburg, call in at the highest level.

Although it is also known in the town hall that the bank is being investigated for serious tax evasion, the bankers get an appointment with Olaf Scholz.

On October 26th, the mayor receives them for the second time within a few weeks in his office.

The bankers had a letter of defense drawn up for the meeting with Scholz, which they handed over to the mayor.

One was innocent, did not know that something illegal was going on in these deals.

They still represent this line today.

The letter is addressed to Ms. P. from the tax office, to whom you will send it the next day.

Olaf Scholz declares today that he does not remember the meetings, but is certain that he did not intervene in the tax procedure.

One thing is clear, however: Scholz will take action on his own initiative.

On November 9th he called Olearius and advised him to forward the defense letter to Tschentscher without further comments.

The day before, Scholz had spoken to Tschentscher on the phone.

Olearius takes the advice.

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