By Anna Merz
The heist of the century. Thinking of a diamond or bank robbery? Art theft? Something à la Money Heist, Ocean’s Eleven or The Killing? The case this blog deals with is more harmful but less glamorous than that. Even worse: it has hardly caught the attention of the public at all. What I am talking about are the Cum-Ex Files; a massive tax fraud scheme discovered in 2017 defrauding European treasuries of about € 55 billion in total. This blog post shortly discusses how the intermingling of state and corporate actors—law enforcement authorities, politicians and financial institutions—has contributed to a (so far) rather lenient response to the scandal, and the preservation of the status quo.
While officials like to hide behind the complexity of financial crimes to veil their unwillingness or failure to act, this does not quite work in the case of cum-ex, which is a rather simple, yet highly efficient fraud scheme. In a nutshell, it refers to fraud and speculation with dividend taxes, involving multiple transactions. Parties (such as financial institutions, brokers, lawyers and tax advisors) rapidly trade shares with (cum) and without (ex) dividend rights between market participants just before the dividend pay date, allowing traders to reclaim taxes (that had not been paid) twice or more often from tax authorities.
In Germany, the biggest victim of the tax fraud scheme with estimated financial losses of € 30 billion, several lawsuits and hearings have been occurring. Criminal investigations are ongoing in six different German federal states. Headquarters of Deutsche Bank, Commerzbank, but also ABN Amro in the Netherlands have been raided multiple times. While responses have been rather lenient so far, considering the history of corporate crime and the current neo-liberal agenda, the fact that cum-ex is criminally investigated at all can already be considered a success. However, in a first verdict, two British bankers have been given mild sentences in a criminal trial in March 2020. One of the reasons for the lenient response: the suspect’s extensive cooperation with law enforcement. Other trials are outstanding or have been postponed to 2021 due to COVID-19, such as the trial against tax specialist Hanno Berger and banker Paul Mora, two main suspects in the cum-ex investigations, which was initially scheduled for last week.
How is it possible that the heist of the century, despite several ongoing criminal cases, goes largely unnoticed? There are multiple problems at stake here. One of the most significant is whether the tax fraud scheme is, or should be considered a crime. Financial institutions, brokers, tax advisors and law firms (aka the main suspects and benefactors of cum-ex) have continuously argued that the practice of cum-ex is legitimate. In other words: there was a loophole in the regulatory system that they were simply taking advantage of. Only in 2012, this regulatory gap was only closed in Germany, and fully closed in 2016 after individuals and institutions had switched to the practice of cum-cum, which was still possible within the system. While a German court has ruled that cum-ex is illegal (and therefore a crime), the argument posed by the financial institutions raises more fundamental questions. Even if it was not illegal, the cum-ex tax fraud scheme violates basic ethics and moral values causing considerable social harm, looting national treasuries, and robbing countries of billions of euros in tax revenue. It means wrongly obtaining tax refunds and claiming money from the state that does not actually belong to you. What is taught as a basic norm to children is willfully, and knowingly ignored by parts of the world’s financial elite. This shows once more that there is a major gap in the moral compass of certain actors in the financial world, and that of the public. Another example of this gulf: the attempted 50% salary increase of ING’s CEO Ralph Hamers in March 2018, while the management already knew about the ongoing money laundering investigation at ING. Meanwhile, Hamers has left ING to become CEO at UBS, where he is likely to earn 7 times as much.
Yet, while cum-ex has been deemed illegal by the courts, described by principal witnesses and experts as ‘organized crime in pinstripes’, and authorities have been criticized for their omission by opposition parties in Germany, severe formal responses, transparency and accountability for the parties responsible is long past-due. Too many parties still hide behind the confidentiality of tax data or the complexity of tax systems. We should not give in to the excuses of politicians or authorities – especially if they are the very people responsible for maintaining this deviant system in the first place. The German Cum-Ex case once more shows that many politicians and authorities have taken the side of the corporate and financial elite as silent witnesses, secret supporters or ‘understanding’ officials in favor of corporations and their organizational deviance. This is demonstrated in the fact that German Federal Minister of Finance and Vice, Chancellor Olaf Scholz, in his former role as mayor of Hamburg, failed to take the chance of claiming back € 47 million stolen tax funds from Warburg bank. That Scholz has met with the CEO of Warburg during the ongoing investigation against the bank and its managers. That a German court while pleading for serious tax evasion suspended the suspects sentences. That the Former Minister of Finance Wolfgang Schäuble (now President of the Bundestag) keeps referring to the complexity and failures of the tax system and Germany’s federal regulations; failures of a system that he himself did not attempt to change or draw attention to either. Perhaps authorities, especially in the aftermath of the financial crisis, were more interested in preserving solid bank balances than caring about tedious tasks like fraud detection.
The leniency and rationalizations (or in theoretical terms: neutralization techniques) have always been insufficient and unacceptable. Allegedly there are more than 500 suspects and about 150 financial institutions involved in the cum-ex tax fraud. Yet, as most cases are still outstanding there remains hope for justice. That, however, requires all of us to see the case for what it is. Cum-ex is not an example of a few greedy bankers, black sheep or bad apples (although it involves individual bankers, brokers etc. who regarded the state as the enemy and longed for more profit). With the involvement of numerous financial institutions, law firms and consultancies, and the omission of public authorities, it is a clear case of (state-)corporate crime. It should be regarded as such by courts, media, politicians, financial institutions and the public. Sometimes these cases are not as complex as the powerful would want us to think.