A German court handed two British former investment bankers suspended sentences Wednesday in a landmark trial over the huge ‘cum-ex’ tax fraud scandal, after proceedings were fast-tracked because of the coronavirus outbreak.
Martin S, 42, and Nicholas D, 38, were found guilty on several counts of tax evasion, after being accused of depriving the state of at least 400 million euros ($440m) worth of tax revenues between 2006 and 2011.
Although they risked up to 10 years in jail, the court in Bonn decided on a suspended sentence of one year and 10 months for Martin S. who was also ordered to repay 14 million euros, the court said in a statement.
The other man received a one-year suspended sentence.
Prosecutors had asked judges to show leniency given that the pair, former employees of UniCredit subsidiary HypoVereinsBank, had cooperated fully in a case seen as setting a legal benchmark for a wave of similar proceedings.
The trial was deemed crucial to shed more light on the complex workings of the ‘cum-ex’ tax fraud schemes, in which investors reclaimed tax which had never been paid.
The court also ordered the private German bank MM Warburg, one of several banks that participated in the fraud, to repay some 176 million euros in taxpayer money.
In order to reach a swift ruling before the coronavirus confinement measures make it too difficult for proceedings to continue, the court did not pursue the charges against four other banks.
First exposed in 2017, the scam involved numerous cooperating participants quickly exchanging stock in companies amongst themselves around dividend day, in order to claim multiple tax rebates on a single pay-out.
Used across Europe, this practice cost Germany 7.2 billion euros, Denmark 1.7 billion euros and Belgium 201 million euros since 2001, according to an investigation published in 2018 by European outlets, including German public broadcaster ARD and French newspaper Le Monde.
In Germany, a change to the tax law in 2012 closed the mechanism exploited by the practice, though the German finance ministry insists that it was already illegal.
The landmark trial concluded in Bonn is just the tip of the iceberg, with prosecutors in Frankfurt, Cologne and Munich investigating cases in the far-reaching scandal.
According to the Frankfurter Allgemeine Zeitung newspaper, around 100 people have been indicted, including bankers, stock traders, lawyers and financial consultants.
Among them is German lawyer Hanno Berger, who has been identified as the mastermind behind the fraudulent scheme and is awaiting trial.
A number of major international banks, including Santander and Australian group Macquarie, have been caught up in the German prosecutors’ investigations thus far.
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