Top German court rules ‘cum-ex’ fraud scheme was illegal

In a landmark ruling on Wednesday, Germany’s top court confirmed for the first time that the “cum-ex” tax fraud schemes which cost European treasuries billions of euros were illegal.

The use of the schemes to claim rebates on taxes which had never been paid amounted to a “criminal act of tax fraud”, said the Federal Court of Justice in Karlsruhe, southwestern Germany.

The ruling sets a key precedent with dozens of legal proceedings still ongoing over the scandal, and could allow the state to reclaim billions of euros worth of lost tax revenue.

The court also threw out an appeal by two British former investment bankers and a German bank who were convicted over the scandal last year.

Nicholas D., 38 and Martin S. 41, were handed suspended prison sentences in March 2020, after they were found to have deprived the state of at least 400 million euros ($440m) worth of tax revenues between 2006 and 2011.

Private German bank M.M. Warburg was meanwhile ordered to repay 176 million euros in taxpayer money for its involvement in the fraud.

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 payout.

Used across Europe, this practice cost Germany 7.2 billion euros ($8.5 billion), Denmark 1.7 billion euros and Belgium 201 million euros since 2001, according to European media outlets including German broadcaster ARD.

“Today’s ruling makes clear that the stolen money can be fully recuperated, and every effort should be made to do so,” Florian Toncar, an opposition MP for the liberal FDP party, told the Rheinische Post newspaper in reaction to the decision in Karlsruhe.

Numerous cases remain open in the sprawling scandal, and there have been further convictions and arrests in recent months.

Christian S., a former top executive at M.M. Warburg, was found guilty in June of five counts of “aggravated tax fraud” and sentenced to to five-and-a-half years in prison.

In July, German lawyer Hanno Berger, who allegedly masterminded the scheme, was arrested in Switzerland and is set to be extradited to Germany.