It is the first time that the Federal Court of Justice has commented on cum-ex deals – and it is clear: the deals are punishable and illegally generated profits can be recovered by the state. The Federal Court of Justice confirmed on Wednesday a judgment of the Bonn Regional Court from last year, in which two ex-stock exchange traders from London were sentenced to probation. One of them was supposed to pay back his share of the profits through cum-ex deals – a whopping 14 million euros. The private bank MM Warburg ordered the collection of 176 million. The defendants went on appeal.
What exactly is it about? In cum-ex deals, especially between 2001 and 2011, financial market players had their taxes reimbursed several times through share trading around the dividend date, causing damage totaling 10 billion euros according to expert estimates. Konrad Duffy worked for two years in the anti-money laundering department at Deutsche Bank and is now a consultant for financial crime for the citizens’ movement Finanzwende. He thinks the verdict is an important signal.
Mr. Duffy, the Federal Court of Justice has confirmed that Cum-Ex business is a criminal offense and that it is criminal tax evasion. How do you rate the judgment?
Konrad Duffy: The verdict is an extremely important step and a sign that the rule of law is correcting the messed up politics of the past few years. It shows that the perpetrators cannot hide and they cannot get away with the prey. The verdict states: Cum-Ex is not only illegal, but also criminal.
The court also ruled that profits from cum-ex transactions can be collected, from MM Warburg, for example, an amount in the three-digit million range. How important is this part of the decision?
This is very important. The language that perpetrators understand best is when the money is gone and the illegal profits are recovered. Taxes were stolen here and the highest court has now clarified that the stolen taxes will flow back to the state. The mandate to politicians is now even clearer to equip the investigative authorities and courts with sufficient capacities for clarification. And all investigating parties should get the litigation in motion so that any outstanding funds can be reclaimed. Getting all the money is a mammoth task. But the verdict is tailwind for the investigators.
So the ruling is the first step in getting the money back from the cum-ex deals. What else has to happen?
Limitation periods threaten. That is why Finanzwende launched a campaign last year to ensure that enough staff are available to prepare these processes and get them off the ground. We have already had some success: The number of investigators in North Rhine-Westphalia has increased significantly and it has been promised that further positions will be filled. This must be continued if there is further need and also in other federal states. Because only when law enforcement agencies are well equipped can laws be enforced and those who break them held accountable.
There are more than 1,000 suspects in cum-ex proceedings and, as you mentioned, the authorities have comparatively few prosecution staff. How can they even cope with this large number of procedures?
One of the mistakes at Cum-Ex was that very few investigators initially worked on the issue. That’s why it took another eight years after the start of the investigation until the first criminal trial came before the Bonn Regional Court. That also has to do with the complexity of the matter, but not only. From our point of view, the expansion of personnel capacities came far too late. Now it is in progress. What is important in such a complicated complex is that prosecutors, tax investigators and criminal investigators work together. That is why we called for a Soko Cum-Ex from the start that works together across different authorities. This is also starting now and it has to be expanded further so that well-qualified personnel from different authorities cooperate with one another so that these very complicated cases now come to court.
A first supreme court judgment in the Cum-Ex case has now been made. Where do we stand overall in the investigation and prosecution of the cum-ex business?
In any case, we are still at the beginning of the legal processing of Cum-Ex. There have now been three judgments, one prison sentence and two suspended sentences have now been confirmed by the BGH. So we still have a long way to go. There are around 90 procedural complexes with over 1000 suspects. There is still a lot of work to be done by the public prosecutor and all investigators, and the subject will remain with us for many years to come. So it is now important to take the tailwind of today with you.
Hanno Berger, one of the minds behind the Cum-Ex stores, was recently arrested in Switzerland, making his extradition to Germany more likely. What does this mean for clearing up the cum-ex business?
A lawsuit against Berger would be important for the Cum-Ex investigation because of its important role. All these steps – the imprisonment of Hanno Berger and the confirmation of the judgment by the Federal Court of Justice today – are signs that the law does not stop at suit wearers, that financial crime is not a trivial offense and that the rule of law is taking action. This is thanks to many different actors who are working hard to clear up this complex. But it’s frightening how long it takes to clear something up. This shows what headwind the investigating persons are getting from the financial lobby or from the accused.
You mentioned the lengthy clarification process. Why does it take so long to clarify financial crime, especially with Cum-Ex?
Again, the most important thing is the resources available to law enforcement agencies. You need the capacity to familiarize yourself with these complexes. Otherwise we cannot ensure that the law is complied with and that infringements will be prosecuted if there is any doubt. For this, of course, the political will is required and unfortunately there has been a lack of that in Germany far too often. Politicians must clearly state that financial and economic crimes are not trivial offenses and that they will be dealt with just as harshly as other offenses. In view of the sums that are often involved, stricter prosecution would also be financially worthwhile.
The investigative authorities only intervene after the offense has already happened. How did it come to cum-ex deals at all?
The financial lobby plays an important role in this. In the early 2000s she tabled a legislative proposal that was later implemented almost word for word. He fueled the cum-ex business instead of ending it. At the same time, the finance lobby placed a mole in the finance ministry, which dismissed criticism and acted on behalf of the lobby several times. This shows how important a legislative footprint or a lobby register is to get an overview of what influence the financial lobby really has and then to push it back. Later on it was also a problem that the process of coming to terms with it on a political level was pushed further and further away. Nobody wanted to take on political responsibility here, that’s still a problem today. At the very end came the legal appraisal, which is really making progress and will hopefully lead to a somewhat conciliatory end to this whole drama. The reasons for Cum-Ex are therefore complex: from the very powerful actors who benefit from it, to a policy that has shirked responsibility and did not close procedural gaps, to authorities that either did not take information seriously or contribute to the solution wanted, but were not properly supported from the start.
the The procedural gap that made Cum-Ex possible has now been closed. Does this ensure that something like this doesn’t happen again?
No, we cannot rule out that cum-ex-like deals are still going on. That is a serious problem. There are proposed solutions for a slight data comparison to rule out the possibility of this multiple reimbursement or a tax reimbursement to which one is not entitled at all. But that is still not being implemented. It is incomprehensible why there is still a lack of political will to clean things up properly, in order to be able to step in front of the citizens and say: “It won’t happen again like this”. No politician can do that at the moment.
So would you say we haven’t learned enough from cum-ex?
Absolutely not. This can be seen well in cum-cum stores, where the estimated damage is even higher than that of cum-ex stores. With cum-cum there is practically no political or legal reappraisal. There is nowhere to be seen the will to approach the subject properly. You have the feeling that now that Cum-Ex is in public and there are initial successes for the rule of law, politics is resting on it. It’s just as important that we deal with cum-cum.
What effect do you hope to have from today’s judgment?
I hope prison terms for those involved will follow. Because this is the biggest tax robbery in Germany and so far nobody has been sentenced to prison. Today’s ruling strengthens the investigating public prosecutor’s office to really take action against the accused. That is why it has an important signal effect: It shows once that financial crime is not worthwhile. And it shows that financial crime can also mean imprisonment. So it is an important sign, just one year after Wirecard, that something is happening in Germany in the fight against financial crime.
Charlotte Raskopf spoke to Konrad Duffy.
The interview first appeared at Capital.de.