New law helps fraudsters: Cum-Ex money is gone in many cases

According to media reports, a new law means that Cum Ex tax robbers can keep the money – a total amount of several billion euros. Because many cases are statute-barred.

With "Cum-Ex" deals, investors and banks have cheated the state for billions of years. According to research by "WDR" and "Süddeutscher Zeitung", taxpayer money captured by banks and other parties using cum-ex fraud schemes could not be reclaimed even after a court conviction – provided the incidents are already statute-barred. The background is a legal reform from the Federal Ministry of Finance, which was recently passed.

It was said that an extension of the deadline should only be possible for cases that have not yet expired. The possible limitation period had not yet been clearly regulated and was highly controversial.

The country's first cum-ex criminal trial at the district court in Bonn ended in March. Two British stockbrokers were given suspended sentences, in which case the Cum Ex millions were confiscated. A number of other charges and lawsuits will follow the pilot process.

North Rhine-Westphalia's Justice Minister Peter Biesenbach has meanwhile sharply criticized the law change, which could not be used to retrieve billions of dollars misappropriated in the cum-ex scandal. "I think it is unbearable when we say that we may sentence people to prison terms, but the money is gone, we can no longer get hold of it. A regulation must be found here, we cannot explain that to anyone else," said the CDU politicians to the "Westdeutscher Rundfunk". Biesenbach called for a discussion about how old cases could still be recorded. "This is about amounts that investigators also expect to go into the billions," said the minister.

Lucrative trickery

With "Cum-Ex" deals, investors and banks have cheated the state for billions of years. Around the dividend date, shares with ("cum") and without ("ex") dividend entitlement were moved back and forth between several parties – banks, investors, funds. In the end, the Treasury could no longer understand who owned the papers and when. Therefore, tax offices reimburse taxes that were not paid at all.

This was made possible thanks to so-called short sales in stock trading. Someone borrows and sells shares that do not belong to him. If the buyer purchases the shares shortly before the dividend day on which listed companies distribute their profits with dividend entitlement, they will be delivered without a dividend if they are sold short after the cut-off date. The short seller must therefore pay the buyer compensation. Unlike the real one, this artificial dividend has not been taxed for years.

The booking systems cannot distinguish between the two. Therefore, they still issued a certificate of withholding tax on the artificial dividends. Because the transfer and certification of the tax fall apart: one does the public limited company, the other the banks. So it was not noticeable when someone received a certificate that had not paid any tax at all. Bankers, consultants and lawyers knitted a business model out of the system error.