Twist In Europe’s Biggest Tax Fraud Case Involving Indian-Origin Tycoon

Sanjay Shah was an was an unemployed trader who $700 million within a few years.

Banks in the UK are set to be impacted by a tax fraud scandal, said to be Europe’s biggest. According to UK-based financial website This Is Money, the ‘cum-ex’ tax fraud is worth 10 billion pounds in Germany alone. Nearly 2,000 suspects in London alone, including bankers, brokers and hedge fund managers, are involved in the case, said the financial website. The banks under investigation are Britain’s Barclays, Bank of America Merrill Lynch, Morgan Stanley of the US, France’s BNP and Japan’s Nomura. Several law firms and auditors are also implicated, along with an Indian-origin tycoon, who lost a final bid to block proceedings against him.

At least half a dozen ‘cum-ex’ probes were started in Germany, with one in Cologne being the broadest. The banks say they are cooperating with prosecutors. Investigations were opened in other countries including Belgium and Denmark.

What is the ‘cum-ex’ scam?

According to an old Washington Post report, the scam was essentially a double-tipping strategy that exploited a loophole in the tax code, allowing multiple people to claim ownership of a stock and claim refunds on dividend tax that was only paid once.

The practice was named after the Latin terms cum/ex, meaning with/without, because the stock was sold with – but delivered without – a dividend payment, the outlet further said.

The practice was abolished in Germany in 2012.

When was it discovered?

According to European Parliament, the scandal allegedly started in 2001 and was discovered in Germany in 2012. A massive investigation was launched on the so-called ‘cum-ex files’ by European media outlets and led by German Correctiv group.

Other countries that have been singed by the scam are Denmark, Belgium, Austria, Switzerland and Norway. The cases are likely to continue for years.

How much money is involved?

It has been estimated that the total costs to European taxpayers of the cum-ex schemes deployed between 2001 and 2012 amount to more than 55 billion euros between 2001 and 2012, the European Parliament report said.

Who all have been charged or convicted?

Former MM Warburg CEO Christian Olearius became the first leading banker to be charged (in July 2022). Apart from this, German tax attorney Hanno Berger was sentenced to eight years after being extradited from Switzerland. Paul Mora, a former investment banker from New Zealand was placed on Interpol’s Most-Wanted list in 2021. Executives of London-based asset manager Duet Group along with four investment bankers at now defunct Maple Bank were also sent to jail.

Hedge fund founder Sanjay Shah was also charged along with six others to settle their German money-laundering cases over the proceeds of Cum-Ex tax deals. Last week, Shah lost the final bid to block Denmark’s tax authority from pursuing him and others in London over the alleged tax fraud, after senior judges ruled the case could proceed.

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