The 'cum-ex' scam involved claims for rebates of taxes that had never been paid in the first place
The 'cum-ex' scam involved claims for rebates of taxes that had never been paid in the first place dpa / Lino Mirgeler

Two British former investment bankers faced a German court Wednesday in the first criminal trial relating to the "cum-ex" tax fraud scandal which cost European treasuries billions of euros.

Martin S. 41, and Nicholas D. 38, have been charged on 33 counts of tax evasion and one count of attempted tax evasion, and stand accused of having deprived the state of at least 400 million euros ($440m) worth of tax revenues since 2006.

The two men, former employees of UniCredit subsidiary HypoVereinsBank, are both defendants and key witnesses at the trial in Bonn, as they look to avoid or reduce a potential prison sentence of up to ten years by cooperating with the authorities.

With the trial set to run until January, their testimonies over the coming months are expected to shed more light on the complex workings of the so-called "cum-ex" tax fraud schemes, in which investors reclaimed tax which had never been paid.

Billions of euros

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, Denmark 1.7 billion euros and Belgium 201 million euros since 2001, according to an investigation published last October by big-name European outlets including German public broadcaster ARD and French newspaper Le Monde.

In Germany, a change to the tax law in 2012 closed the legal loophole exploited by the practice, though the German finance ministry insists that it was already illegal.

Speaking at a press conference on Wednesday, a finance ministry spokesperson said that 2.4 billion euros worth of repayments had already been demanded after the ministry identified a total of 499 cases of suspected cum-ex fraud with a total damage of 5.5 billion euros.

"There are no indications of any other cases since the change in the law," the spokesperson said.

The Bonn trial is expected to further scrutinise the level of complicity among the financial actors caught up in the 'cum-ex' network, such as the depositary banks responsible for claiming tax rebates on behalf of their clients.

New York holding company BNY Mellon, the German Warburg Group, French bank Societe General and investment company Hansainvest were all represented in court as secondary parties on Wednesday.

Big-name banks

This particular trial is just the tip of the iceberg, as prosecutors in Frankfurt, Cologne and Munich continue to investigate similar cases in the far-reaching scandal.

According to the Frankfurter Allgemeine Zeitung (FAZ) newspaper, around 100 people have now 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 has been awaiting trial since May 2018.

A number of major international banks, including Santander and Australian group Macquarie, have been caught up in the German prosecutors' investigations thus far.

HypoVereinsBank itself has agreed to repay 113 million euros to German tax authorities and pay a fine of 5 million euros.

Last week, officials raided securities depository Clearstream, a subsidiary of German stock exchange operator Deutsche Boerse.

In May 2018, a German court ordered Societe Generale to pay 23 million euros worth of damages to German regional public bank Helaba over fraudulent cum-ex deals.

The French bank is appealing the sentence in civil proceedings expected to open in October.

Germany