UK Regulators Probing Massive Tax Scandal

British authorities are probing 14 companies and six people over a tax fraud case encompassing four other countries.

The Financial Conduct Authority, or FCA, the U.K. financial regulator, said under the scheme – known as “Cum-Ex” – companies and individuals ran “dividend stripping” operations in Denmark, Germany, France and Italy.

“Dividend stripping” refers to a complex practice in which shares are traded so quickly that they can earn duplicate tax refunds on dividend payments through a mix of short-selling and other transactions.

Many of the “Cum-Ex” transactions occurred at London financial institutions which are regulated by British authorities.

Bloomberg reported that prosecutors in Denmark have sought to speak to traders in London about Cum-Ex – not necessarily as suspects, but as witnesses.

Danish regulators have already targeted Sanjay Shah, the founder of Solo Capital Partners, a hedge fund, for massive fraud linked to Cum-Ex. Shah’s London mansion and other assets have been seized by prosecutors over allegations that he illegally claimed duplicate tax refunds.

Shah has declared his innocence on the basis that he used legal tax loopholes.

The Danish government is seeking to recover about $2 billion that they claim was illegally paid to offshore investors who made dividend tax-refund claims.

While FCA is quiet on its current investigation, back in February, Mark Steward, its head of enforcement, said the agency was working with European authorities to probe “substantial and suspected abusive share trading in London’s markets.”

The COVID-19 pandemic slowed down that investigation temporarily – but now it appears to have been restored.

Matthew Banham, a lawyer that specializes in corruption, fraud and financial services at the London legal firm Dechert, said that the Cum-Ex scandal could further harm the reputation of the financial services industry.

“If the FCA can find the evidence, then they have ample powers to bring action against those firms and individuals involved in abusive share trading,” said Banham.