Picture: 123RF/ALEKSANDR KALUGIN
Picture: 123RF/ALEKSANDR KALUGIN

Berlin/London/Paris — A few months after a landmark trial in the sprawling German CumEx-files scandal, the multi-billion-dollar tax probe is showing no signs of slowing down.

The arrest warrants issued for Duet Group CEO Henry Gabay and another official at the London hedge fund company were the first sign that prosecutors were accelerating their probe as they faced looming deadlines from a 10-year statute of limitations and Brexit.

“It is the tip of the iceberg,” said Aziz Rahman, a London lawyer who represents people caught up in the CumEx probes. “It won’t be just Duet, there will be a series of companies and individuals that will be looked into.”

Probes into the discredited tax strategy — which may have cost the country more than €10bn — have already resulted in the conviction of two bankers, who are appealing the verdict. In addition, four MM Warburg bankers were indicted last month.

“It’s not at all surprising that having successfully prosecuted one case, the German authorities are looking to prosecute more,” said Neil Swift, a lawyer at Peters & Peters in London. “This was a widespread activity and German prosecutors are unlikely to stop for some time.”

CumEx transactions took advantage of a now-abandoned method of taxing dividends, which seemed to allow multiple tax refunds through a combination of short sales and other transactions. 

Gabay, who was apprehended while on holiday in France in late June and then released on bail, hasn’t been charged with a crime. He told a French court that he is in talks with Cologne prosecutors to go to Germany. Another official at the hedge fund appeared in a London court last month and faces an extradition hearing later this year.

Gabay and a spokesperson for him declined to comment when contacted by Bloomberg.

Renewed push

The prosecutors’ confidence, stemming from the March convictions in a Bonn court of two London bankers, are only part of the reason for the renewed CumEx push. One factor may be the 10-year statute of limitations on tax crimes. CumEx trades had peaked by 2010, before the government outlawed the practice in 2012.

German lawmakers may have eased that restriction last month, extending the maximum time prosecutors have to tackle CumEx cases.

Brexit

The UK’s impending departure from the EU might also be forcing the prosecutors’ hand. There is confusion about whether the European arrest warrant will still be valid in Britain after Brexit.

“Legal assistance with the UK will definitely become more difficult after Brexit,” said Anna Oehmichen, a defence lawyer in Mainz, Germany. “It’s quite possible that prosecutors with suspects in England will try to have them speedily arrested and extradited under the EU warrant rules that still apply.”

If the German prosecutors felt pressure to step up their probes, UK regulators may have slowed down their investigation amid the coronavirus pandemic.

Mark Steward, the UK Financial Conduct Authority’s director of enforcement, said in a speech in February that he was close to a decision on “abusive share trading in London’s markets” linked to CumEx.

But Rahman, who advertises for CumEx clients online, said the respite is temporary. “They’re ready to move to the next stage.” 

Danish tax authorities are also suing hedge fund managers in London to recoup losses.

“This is a lot wider” than Germany, Rahman said. “It will have rippled around Europe and certainly the US as well because huge amounts of funds have been lost to the taxpayers.”

Bloomberg

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