New York Times, It May Be the Biggest Tax Heist Ever. And Europe Wants Justice.:
Stock traders are accused of siphoning $60 billion from state coffers, in a scheme that one called “the devil’s machine.” Germany is the first country to try to get its money back. ...
The scheme was built around “cum-ex trading” (from the Latin for “with-without”): a monetary maneuver to avoid double taxation of investment profits that plays out like high finance’s answer to a David Copperfield stage illusion. Through careful timing, and the coordination of a dozen different transactions, cum-ex trades produced two refunds for dividend tax paid on one basket of stocks.
One basket of stocks. Abracadabra. Two refunds.
The process was repeated over and over, as word of cum-ex spread like a quiet contagion. Germany was hardest hit, with an estimated $30 billion in losses, followed by France, taken for about $17 billion. Smaller sums were drained away from Spain, Italy, Belgium, Austria, Norway, Finland, Poland and others.
Outrage in these countries has focused on the City of London, Britain’s answer to Wall Street. Less scrutinized has been the role played by Americans, both individual investors and branches of United States investment banks in London, including Morgan Stanley, JPMorgan Chase and Merrill Lynch Bank of America.
American bankers didn’t try cum-ex at home because they feared domestic regulators. So they moved operations to London and treated the rest of Europe as an anything-goes frontier. Frank Tibo, a former chief tax officer at a bank where Mr. Shields and Mr. Mora worked, said American and British cum-ex traders regarded the Continent as a backwater of old economies ripe for swindling.
”There was this culture in London, and it really came from New York,” he said. “These guys were either from New York or trained in London at New York banks, and they looked at Europe as their playground. People at the highest levels were collaborating to rip off countries.”
Seemingly risk-free profits poured in, and over the years a mini-industry thrived, one that a former participant labeled “the devil’s machine.” ...
Dozens of law firms and lawyers may face penalties, too, having drafted highly priced opinions contending there was no law explicitly prohibiting cum-ex and thus it was perfectly legal. That is an argument that many involved might offer in the coming years of litigation. They may insist that if Germany didn’t make the trade impossible, they did not break a law. A desk-thumping variation of that defense is already being offered by Hanno Berger, once the most formidable tax auditor in Germany, who later switched sides and became a cum-ex mastermind as well as an ally of Mr. Shields and Mr. Mora.
But officials in Germany say the trade was a form of theft, one so obviously illicit that forbidding it — which was tried twice, with ineffectively worded laws — was hardly necessary. In September, the justice minister of the state of North-Rhine Westphalia, Peter Biesenbach, went so far as to liken cum-ex players to mobsters. Their work, he said, was “organized white-collar crime of unimaginable magnitude.” ...
The cum-ex reckoning has already begun. Several banks have been fined (Deutsche Bank, UniCredit), one has apologized (Macquarie), others have pledged cooperation with investigators (Santander, Deutsche Bank) and two are insolvent. A lawyer from Freshfields, a prestigious London firm that provided cum-ex advice, was briefly jailed by the German authorities in late November and has reportedly been charged with fraud.