Indictment Names Major Banks In Cum-Ex Case

A German investigation of Cum-Ex tax deals involves as much as 447.5 million euros ($500 million) lost to the government centers around two London bankers and major banks like Merrill Lynch, Société Générale, Deutsche Bank, M.M. Warburg and others, according to a report by Bloomberg.

Two ex-London investment bankers were named in an indictment by prosecutors in Cologne, although their names will not be released due to German law.

Cum-Ex deals, which are no longer allowed, involved taking advantage of a German practice on tax refunds for dividends. When they were in use, an entity paying dividends withheld the tax automatically, but the payment was certified by the shareholder’s bank.

The deals were set up in a way that let both the buyer and the stock owner to procure a certificate saying the dividend tax was paid in a short sale. The tax was only paid once, and both could use the certificates to get the full amount of the refund.

Lawmakers changed the rule in 2012, but they estimate losses of 10 billion euros.

The London bankers gave prosecutors details on the deals back when the two worked for The Ballance Group, which is an asset management company that pushed the deals through. The charges also involve an earlier time when the two bankers worked for UniCredit’s HVB unit in London.

Two of the implicated banks spoke to Bloomberg about the issue. Deutsche Bank said it wasn’t involved with the Cum-Ex market as either a buyer or seller, but that it participated in Cum-Ex transactions of clients. The bank said it was working with authorities.

M.M. Warburg said it never tried to pass transactions that allowed for taxes to be refunded multiple times. “Our business partners always conveyed that the share deals were impeccable,” the bank said.

BNP, Bank of America Merrill Lynch and Société Générale declined to comment to Bloomberg, and HVB referred the news organization to a report saying it had settled all of the criminal probes it was facing.