An ex-Fortis banker accused in Germany of siphoning off €51.5 million ($55 million) through Cum-Ex tax dividend deals said the bank’s leadership pressured traders to continue the controversial strategy because of the huge profits it generated.
(Bloomberg) — An ex-Fortis banker accused in Germany of siphoning off €51.5 million ($55 million) through Cum-Ex tax dividend deals said the bank’s leadership pressured traders to continue the controversial strategy because of the huge profits it generated.
In a two-hour confession on the first day of a Frankfurt trial, the German who can only be identified as Frank H., said during the years running the scheme he experienced an “inner deadening,” compounded by the fact that virtually all market participants did it and corporate law firms advised that the tactic was legal.
In Cum-Ex, traders exploited the way dividend tax was collected so that multiple investors could claim refunds on a tax that was only paid once. Scores of European and American banks participated at various levels, and by the time Germany stopped the trades in 2012, the practice may have cost the country as much as €10 billion.
“Regardless of what Freshfields and Allen & Overy argued: You can’t peel an orange twice,” he said on Thursday. “A disturbing feeling persisted. You just don’t get anything for free in life.”
A spokesperson for Allen & Overy said the firm “has never recommended the implementation of Cum-Ex transactions.” Freshfields declined to comment.
ABN Amro NV which has taken over the part of Fortis that did the trades, declined to comment, referring to its annual report where it said the trading may still have repercussions. The lender has returned the €51.5 million to the tax authorities.
Frank H., 57, said that Fortis invented Cum-Ex in 2003, when by accident some stock in a transaction over dividend day was delivered late, causing a failed deal. As a result, there was an excess amount of money left that equaled the net dividend.
To find out how that happened the traders reran the transaction and got the same result.
German state-owned lender WestLB was one of the most active players in the Cum-Ex market, which bolstered arguments from Freshfields that the German government accepted the practice as legal, Frank H. said.
While no one at Fortis got up in the morning thinking they want to commit tax crimes, the gut feeling was still uneasy, he said. The lender’s own legal department rejected any such argument.
“If you want to talk morals, go to church. I am a lawyer, I only care whether it’s legal,” the ex-manager said, recalling a comment from an internal legal adviser.
Frank H. was arrested in Spain over a year ago and has been in German custody ever since.
“I’m aware that Cum-Ex wasn’t legal,” he said. “Had I listened to my gut feeling, we would have been spared a lot.”
After the hearing, Frank H. was granted a few moments to hug his wife and children before court officers handcuffed him and returned him to his cell.
–With assistance from Diederik Baazil and Cagan Koc.
(Updates with Freshfields declining to comment in the fifth paragraph)
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