Two former London investment bankers were convicted of tax evasion at Germany’s first trial over so-called Cum-Ex trades in a landmark ruling that could lead to hundreds more cases.
The bankers, Martin Shields and Nicholas Diable, were able to avoid jail by cooperating with prosecutors. The Bonn court gave both of them suspended prison terms, according to a spokesman. Shields, 42, and Diable, 40, were on trial for what prosecutors say amounted to a €400 million tax evasion.
The verdict was brought forward by several weeks because of the coronavirus outbreak. Cum-Ex transactions took advantage of a now-abandoned method of taxing dividends, which made it possible to get multiple refunds through a combination of short sales and other transactions. The practice ended in 2012 when Germany revised its rules, but Cum-Ex may have cost taxpayers more than €10 billion.
Before global events were upended by coronavirus, the Cum-Ex case was seen as a key moment for the banking industry. Dozens of banks and bankers have been swept up in the scandal over the use of rapid stock sales to obtain duplicate tax deductions.
Shields got a suspended sentence of a year and 10 months, the term prosecutors had asked for, and must repay €14 million . Diable’s sentence of a year was also suspended.
Shields, from Northern Ireland, is an Oxford graduate and former maths prodigy. In 2012 he bougth a house on Shrewsbury road in Dublin 4 from the Neary family for €6 million which he later tripled in size.
Diable’s lawyer, Stefan Kirsch, didn’t immediately reply to an email seeking comment. Their cooperation paid off: under German rules, causing a tax loss of €1 million would usually carry a prison term with no possibility of a suspension. “We are pleased that the court’s ruling has acknowledged the extent of his cooperation, vital contribution, and his willingness to accept both responsibility and make good the harmhe has done,” Shields’ attorney, Hellen Schilling, said.
The court also seized €176 million from MM Warburg Group, the profit the private lender made from deals. Most transactions under review at the trial had a link to the Hamburg-based bank.
Wednesday’s ruling could open the door to even more cases from prosecutors, who are investigating more than 600 people. Peter Biesenbach, justice minister in North-Rhine Westphalia, has said he’s expecting a “cascade of indictments” in Cum-Ex investigations.
In Bonn, Shields was the key defendant in the case, which sought to understand how the financial-services industry was able to obtain multiple tax refunds on dividend payouts.
Because the complex practice required the interplay of many characters, the case led to a close examination of the wider industry. Shields and Diable helped uncover crucial details of the strategy.
While there was no formal plea deal, both men were hoping to avoid a lengthy prison term by helping prosecutors uncover bankers, lawyers and other financial-industry players that were involved in Cum-Ex transactions.
Cum-Ex peaked between 2007 and 2011 and the scandal has ensnared multiple financial institutions, including Morgan Stanley, Barclays and Deutsche Bank. – Bloomberg
