(CN) — It’s being called the biggest fraud investigation of Europe’s postwar period: a heist by banks and investors that allegedly plundered $63 billion from state treasuries across Europe.
On Thursday, a consortium of European news outlets and journalists revealed that an investigation by European prosecutors into allegedly illegal short-term share-trading schemes is far greater than previously understood. Investigators are probing bankers at some of the world’s largest banks, and investors, accountants and tax experts.
The reporting, coordinated by a German nonprofit newsroom called Correctiv, was based on leaked and confidential documents and an undercover operation by Correctiv journalists posing as billionaires keen to profit from the share-trading scheme.
Much of the reporting was backed up by German prosecutors in Cologne who have been investigating a number of banks and their transactions since April 2013. Prosecutors in Denmark and Frankfurt are involved too.
Some European lawmakers called for an investigation into the so-called “cum-ex files,” as the media group has called its investigation.
According to Correctiv, the scheme involves trades known as dividend arbitrage, or cum-ex and cum-cum trades. In these trades, Correctiv reports, participants get state-issued tax reimbursements for taxes that were not paid. Banks allegedly used loopholes in laws to conduct the trades. Some participants have claimed the transactions were legal. Prosecutors disagree.
The news consortium reports that players in the scheme make it appear that a financial stock has multiple owners who are each owed a dividend and a dividend tax credit.
Reuters, one of 19 news organizations involved in the investigation, reported that Cologne prosecutors opened an investigation in June into Santander, a major Spanish bank, for its role in the scheme. Prosecutors are also examining Australia’s Macquarie Bank and Germany’s Deutsche Bank, Reuters reported.
Reuters said prosecutors accuse Santander of executing trades that allowed tax evasion between 2007 and 2011. Santander said it was cooperating with investigators and conducting an internal probe.
Reuters reported that Macquarie believed the practice to be legal. It also reported that Deutsche Bank was cooperating with investigators and has denied being part of an “organized cum-ex market.”
Some European lawmakers demanded an investigation into the new allegations and called for more cooperation among European states to fight corporate tax cheating.
“This is pure and simple welfare theft committed by a corrupt global elite of bankers, lawyers and traders, who illegally helped themselves to billions in European tax money,” a statement by the Socialists and Democrats in the European Parliament said. “Tax theft is a crime against society.”
The Socialists and Democrats said European tax authorities need to do more to share information and prevent tax fraud.
Reuters reported that one of the principal figures in the scheme, a former German tax auditor named Hanno Berger, fled to Switzerland. The news agency said Berger believes the banks broke no laws because they used a legal loophole.
Reuters reported that prosecutors in Frankfurt filed the first criminal charges in the matter against Berger and five former employees of the German branch of Unicredit, an Italian bank.
La Repubblica, an Italian newspaper involved in the joint investigation, reported on Thursday that the tax scheme has been in use since the 1990s and came to light in 2007 in Italy.
The newspaper reported that prosecutors in Pescara allegedly uncovered such a scheme organized by several major banks, including Goldman Sachs, Merrill Lynch and BNP Paribas, and British and French pension funds.
The newspaper reported that prosecutors are investigating hundreds of people and numerous banks, including many of those previously under investigation by Italian authorities.
Among the state treasuries hit were those of Germany, Denmark, France, Italy, Belgium, Norway, the Netherlands, Spain and Switzerland, according to the news reports.
“It’s about the biggest tax fraud in Europe’s history,” Christoph Spengel, a tax law professor who examined legal documents at the center of the investigation, told Die Zeit, a German weekly publication. Die Zeit was one of the news outlets involved in the investigation.
(Courthouse News reporter Cain Burdeau is based in the European Union.)
Follow @cainburdeau
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