Europe’s largest tax fraud scandal, with a colossal sum of at least 10 billion pounds at stake, is poised to inflict financial repercussions on banks in the United Kingdom. An Indian-origin tycoon is among the roughly 2,000 individuals that authorities are focusing on in London alone.
Sanjay Shah, a hedge fund firm, Solo Capital’s founder, along with six others, faced charges to resolve German money-laundering cases related to the proceeds of Cum-Ex tax deals. In a recent development, Shah lost the final bid to block Denmark’s tax authority from pursuing him and others in London over alleged tax fraud, as senior judges ruled the case could proceed.
Sanjay Shah, of Indian origin, initially worked at Amsterdam-based Rabo Bank but faced job termination. Subsequently, he ventured into small-scale business endeavours. Approximately 15 years ago, Shah established a setup focused on the ‘Dividend Tax Law,’ marking the commencement of his ascent up the ladder.
As reported by the UK-based financial website This Is Money, the scale of the ‘cum-ex’ tax fraud is estimated to be a staggering 10 billion pounds in Germany alone. The case involves nearly 2,000 suspects in London, including bankers, brokers, and hedge fund managers, according to the financial website.
The banks under scrutiny in this investigation include Britain’s Barclays, Bank of America Merrill Lynch, Morgan Stanley of the US, France’s BNP, and Japan’s Nomura. Notably, several law firms and auditors are also implicated in the scandal, along with an Indian-origin tycoon who recently lost a final bid to block legal proceedings against him.
The ‘cum-ex’ scandal has triggered at least half a dozen investigations in Germany, with the broadest one being conducted in Cologne. The implicated banks have expressed their cooperation with prosecutors in the ongoing investigations. Furthermore, similar probes have been initiated in other countries, including Belgium and Denmark. The international reach of this scandal underscores its gravity and the widespread implications for the financial sector.
A previously reported scam, highlighted in an old Washington Post article, reveals a duplicitous financial manoeuvre known as a double-tipping strategy. This strategy exploited a tax code loophole, allowing multiple individuals to assert ownership of a stock and claim refunds on dividend tax, which was originally paid only once.
Named after the Latin terms cum/ex, meaning with/without, the deceptive practice involved selling stock with the promise of a dividend payment but ultimately delivering it without such payment, as detailed by the Washington Post.
This unscrupulous tactic was brought to an end in Germany in 2012 when the country abolished the practice, recognizing its potential for financial exploitation and its adverse impact on the integrity of the tax system.
As per the European Parliament, the sprawling tax fraud scandal dubbed the ‘cum-ex files,’ reportedly originated in 2001 and came to light in Germany in 2012. European media outlets, spearheaded by the German Correctiv group, undertook an extensive investigation into the scandal.
The repercussions of this financial malpractice have reached several other countries, including Denmark, Belgium, Austria, Switzerland, and Norway. The wide-ranging nature of the scam suggests that legal proceedings and investigations are likely to persist for years in the affected nations.
The European Parliament has disclosed that the cumulative costs to European taxpayers from cum-ex schemes deployed between 2001 and 2012 exceed 55 billion euros, as detailed in their report.
In a significant development, Christian Olearius, the former CEO of MM Warburg, emerged as the first prominent banker to face charges in July 2022. Furthermore, German tax attorney Hanno Berger received an eight-year sentence after extradition from Switzerland.
Notably, Paul Mora, a former investment banker from New Zealand, found a place on Interpol’s Most Wanted list in 2021. Executives from London-based asset manager Duet Group and four investment bankers associated with the now-defunct Maple Bank also received jail sentences.
According to multiple media reports, Sanjay Shah, a British-Indian businessman and tax evader residing in Dubai, has emerged as a surprising player in the scandal.