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German ‘cum-ex’ tax fraud kingpin handed 8-year jail sentence

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BONN — A German tax lawyer, painted by politicians as the mastermind behind one of the country’s biggest post-war frauds, was on Tuesday sentenced to eight years in prison after a landmark trial.

Hanno Berger, a 72-year-old former tax inspector turned prominent tax lawyer and adviser, is the most high profile professional to be convicted over the cum-ex dividend stripping scheme, that some German experts estimate has cost taxpayers around 10 billion euros ($10.54 billion).

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After an eight-month trial Berger, who fled to Switzerland after his offices were raided in 2012 before being extradited back to Germany in February, was also ordered to repay more than 13 million euros.

Germany and Denmark are leading cross-border investigations into the trading scheme, which involved banks and investors claiming multiple bogus tax rebates on dividends, aided by now-closed loopholes in their tax systems and the failure of authorities to spot and halt the practice at the time.

Berger’s sentence is the harshest handed down to date by German judges after around eight years of investigations that government officials say span around 1,500 suspects and 100 banks on four continents.

In closing remarks at the Bonn court last week, prosecutors accused Berger of orchestrating tax scams that siphoned 278 million euros from German taxpayers.

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The lawyer had rejected accusations of tax fraud although he conceded he should have paid better heed to a 2009 finance ministry letter that expressed concerns about the “tax optimisation scheme.” But he also insisted some transactions were legal at the time.

Gerhard Schick, a former German lawmaker who instigated a parliamentary investigation into cum-ex, welcomed the verdict and said a key figure in the scandal had been convicted.

“Even if there are those who might have wished for a longer sentence, the key takeaway today is that the law is stronger than criminal money. And that is a reason for great joy.”

MILKING THE STATE

Prosecutors said Berger designed and promoted the cum-ex trading scheme, defrauding the German state and personally profiting to the tune of 27.3 million euros between 2007 and 2013.

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The scheme, which flourished after the 2008 credit crisis, involved the rapid dealing of company shares around dividend payout days, blurring stock ownership and allowing multiple parties to claim the tax rebates.

Authorities have raided the German branches of top financial and professional services companies including Barclays, Bank of America and Morgan Stanley as part of their investigations.

Banks have said they are cooperating with inquiries. In September, Bank of New York Mellon Corp, Germany’s Warburg Group and Deutsche Bank said they would pay a combined 60 million euros to tax authorities over the scandal, which has sparked a public and political outcry as ordinary Germans face a cost-of-living crisis.

Two British bankers were the first to be sentenced over the cum-ex scandal in 2020, receiving suspended jail terms. One was handed a 14 million euro penalty. Since then, a handful of other bankers have also been convicted.

For Berger, this trial is just the beginning. He has also been charged by Frankfurt prosecutors over another alleged cum-ex tax fraud, valued at 113 million euros, and faces a second criminal trial in the German city of Wiesbaden next year.

($1 = 0.9484 euros) (Reporting by Matthias Inverardi and Marta Orosz, writing by Kirstin Ridley, editing by Kirsten Donovan)

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