Thread by @karolcummins

It May Be the Biggest Tax Heist Ever. And Europe Wants Justice.
Stock traders are accused of siphoning $60 billion from state coffers, in a scheme that one called “the devil’s machine.” Germany is the first country to try to get its money back. nytimes.com/2020/01/23/bus…

“The robbery of the century,”

“The biggest tax theft in the history of Europe.”

🔑From 2006 to 2011, hundreds of bankers, lawyers and investors made off with a staggering $60 billion, all of it siphoned from the state coffers of European countries.

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🔑The scheme was built around “cum-ex trading” (“with-without”): a monetary maneuver to avoid double taxation of investment profits that plays out like high finance’s answer to a David Copperfield stage illusion.

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🔑Through careful timing, and the coordination of a dozen different transactions, cum-ex trades produced two refunds for dividend tax paid on one basket of stocks.

📌One basket of stocks.

📌Abracadabra.

📌Two refunds.

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📌Germany was hardest hit, with an estimated $30 billion in losses, followed by France, taken for about $17 billion.

📌Smaller sums were drained away from Spain, Italy, Belgium, Austria, Norway, Finland, Poland and others.

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Less scrutinized has been the role played by Americans, both individual investors and branches of United States investment banks in London, including Morgan Stanley, JPMorgan Chase and Merrill Lynch Bank of America.

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📌American bankers didn’t try cum-ex at home because they feared domestic regulators. So they moved ops to London & treated the rest of Europe as an anything-goes frontier.

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📌American and British cum-ex traders regarded the Continent as a backwater of old economies ripe for swindling.

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”There was this culture in London, and it really came from NY.”

“These guys were either from NY or trained in London at NY banks, & they looked at Europe as their playground.”

“People at the highest levels were collaborating to rip off countries.”

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📌Seemingly risk-free profits poured in, and over the years a mini-industry thrived, one that a former participant labeled “the devil’s machine.”

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🔥German prosecutors say they will now pursue 400 other suspects, unearthed in 56 investigations.

🔥Banks large and small will be ordered to hand over cum-ex profits, which could have serious consequences for some.

🔥Two have already gone bust.

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🔥Dozens of law firms and lawyers may face penalties, too, having drafted highly priced opinions contending there was no law explicitly prohibiting cum-ex and thus it was perfectly legal.

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But officials in Germany say the trade was a form of theft, one so obviously illicit that forbidding it — which was tried twice, w/ ineffectively worded laws — was hardly necessary.

In Sept, Biesenbach, went so far as to liken cum-ex players to mobsters.

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🔥Their work, he said, was “organized white-collar crime of unimaginable magnitude.”

🔥Precisely who invented cum-ex trading, and when, are mysteries, but ground zero for this scandal may have been the London branch of Merrill Lynch.

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Suffice it to say, the goal was to fool the financial system so that two investors could claim refunds for dividend taxes that were paid just once.

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The trade was pure theater and required a huge cast: stock lenders, prime brokers, custodians, accounting firms, asset managers and inter-dealer brokers. It also required vast quantities of stock, most of which was sourced from American shareholders.

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Germany was the largest bull’s-eye for these traders because it is home to Europe’s largest economy, with dozens of blue-chip stocks. Requests for multimillion-dollar dividend refunds were more likely to pass unnoticed.

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📌Mr. Mora and Mr. Shields left in 2008 to open Ballance Capital, one of the first full-service, one-stop cum-ex trading shops.

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📌With the financial crisis in full swing, cum-ex was one of the few reliable moneymakers, and the trade boosted careers throughout the City of London.
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🔥Prosecutors have reportedly opened investigations into transactions handled by Bank of America, JPMorgan Chase, Morgan Stanley and many others.

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Dozens of German banks participated in cum-ex deals, too, gobbling up German taxpayer money at the same time they received a rescue package worth more than $500 billion.

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📌American banks conducted their cum-ex trades overseas, rather than at home, out of fear.

📌Specifically, the WB mentioned a 2008 Senate investigation into “dividend tax abuse” that found it was depriving the Treasury of $100 billion every year.

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The report led to a ban on dividend arbitrage tied to stock in United States corporations.
But nothing prevented American bankers from conducting such trades with foreign companies on foreign soil.

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“These private U.S. pension plans became the holy grail for cum-ex trading,” said Niels Fastrup, a co-author with Thomas Svaneborg of “The Great Tax Robbery.”

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“They were perceived by tax authorities as very trustworthy, and all European countries had agreements with the U.S., so these plans could claim 100 percent of withheld taxes.” </END>

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