When news first broke of a dawn raid at Deutsche Bank’s headquarters in Frankfurt, it seemed the bank might narrowly escape the scandal this time. The Frankfurt-based financial institution put out a statement saying the raid was to investigate customers – not the bank’s own employees.
Now it has emerged that Germany’s largest bank, while not directly the focus of investigators, was more deeply entangled in the questionable tax deals brokered by a client than previously believed.
The case involves dividend stripping, a form of tax fraud that prosecutors across the country have been cracking down on over the last few years.
According to information received by Handelsblatt, Tuesday’s raid by the public prosecutor’s office was targeting possible tax fraud conducted by the fund company Nummus Financial. The fund was a customer of Deutsche Bank. The bank, documents show, was aware and likely profited from the fund’s questionable dealings.
In total 10 locations, including offices and homes of various companies across the country, were searched by the authorities on Tuesday, looking for information on Nummus’ alleged dealings. About 70 officials were involved, including federal police, tax authorities, and prosecutors.
The fund is at the center of the latest investigation into a form of alleged tax fraud known as dividend stripping, which has also engulfed a number of other German banks and funds, including Germany’s third-largest bank HypoVereinsbank, now owned by Italy’s Unicredit.
Over just one four-month period, Nummus bought and then immediately resold shares worth €4 billion. The action was designed to avoid paying tens of millions in taxes.
In each case, the shares were acquired on the day of the general meeting of a company, just before it is due to pay out a dividend, and were sold again after the dividend payout the following day. By carrying out the transactions using borrowed money, they could sell the shares again at a loss without actually losing money.
These deals in question, which date back to 2008, allowed the fund to obtain the dividend and a certificate for having paid capital gains taxes. It could then exploit a loophole in German tax law and receive multiple rebates for “losses” incurred when the shares were sold again.
While Deutsche Bank may not have been directly involved in the actions, it acted as the custodian bank and was responsible for issuing the tax certificates.
Such dividend stripping has been a common but controversial practice for a long time, and it remains unclear whether prosecutors will be able to convince a court that companies involved actually broke laws – or whether legislators simply failed to close a legal loophole. The law has been tightened only since 2012.
Although Deutsche Bank’s offices were searched this week, the bank itself is not currently being investigated.
But while Deutsche Bank may not have been directly involved in the actions of Nummus, it acted as the custodian bank for the transactions and was responsible for issuing the tax certificates. That also means it earned money on the deals, and documents suggest it was well-aware they were being carried out.
Handelsblatt has also learned that the nine people being targeted by the investigation include former employees of the bank. Six of the accused allegedly attempted to swindle tax authorities out of €37 million, while three more are accused in a separate case of evading €6 million.
Tax lawyer Hanno Berger, a former Deutsche Bank employee, is one of the accused; he had acted as a consultant to Nummus. Although he denies the accusations, Deutsche Bank is now refusing to have anything to do with him, having once worked closely with the consultant.
German retail bank Postbank, a subsidiary of Deutsche Bank, is also apparently embroiled in the case. Postbank has owned a stake of about 27 percent in Nummus’ parent company, Nummus Financial Beteiligungs GmbH & Co. KG, for some time.
A spokesperson for Deutsche Bank emphasized that Postbank acquired this stake before it belonged to Germany’s largest bank. The stake in Nummus, the institution argues, is part of a legacy it simply hasn’t been able to get rid of.
Nummus has been under the watch of investigators for some time. The tax authorities have to date refused to reimburse the capital gains that it demanded. Problems arose when the fund company underwent an audit and officials suspected that the traders had traded the securities illegally from a tax viewpoint, hoping to claim back taxes several times that had only been paid once.
Mr. Maschmeyer had accused the bank of luring him into funds engaged in dividend stripping without his knowledge.
Officials questioned Deutsche Bank as part of the audit at Nummus. The bank defended the transactions, arguing that legislators were well aware of the flaw in the system and had approved the ongoing legal loophole. Deutsche Bank thus knew that the tax authorities were being fleeced – albeit legally in their minds – and did not object.
Mr. Berger, the former Deutsche Bank employee, is also among the accused in other investigation proceedings. One case relates to deals concluded by the Swiss bank J. Safra Sarasin, which marketed similarly controversial funds to investors.
The projects failed here too because the tax office refused to pay out capital gains rebates. A number of investors have now brought court cases against Sarasin as a result, with drugstore owner Erwin Müller suing the bank for around €50 million.
According to Handelsblatt sources, a lawsuit brought against Safra Sarasin in Zurich by another prominent financial investor, Carsten Maschmeyer, along with other plaintiffs, has now been settled with a compensation payment of over €50 million.
Mr. Maschmeyer had accused the bank of luring him into funds engaged in dividend stripping without his knowledge and of putting money invested by him and other investors into financial constructions that were risky and legally questionable. He said that he had invested, on the bank’s advice, in a fund that had been described to him as a European dividend fund, and that the reality of what exactly was involved in the financial construction was not revealed to him initially.
During proceedings, an internal report by the bank came to light in which the funds were classified as risky, damaging to the bank’s reputation and dubious from the point of view of tax law.
Mr. Maschmeyer also claimed that the risk class of the fund was stated as “three,” meaning that normal fluctuations were possible but that the priority was to maintain the value of the investment. In actual fact, he said, the risk class was “five,” meaning that a complete loss was possible.
Mr. Maschmeyer instigated proceedings against Safra Sarasin after the bank repeatedly delayed repayment of the €55 million invested. While most of this sum had come from Mr. Maschmeyer himself, other investors were also involved, such as former football trainer Mirko Slomka, Mr. Maschmeyer’s wife Veronika Ferres and his ex-wife.
Safra Sarasin declined to comment on the case.
Volker Votsmeier is an editor with Handelsblatt’s investigative reporting team. Oliver Stock and Holger Alich contributed to this story. To contact the author: email@example.com