Tax Scandal

HVB Settles With the Past

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HypoVereinsbank was a hotbed of dividend stripping.
  • Why it matters

    Why it matters

    The settlements could allow HVB to put behind it two of the biggest scandals that have engulfed the bank since the 2008 financial crisis.

  • Facts

    Facts

    • Hypo-Vereinsbank is expected to pay around €20 million in penalties for its misconduct involving dividend stripping transactions and aiding tax evasion.
    • Former managers of HVB implicated in the dividend-stripping case are still being investigated, despite the talk of a settlement.
    • Munich-based HVB is Germany’s third-largest bank and is owned by the Italian bank Unicredit.
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    Audio

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It was a proving to be a golden goose, and no one at Hypo-Vereinsbank wanted to stop it from laying eggs.

Numerous warnings came and went without change – the management board simply took too great a pleasure in the fact that its dealers in London and asset managers in Munich were delivering high profits year after year.

It’s the story of the 2008 financial crisis – bankers bending rules and cutting corners in the hopes of making quick money for clients and for the banks themselves.

But with investigators around the world cracking down on shady practices since 2008, Munich-based Hypo-Vereinsbank, or HVB, is now being forced to settle its old scores.

HVB’s own recipe for success before 2008 came from dubious tax practices. In total, HVB is now expected to pay a fine of around €20 million, or $21.9 million, to put the past behind it. One case to be settled involves aiding and abetting tax evasion in Luxembourg. Another involves a controversial tax dodging practice known as dividend stripping.

The principle of the latter: By rapidly trading stocks before and after dividends are paid out by companies, the bank was able to be reimbursed repeatedly for capital gains taxes leveled on its trading profits. The idea is to buy a company’s shares with borrowed money just before a dividend is paid out, and then sell the shares at a loss once the dividend payout is made. The bank and its clients lose no money in the process – but the alleged “loss” on the sale qualifies them for multiple tax exemptions.

Both tax evasion and dividend stripping have implicated a number of banks in Germany, and have become the target of a series of investigations by prosecutors and states. In June, Deutsche Bank’s offices were raided in connection with the latter, while Commerzbank’s Luxembourg subsidiary has been under investigation for the former.

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