Frau Fraudbuster: German bankers and traders trembling

Every time she is seen on the high-speed train to Frankfurt from her base in Cologne, Anne Brorhilker strikes fear into some of the world’s largest investment banks. As the lead local investigator in Europe’s biggest tax scandal, she frequently travels on the intercity express heading toward the heart of Germany’s financial center.

Before its steely, spectacled views are the imposing glass and concrete offices of the city’s main international banks. Normally, the police will raid one of them at dawn the next day.

Although the scandal, known as Cum-Ex, has been unfolding in Germany, it is about to hit the City, where banks and traders are suspected of being deeply involved in the huge tax scam.

Among those investigated in Germany are the British Barclays, Bank of America Merrill Lynch, Morgan Stanley, BNP and Nomura, as well as important law firms and auditors.

So far, prosecutors have conducted at least 13 raids since March 2022, and the pace of the investigation will accelerate.

Germany is at the center of a Europe-wide investigation into Cum-Ex, a controversial trading strategy that exploited a loophole in the way dividend tax was collected so multiple investors could claim refunds on a tax that was only paid once.

The alleged perpetrators were financial traders (many of them based in London) and their clients. The losers were the taxpayers. In the case of Germany, which ended dividend tax operations in 2012, up to £10 billion may have been lost to the public purse.

Brorhilker, 50, has been on the Cum-Ex case for a decade. His operation in Cologne has expanded to become by far the most ambitious of Germany’s three regional investigations. He now oversees 120 investigations involving 1,700 suspects, most of whom are located in London.

As Germany’s anti-fraud chief relentlessly pursues his prey, the number of suspects continues to rise.

Barclays employed 124 bankers who were later named as suspects. The charges could come next year, according to financial news service Bloomberg. The bank declined to comment.

Officials in the Netherlands, Finland and Belgium have launched their own investigations, while Denmark has filed around 500 civil lawsuits related to dividend tax refunds.

Last week, Danish authorities won the right to pursue an alleged £1.4bn tax fraud at the High Court in London after the Supreme Court ruled it could be heard in England.

Lawyers say the ruling by England’s highest court will have profound implications for other Cum-Ex cases being examined.

“This ruling will reverberate around the world,” said Aziz Rahman, senior partner at financial crime firm Rahman Ravelli.

“This should be seen as a significant victory for the Danish tax authorities,” Rahman added. “It will also give peace of mind to other countries seeking to recover huge amounts of money they paid thanks to Cum-Ex.”

Among the multiple defendants in the Danish case is British hedge fund trader Sanjay Shah, who ran the now-defunct Solo Capital. They all deny the charges. Shah’s representative has been contacted for comment. In another development last week, a former Fortis banker was sentenced to three years and three months for his role in the trading scandal.

The German, who can only be identified as Frank H, was found guilty at a Frankfurt court of diverting £45m through dodgy Cum-Ex deals.

The Dutch bank ABN Amro, which took over the part of Fortis that carried out the transactions, returned the money to the tax authorities.

With this conviction, the number of people found guilty so far rises to at least 14.

German authorities have also successfully recovered around £2.7bn, not including payments recovered through a series of criminal trials.

Several other high-profile trials continue.

These include Henry Gabay, founder of the now-defunct London-based asset manager Duet Group.

He recently told a German court that he was innocent and that the “devastating” Cum-Ex charges against him were based on the lies of his former business partners. “My whole life is in ruins,” Gabay told the judges. He claims that he relied on the legal advice that authorized the agreements at the time.

“If I had even the slightest idea that the legal opinions did not cover the full picture and risks, I would never have allowed these deals to be made under the Duet umbrella,” he said.

Defendant: Hedge fund trader Sanjay Shah

Gabay’s lawyer said his client “deeply regrets” that “reputable” banks and lawyers used his hedge fund to carry out deals that are now considered illegal.

Also in the dock, in a separate case, is Christian Olearius, former head of the prestigious MM Warburg private bank, which was confiscated by the Nazis in the late 1930s. Olearius, 81, is on trial for allegedly organizing a £245m dividend tax fraud. He has denied all charges. Olearius, who has ties to German Chancellor Olaf Scholz, recently accused prosecutors of plunging the 225-year-old Hamburg-based bank into its biggest crisis since the Nazis ousted MM Warburg’s Jewish owner in the late 1930s.

A court recently awarded Olearius a five-figure sum in compensation after it emerged that his personal diaries were confiscated by prosecutors investigating the case, and incriminating details of his investigation were leaked to the media.

Olearius accused prosecutors of conducting a “superficial, flawed and biased” investigation and said the charges against him were based on “innuendo, repetition and speculation.” He faces up to ten years in prison if he is convicted of all charges.

Olearius and co-owner Max Warburg have already paid £175 million from their personal fortunes to compensate for the tax damage caused by the bank’s role in the Cum-Ex deals. MM Warburg declined to comment.

A new £38m court dedicated to hearing cases brought by Frau Brorhilker will open next year in Siegburg, a suburb of Bonn. This could prove convenient for London-based defendants as Siegburg is connected to Frankfurt Airport via a high-speed rail link, meaning they can fly in and out on trial days.

Suspect watchers, take note.