Cum-Ex: a short-lived scheme with long-term consequences

For a scandal that seemed to take some time to develop, Cum-Ex now shows little or no sign of going away.

For those whose memories are not so long, Cum-Ex was the share-selling scheme that, from 2007 to 2011 at least, saw state treasuries across Europe paying out billions of euros.

It was a practice that saw a loophole in dividend payments exploited so that more than one party could claim rebates on capital gains tax, even though that tax had only been paid once at most. But it was a practice that seemed to grind to a halt when the authorities got wise to what was going on. 

And since then, the efforts to claw back the cash that was paid out and hold to account those who benefited (and those who were the architects of such schemes) has gathered momentum.

Recent events have shown just how convoluted a saga Cum-Ex has become. In a German Federal Finance Court case in August, Germany's Warburg Bank failed in an attempt to overturn an order to repay the German government €155 million that had been paid out following Cum-Ex transactions. The Court dismissed the bank’s challenge to a 2023 ruling by the Hamburg Tax Court that upheld the government’s claims for the money’s return.

Warburg Bank had originally argued that the claim was time-barred but paid the €155 million under protest in 2020. And if this was not a sizeable enough indicator of the significance and longevity of Cum-Ex as an issue, it is worth noting that Warburg Bank’s tax affairs also attracted top-level political attention. 

A parliamentary inquiry examined whether senior Social Democratic Party (SPD) politicians in Hamburg influenced the bank’s Cum-Ex case, following meetings in 2016 and 2017 between Warburg's owners and then-mayor Olaf Scholz. The inquiry reported that it found no evidence of political interference in the case. But the fact that Cum-Ex is capable of prompting such events shows the scale of its effect.

Recent years have seen the Danish tax authority SKAT going all-out in courts in various countries to regain the money it paid out over Cum-Ex. Last year, British hedge fund trader Sanjay Shah was sentenced to 12 years in prison in Denmark after being found guilty of orchestrating Cum-Ex transactions that cost the Danish government more than £1 billion. Legal action was also taken to seize assets worth $1 billion and a string of properties from him.

Sanjay Shah is, arguably, the authorities’ most high-profile Cum-Ex target to date. And Denmark has been the country most visible in its efforts to penalise such targets. But they are far from being the only characters in this lengthy drama. Many countries are putting plenty of time and effort into devising the best ways to go after the cash they lost to Cum-Ex and those who caused those losses.

It is a good number of years now since SKAT made it clear it had brought over 500 lawsuits against individuals and organisations in Denmark, the UK, US, Dubai, Germany, Malaysia and Canada. If its original forecasts prove correct, it will have spent about $380 million by the end of next year just on bringing cases to UK courts. 

It is also worth noting that SKAT has shared its information with many other countries that are on their own Cum-Ex reclamation missions. As the recent Warburg case shows, Germany has pursued the banks that facilitated Cum-Ex transactions. The UK’s Financial Conduct Authority has conducted investigations and brought eight enforcement cases in relation to Cum-Ex trading. 

These are just a few of many examples. It would be nearly impossible to predict with any accuracy just how many corporates and individuals may become subject to Cum-Ex investigations, or which countries may prove to be the most successful at imposing punishments. But even the most hapless fortune teller will realise this is far from over.

Cum-Ex as an activity is gone. It was a short-lived practice pursued by a number of companies and individuals. But it had a seismic effect on the finances of various states – and the aftershocks will be felt for a long time yet. The amount of trading and the sums involved, the determination of nations to claim that money back and the increasing international cooperation between law enforcement agencies are all reasons why Cum-Ex has to be viewed as a short-term practice with a much longer-term impact.