Cum-ex: far from over

In what may seem like the end of a chapter, the UK’s Financial Conduct Authority (FCA) has ended its cum-ex investigations with an eighth and final penalty relating to the controversial trading scheme that has left treasuries across Europe billions out of pocket.

The FCA announced it had fined Mako Financial Markets £1.66 million pounds for failing to spot red flags when executing billions of pounds in purported Danish and Belgian trades for clients of Sanjay Shah’s Solo Group.

It would be easy to see this as the conclusion of cum-ex matters. This is, after all, the UK’s last cum-ex fine, with the FCA having imposed £30 million plus in penalties on seven companies and one individual. And Mr Shah, who has been viewed for years by many in authority as the face of cum-ex, is currently appealing his 12-year Danish jail sentence for tax fraud, while also being the subject of a £1.44 billion civil action by that country’s tax authority, SKAT.

Background

Cum-ex involved shares being traded in a way that disguised the identity of their owner so that more than one party could claim rebates on capital gains tax, even though that tax had only been paid once at most. In the years immediately after the 2008 financial crisis, cum-ex led to huge amounts being paid out by treasuries in countries such as Denmark, Germany and Belgium, until approximately 13 years ago, when they realised what had been done.

It was then that the crackdown began. But while the FCA is now calling time on its fight with cum-ex, it is certainly not the case elsewhere. There are more than enough criminal and civil proceedings going on in other countries to show that the battle continues: the UK’s cum-ex chapter may have concluded, but the story is far from finished.

Ongoing investigations

This may be due, in part, to the authorities in some countries being slow to wake up to the widespread use of a practice that was draining their finances. But since realising what had been going on, they have put plenty of time and effort into pinpointing where the money has gone, targeting those who devised the cum-ex schemes and going after those who benefited from them. 

SKAT made it clear from the start of its efforts to regain funds lost to cum-ex that it was bringing over 500 lawsuits against individuals and organisations in more than half a dozen countries. Mr Shah’s £1.44 billion case is just one of those. By 2027, SKAT expects to have spent the equivalent of more than £300 million bringing cum-ex cases to UK courts. 

SKAT is also busy sharing information with its counterparts in other countries. Those countries include Germany, which is looking to regain as much as possible of the €30 billion it believes it paid out over cum-ex. It is doing a large part of this by targeting the banks that facilitated cum-ex transactions. Five years ago, Bonn Regional Court ruled that cum-ex was a criminal offence of tax evasion rather than an allowable use of a tax loophole. With that ruling, it would be a huge surprise if the German authorities stopped their cum-ex investigations in the foreseeable future.

Conclusion

The exact number and extent of actions against corporates and individuals over cum-ex would be impossible to ascertain, due largely to the scale of the trading that occurred, the multijurisdictional nature of what went on and the simple fact that the authorities may still be in the early stages of many investigations.

On a practical level, that may mean that there are still many who were involved in cum-ex who may need to look closely at their activities in those years – even if the authorities have not yet come knocking – and take appropriate advice on how to proceed.

The outcomes for many in such a situation may be unclear for now. But what is clear is that the cum-ex saga is far from over – even if the UK appears to have closed the book on it.