(May 21): An ex-Macquarie Group Ltd banker is facing criminal charges in a €319.7 million German Cum-Ex case, the first former staffer from a major international investment bank to stand trial over the tax dividend scandal.
The 49-year-old man, identified as Philip G, appeared at the Bonn Regional Court on six counts of aggravated attempted tax evasion on Thursday. Cologne prosecutors allege that the man, with others, tried to illegally extract the money from German government coffers via Cum-Ex deals.
Philip G was a managing director at the Australian bank’s Munich branch for 14 years. Prosecutors allege that he was part of a project entity called Macquarie Funds Group which handled the deals. The actions under review in the case allegedly took place between July 2010 and December 2011.
Cum-Ex was a controversial trading strategy designed to obtain duplicate refunds by taking advantage of how dividend taxes were collected. Germany stopped the practice in 2012 and is now probing about roughly 1,800 suspects from across the global financial industry in a sprawling investigation that has lasted years. More than 20 people have been convicted in German courts for their role in Cum-Ex.
Bankers at Macquarie’s London office were central to Cum-Ex deals and have been in prosecutors’ cross-hairs for years. In the fallout from the scandal the lender has settled two separate matters involving German dividend trades between 2006 and 2009. The bank paid €100 million to German authorities as part of the agreements.
Macquarie has said that as many as 100 former and current staff members were swept up in the probe, including chief executive officer Shemara Wikramanayake and her predecessor Nicholas Moore. In a presentation to investors, the bank said it provided for more potential financial outfall as the lender is also facing a number of civil claims over the issue.
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Under German law, attempted aggravated tax evasion carries a prison term of six months to ten years. Hearings are scheduled until mid-July. Cologne prosecutors charged the ex—banker last year.
During the dividend season, when the Cum-Ex deals were executed, the Macquarie Funds Group worked from the bank’s London office where Philip G acted as the team leader, monitoring the transactions, prosecutors claim.
The defendant admitted through his lawyer in court to having been part of a team that carried out the Cum-Ex deals, adding that he only had an operational and administrative role.
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“To some extent, the charge is understandable,” Philip G said in a statement read out in court by his lawyer. “I understood the transactions and also the issue of double tax refunds.”
Pension funds
According to the charges, six US pension funds were used as investment vehicles for the deals because they were tax-exempt. The funds filed tax-refund applications in 2011, deliberately concealing crucial details about the underlying transactions, prosecutors claim. The tax authorities didn’t pay the money out in the end.
Macquarie acted as a leverage provider and prime broker to the six US pension funds, granting each of them with as much as €1.2 billion in capital.
Prosecutor Ira Lais said that in 2011 Macquarie, together with the defendant, helped the pension funds to buy shares worth €3.6 billion in German blue chips such as Deutsche Bank AG, Allianz SE, BASF SE and Volkswagen AG.
Deals happened around the dates of dividend payments, the prosecutor said. Separately, another set of deals worth a total of €2.4 billion with similar shares was carried out. Macquaire reaped a total of €59 million from the transactions.
“Tax refunds were requested although it was clear to all participants that no taxes had been paid,” Lais told the court on Thursday. Macquarie booked a 4% fee on the transactions and the defendant got a bonus of €250,000, she said.
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A Macquarie spokesman declined to comment on the trial, referring to the presentation to investors the lender released for the latest quarterly results.
The case is: LG Bonn, 29 Kls 2/25.
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