The scandal regarding so-called Cum-Ex and Cum-Cum tax schemes first broke in 2001, and still to this very day exact figures about financial losses are hard to calculate.
However, the sums must be enormous given the magnitude of the fraud and what’s already been uncovered by the tax authorities of various countries.
According to calculations by University of Mannheim in Germany, between 2000 and 2020 alone Germany lost nearly €29 billion ($34.1 billion) due to Cum-Cum fraud — the “little brother of Cum-Ex” as the university’s top financial researcher Christoph Spengel once called it. Globally, the revenue loss is estimated at more than €140 billion.
What’s striking is that despite these tax fraud schemes being publicly known they seem to continue.But what you often hear from the authorities is that they are “not aware of that,” says Anne Brorhilker.
Brorhilker must know because she once was Germany’s most prominent senior public prosecutor who brought numerous Cum-Ex cases to court.
Brorhilker is recognized as Germany’s top expert on the complexities of Cum-Ex financial crimeImage: Oliver Berg/dpa/picture alliance
Speaking to DW, the tax lawyer by profession said she’s still bound by a nondiclosure agreement with her former employee, the Cologne public prosecutor’s office, and cannot discuss details of the agency’s findings in public.
But key whistleblowers, who are still working in the finance industry, had testified in court that these schemes are ongoing, and not only in Germany.
Now working for nonprofit activist group Finanzwende (Financial Change), Brorhilker says Cum-Ex practices are relevant in Belgium, France, Italy, Austria, the Netherlands, Spain, and Luxembourg.
University of Mannheim professor Christoph Spengel says Cum-Ex and Cum-Cum schemes are only possible because of a legal loophole, and understanding wherein the fraud lies is only possible when prosecutors look closer into how those deals are carried out.
Share deals for profit
When German financial institutions — such as banks or investment funds — hold shares that pay dividends, they are required to pay capital gains tax. However, they can get that tax refunded, since they already pay corporate taxes.
As foreign financial institutions holding German shares are not entitled to this refund, they’ve invented a workaround. Foreign institutions temporarily lend their German shares to a German financial institution shortly before the dividend payout deadline.
In return, the foreign bank charges a securities lending fee. The German institution now claims the tax refund, then returns the shares to the foreign owner, and the resulting profit from the refund is split between the foreign and the domestic bank.
Former tax auditor Hanno Berger invented the tax deals after changing sides to become a tax advisor for banksImage: Oliver Berg/dpa/picture alliance
The key legal loophole, Spengel told DW in an interview, is that these securities lending fees are not taxed in Germany or several other countries. In countries where such fees are taxed, Cum-Cum tax fraud doesn’t exist.
Spengel already warned about continuing Cum-Cum share deals back in 2016, but little seems to have changed.
“A change in the law raised transaction costs, but the real legal loophole — and thus the potential for tax arbitrage — still exists,” he said.
Spengel has repeatedly called for a straightforward legal amendment to close the loophole, and argues the government could at least try to stop the fraud by reviewing refund claims more thoroughly before issuing payments.
Risk-free business for banks
Cum-Cum deals are still not being effectively stopped, and past deals are rarely prosecuted, claims Anne Brorhilker.
“For banks it’s a safe bet, because Cum-Ex and Cum-Cum are part of what’s called tech trades,” she said, with profits being made “purely from tax effects” that are “completely immune to market fluctuations.”
“The only real risk is getting caught. And that risk stays low as long as authorities remain poorly equipped,” she added, which was the case across Europe.
According to Brorhilker, one problem is a lack of specialists who are capable of pursuing economic crimes and tax offenses. “There’s a chronic shortage of staff in tax audits,” she said, noting that in Germany prosecution is further complicated by a job rotation practice under which staff regularly switch departments or responsibilities.
“In areas that require deep expertise, which can’t be acquired quickly, this is totally counterproductive,” said Brorhilker.
Inadequate equippment is another weakness that shouldn’t be “underestimated,” especially since “the other side is very well equipped.” This would include data exchange between authorities, as even “sending emails can be complicated” due to the fact that one agency prohibits encryption, while another mandates it.
Video calls between departments, Brohrhilker said, are often impossible because each uses a different conference platform.
Investigating criminal tax offenses still hasn’t arrived in the digital age in GermanyImage: Sebastian Gollnow/dpa/picture alliance
As the fraudulent tax schemes don’t stop at Germany’s borders. international cooperation between tax authorities is “crucial” for Brorhilker, but often slow and mired in red tape.
“In Europe’s financial centers, there are especially strict confidentiality rules for lawyers, tax advisors, and auditors,” she said, which were the result of “intense lobbying by the financial industry.”
Why Cum-Ex isn’t stopped
The financial industry spends heavily to influence politics on both the level of the EU and national states. According to the Finanzwende nonprofit, it spends nearly €40 million annually on lobbying — more than the combined budgets of the auto and chemical industry groups spend on pushing their goals.
Germany’s parliament, the Bundestag, has currently registered 442 finance industry lobbyists which breaks down to nearly ten lobbyists for each of the 42 members of parliament’s finance committee rersponsible for tax laws, financial market regulation, and banking supervision.
Finanzwende activists have raised the pressure on German lawmakers to stop the tax fraud schemeImage: Thomas Banneyer/dpa/picture alliance
Unfortunately, lobbyists are often successful, says Monika Heinold, who also works for Finanzwende.
A former finance minister in the regional German state of Schleswig-Holstein, Heinold experienced an “intense time” in office from 2012 to 2024 — the period in which German prosecutors gradually exposed the extent of the Cum-Ex scandal.
“I saw how lobbyists try to influence tax laws in their favor and block stricter regulations. Sadly, they’re often heard,” she recalled in an interview with DW.
More recently, Finanzwende activists have started to criticize parliament’s finance committee, because some of its lawmakers were found to be earning additional income from local savings banks or cooperative banks.
“Several MPs hold seats on the boards of these institutions and receive four- to five-figure sums for doing so,” Heinold told DW.
And while the dubious, and sometimes openly fraudulant Cum-Cum deals continue to soak German state coffers, some brave prosecutors are at least trying to chase down the worst offenders and recover lost funds.
Currently, there are 253 suspected cases under investigation in Germany involving a total of €7.3 billion.
This article was originally written in German.
