Cum-Ex – The Storm Clouds Gather
For a practice that now seems consigned to history, Cum-Ex seems to be creating lots of work for the future.
The scale of Cum-Ex trading and the amounts of money involved have always been fairly eye-watering. However the data in relation to how authorities want to recoup that cash will also be beginning to look sizeable; especially in Denmark's case.
The Danish tax authority SKAT has brought a lot more than 500 lawsuits against individuals and organisations in Denmark, the UK, US, Dubai, Germany, Malaysia and Canada since 2021. The authority has said that by 2027 it will have spent an estimated $380 million in bringing cases to UK courts. In the US, 61 pension funds reached agreement with SKAT in 2021, repaying $239 million. In addition to this, SKAT director Gry Ahlefeld-Engel has stated her agency has been sharing intelligence with Danish criminal authorities. SKAT has additionally received information from the UK's HM Revenue and Customs and also the Financial Conduct Authority . Given the scale of the investigations, this might be unsurprising. But it is fair to say that Denmark has been stung hard and has decided to go all out to both recover what it really believes it is owed and penalise those it believes are holding it.
The multi-million euro question, therefore, is will the Danish approach prove effective? Using the amounts that are said to have been lost, there is much on the line. There are likely to be losses in addition to wins as Denmark undertakes its mission. But as to the, if any, extent the wins outweigh the losses remains seen.
The sheer volume of lawsuits being filed implies that pressure is being delivered to bear on many, both individuals and corporates. This may well trigger recriminations, as those who find themselves in the litigation firing line look to shift the focus onto others. But that may well play into the hands of the Danish authorities. Yet it is impossible to evaluate just how much the Danish can realistically aspire to recover for his or her severely-diminished state coffers. Win, and the costs could be more than justified. Lose, and the losses will be an unpleasant sting in the tail of the items was already a painful period for the Danish.
But Denmark's aim might not just be to gain money it's owed. It may also be keen to transmit a message that it will always pursue those it suspects of monetary wrongdoing. This can be a message that was emphasised only a matter of weeks ago, when Denmark announced it had charged two British nationals with unlawfully obtaining more than $1.5 billion via Cum-Ex trading.
It ought to be remembered, however, that Denmark is far from the only country looking to hold to account those it believes are to blame for Cum-Ex. In Germany, which has lost approximately 30 billion euros to this trading, another approach has been taken. The authorities you will find focusing on the banks that facilitated the transactions – adding them as confiscation parties to criminal cases against individuals. The Germans may take into account that the banks would be the best opportunity to recover as much as possible, given the amounts which are said to have been lost.
They certainly haven't shied away from pursuing individuals, as indicated by the enthusiasm for commencing investigations. Last year saw Frankfurt District Court open proceedings against six former employees of the defunct Maple Bank and two former Freshfields Bruckhaus Deringer tax lawyers over tax evasion charges associated with Cum-Ex. Significantly, 2021 also saw Germany's Bonn Regional Court rule that Cum-Ex is really a legal of tax evasion instead of legitimate use of a tax loophole.
In the UK, the FCA claims that it is investigating 14 companies and six individuals. But those statistics are obviously susceptible to change. At the moment, the FCA is keeping its cards close to its chest. The size of its intentions regarding Cum-Ex are still far from clear.
What is clear, however, would be that the growing storm generated by Cum-Ex is spreading around the world, and also the number of jurisdictions where the authorities do show their hand regarding investigations is nearly sure to increase. What we should could also see is huge levels of new information becoming available, because of the sheer amounts of lawsuits being filed across many jurisdictions. This could be something which the authorities relish, as it may well provide them with more ammunition to fireplace against both those they previously had in their sights and new figures that appear worthy of attention because of such lawsuits.
It is fair to say that, at this stage, we don't know precisely the number of individuals and corporates take presctiption the radar from the authorities in various countries. But an informed guess would say that whatever the current number, it is likely to grow. And those who end up a part of those statistics need to be doing all they are able to to ensure their fact is the correct one.
