Tax Evasion Scandal: Persistence of Germany's Largest Financial Fraud Scheme, Cum-Ex
In Germany, the ongoing Cum-Ex and Cum-Cum tax schemes continue to cost billions in lost tax revenue, exploiting the tax-exempt status of securities lending fees that allows multiple tax refund claims on the same dividend payout. Prosecutors have intensified efforts, with approximately 253 ongoing investigations in Germany involving €7.3 billion, targeting the most serious offenders and seeking asset recovery.
However, closing the loophole is complicated by entrenched legal and political factors. The tax-exempt nature of securities lending fees remains a critical legal loophole that enables the fraud. Lobbying by financial sector interests is a major obstacle. Some lawmakers in Germany have ties to local banks and receive significant compensation, raising concerns about conflicts of interest and resistance to stricter regulations. Activist groups such as Finanzwende have criticized the finance committee in parliament for lax oversight and advocate transparency and reform to shut down these schemes.
The loophole is deeply embedded in tax laws, specifically, the treatment of securities lending fees, which are tax-exempt in Germany and some other countries, enabling the schemes. Political influence and lobbying by affected financial institutions slow legislative reforms and enforcement. The structural complexity of these schemes and the international network of actors complicate investigations and prosecutions.
In other European countries, Cum-Ex and Cum-Cum schemes are also prevalent in Belgium, France, Austria, the Netherlands, Spain, and Luxembourg, where similar legal loopholes and tax-exemptions exist, facilitating these fraudulent practices. Denmark has also suffered significant losses due to Cum-Ex schemes and has pursued prosecutions involving international suspects.
Christoph Spengel, a professor at the University of Mannheim, states that these schemes are possible due to a legal loophole. He estimates that between 2000 and 2020, Germany lost nearly €29 billion ($34.1 billion) due to Cum-Cum fraud. Globally, the revenue loss from these schemes is estimated to be over €140 billion.
The financial industry spends nearly €40 million annually on lobbying efforts in the EU and national states. Foreign financial institutions, not entitled to this refund, have invented a workaround involving securities lending fees, which are not taxed in Germany or several other countries.
Some parliament members in Germany's finance committee are earning additional income from local savings banks or cooperative banks. In Germany's parliament, the Bundestag, there are currently 442 finance industry lobbyists, approximately ten for each member of the finance committee responsible for tax laws, financial market regulation, and banking supervision.
The Cum-Ex and Cum-Cum tax schemes were first exposed in 2001. Anne Brorhilker, a former senior public prosecutor in Germany, brought numerous Cum-Ex cases to court. Despite growing scrutiny and investigations, efforts to close the legal loopholes enabling these schemes, especially in Germany, face significant challenges. Comprehensive legislative reform and stricter regulation are still needed to effectively end these practices.
- The ongoing Cum-Ex and Cum-Cum tax schemes, prevalent in several European countries and costing billions in lost tax revenue, are facilitated by legal loopholes in the treatment of securities lending fees.
- Political influence and lobbying by financial sector interests, including foreign financial institutions, present significant obstacles to the closure of these loopholes, slowing down legislative reforms and enforcement.
- In Germany, the general-news concerning Cum-Ex and Cum-Cum schemes is marked by concerns about conflicts of interest and resistance to stricter regulations, given the links some lawmakers have with local banks.
- Activist groups like Finanzwende are advocating for transparency and reform to shut down these schemes, criticizing the finance committee in parliament for its lax oversight, while faced with significant international crime-and-justice challenges in their efforts to prosecute the perpetrators.
