Clearstream Staff Suspected of Misleading Authorities on Tax Fraud Scandal

(Bloomberg) -- Deutsche Boerse AG's Clearstream unit may have had a bigger role than previously known in Germany's most controversial tax scandal, and may have misled authorities about it, according to a warrant in the case.

Employees and managers at Clearstream were informed “in detail” about how so-called Cum-Ex deals were organized and “actively supported” transactions, according to the court document seen by Bloomberg. They also met with clients to talk about how trades were handled, booked and reviewed.

The document authorized raids of the company's offices conducted by prosecutors two weeks ago. Authorities are looking into possible involvement of employees and high-ranking managers, and the document indicates that Cum-Ex transactions and Clearstream's role in them didn't end in 2012 after a legal change to stop it, but that the strategy continued in a modified way at least until 2016.

A Deutsche Boerse spokesman referred a request for comment to Clearstream, whose spokeswoman said the raids were part of investigations into customers and employees. Deutsche Boerse is cooperating with the authorities, she added.

The Cum-Ex scandal has caught up several financial institutions, including Deutsche Bank AG, Bank of New York Mellon Corp. and Barclays Plc. The controversial transactions took advantage of a now abandoned German practice of taxing dividends that made it possible to get multiple refunds on a tax paid only once, according to investigators. The practice cost the German government more than 10 billion euros ($11 billion) in lost revenue, lawmakers say.

The warrant summarized the current findings of the probes by Cologne's prosecutors. The document cites more than 50 investigations pending there and the names of dozens of banks, brokers, funds and trading companies involved. The Clearstream raids started on Aug. 27.

Clearstream played a central role as it's the exclusive depository for shares of companies listed on German exchanges. Virtually all Cum-Ex deals were settled via its channels, according to the warrant.

The document cites a meeting with Barclays in London in February 2007 where executives discussed Cum-Ex strategy in detail. The warrant also refers to 2010 email exchanges with Scotia Capital and Banco Santander's Cater Allen about short-selling activity for Cum-Ex.

Barclays, Santander and Scotia Capital, a unit of Bank of Nova Scotia, declined to comment, as did Cologne prosecutors.

The probe found indications that suspicious transactions were also flagged internally and could be detected without relying on tips from clients.

Clearstream staff advised the German Finance ministry and thus influenced legislation regarding the trades without disclosing the real volumes and the trading strategies behind them, according to the document. Clearstream staff “deliberately” misinformed the authorities about its internal procedures and about the ability to detect short selling, according to the document.

The way how Clearstream described its technical processes “for years” to the tax authorities and also to a parliamentary select committee investigating Cum-Ex was deviating from how the Deutsche Boerse unit internally viewed it, the warrant said. To the outside world, Clearstream maintained it had no way to detect short selling while it was well able to do so, according to the probe's findings.

Deutsche Boerse profited from the fees Clearstream charged for the vast volumes of share sales required by Cum-Ex deals, according to the warrant.

--With assistance from Donal Griffin.

To contact the reporter on this story: Karin Matussek in Berlin at kmatussek@bloomberg.net

To contact the editors responsible for this story: Anthony Aarons at aaarons@bloomberg.net, Christopher Elser, Marion Dakers

©2019 Bloomberg L.P.

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