Deutsche Bank Settles Frankfurt Cum-Ex Investigation

(Bloomberg) -- Deutsche Bank AG settled a Frankfurt General Prosecutor's Office investigation into its role in helping clients do controversial tax deals, people with knowledge of the issue said.

Under the deal, the lender agreed to pay 4 million euros ($4.5 million) to end a probe into the so-called cum-ex deals, according to the people, who asked not to be identified as they weren't authorized to speak about the agreement. The bank was drawn into the probe because it acted as custodian bank in deals done by individuals investigated in the case.

Deutsche Bank declined to comment on whether it settled.

The prosecutor's office confirmed that it ended parts of a cum-ex investigation in June that was related to raids in September 2015. The cases against three of six individual suspects were dropped after a payment of 540,000 euros. Separately, 4 million euros of profit was seized. The office declined to identify the suspects or the companies involved. The investigation is one of eight cum-ex probes currently handled by the agency.

Vanishing Payments

Prosecutors in Cologne, Frankfurt and Munich are looking at some of the biggest names in finance, reviewing the involvement of banks, financial service providers and law firms across Europe and the U.S. in relation to the trades that have come to be known as cum-ex -- a Latin phrase that means “with-without,” a reference to the vanishing dividend payments in the transactions. The practice is believed to have cost German taxpayers more than 10 billion euros.

Cum-ex transactions took advantage of how Germany once handled tax refunds on dividends. At the time, certificates used for tax repayments weren't issued centrally. Deals were set up around dividend day in a way that enabled a short seller of a stock and its actual owner to both get a certificate stating that the dividend tax was paid. While the tax was paid only once, both could use the certificates to claim full refunds, according to the findings. The practice ended in 2012 when Germany revised its tax laws.

Banks have come under scrutiny in these probes for various reasons -- doing the deals themselves, financing transactions or acting as custodians that issued the certificates. Deutsche Bank has said it didn't participate in cum-ex trades as a short seller or buyer, but was involved in some of its clients' deals and that it's cooperating with the authorities.

In the probe resulting in the Deutsche Bank settlement, no tax was evaded because authorities refused to pay out refunds when the certificates were presented. In 2015, prosecutors said the people under scrutiny tried to get 37 million euros in refunds. The lender last year retracted the tax certificates its had issued.

The case centered around former Deutsche Bank employees who left the bank to create a company called Nummus, which carried out cum-ex deals, according to the people. Prosecutors started to investigate them in 2012 and three years later they raided 10 premises, including those of Deutsche Bank.

The agreement only ends the review by Frankfurt prosecutors and has no effect on other potential probes elsewhere in Germany.

The case isn't related to last week's raids at Deutsche Bank, which are part of a money-laundering investigation that is handled by a separate prosecutors' office.

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, Paul Armstrong

©2018 Bloomberg L.P.