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Ex-Freshfields Partner Accused of Lying to Avoid Cum-Ex Bill (2)

Jan. 20, 2020, 1:10 PM

A former partner at Freshfields Bruckhaus Deringer LLP was accused of lying to German tax authorities to cover up a controversial trading strategy and avoid a hefty tax bill for his client, bankrupt investment boutique Maple Bank.

Prosecutors in Frankfurt accused the former partner of helping develop the model and of providing legal opinions that aimed to make so-called Cum-Ex transactions appear legal, all the while being fully aware of their true structure. Cum-Ex trades have been called Germany’s biggest-ever fraud, costing the state billions in lost revenue.

The prosecutors, which outline details of the charges filed in November against the lawyer as well as six former bankers, only provides the men’s ages but not their names or company affiliations. The case concerns Maple Bank, and the lawyer is Ulf Johannemann, the former Freshfields partner, according to two people familiar with the case. All are charged with aggravated tax evasion.

A Freshfields spokesman declined to comment because the case is pending. Johannemann’s defense lawyer didn’t immediately reply to an email seeking comment.

The case is the third indictment filed in Germany over Cum-Ex, a trading strategy that lawmakers say cost the government at least 10 billion euros ($11.2 billion) in lost revenue. There are dozens of lenders caught up in the growing scandal roiling the financial industry. Two former London investment bankers are currently standing trial over Cum-Ex in Bonn, and another case was filed with a court in Wiesbaden.

Cum-Ex trades, named for the Latin term for “With-Without,” took advantage of German tax laws and allowed multiple investors to claim refunds on a dividend levy that was paid only once. The government moved to abolish the maneuver in 2012.

In the Maple case, six former bankers of the now defunct lender were charged alongside Johannemann, who left Freshfields late last year and was briefly put in custody in December as part of the probe. The trades executed by the men from 2006 to 2009 cost the tax payer 388.6 million euros ($430.8 million) in illegal tax refunds that was paid to them as a result of the strategy, according to the statement.

“When the revenue service began an examination of the bank in October 2009, the lawyer in close cooperation with others accused allegedly purposefully misstated the bank’s trading strategy to avoid having to pay back the wrongfully obtained tax refunds,” prosecutors said in the statement.

Over the course of the four years of trading reviewed in the case, the bankers received bonus payments linked to the deals totaling 29.5 million euros. The banker with the lowest payout received 481,766 euros, while the one with the highest windfall got 8.4 million euros, according to prosecutors.

Among the accused bankers, five are German nationals and one is American. They all worked for Maple’s German unit and included the former chief executive officer, three former board members, a bank officer and one trader.

Maple Bank was the German unit of Canadian bank Maple Financial Group Inc. The subsidiary was later closed by German financial regulator Bafin as a result of the Cum-Ex investigation. The Maple unit’s insolvency administrator in Germany sued Freshfields for 95 million euros last year, alleging that the law firm didn’t correctly advise the bank about the trades. The case settled for 50 million euros.

Prosecutors asked the court to order Freshfields to participate as an associated party in the case to allow imposing a fine on the law firm. As part of the probe, which started in 2015, Freshfields’ Frankfurt offices were raided three times. Two other attorneys are being investigated. One of them is still working at Freshfields, and the other has retired.

(Adds bonus payments in seventh paragraph.)

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

Benedikt Kammel

© 2020 Bloomberg L.P. All rights reserved. Used with permission.

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