Cum-Ex fraud

Cum-Ex Fraud

If you are facing a cum-ex trading investigation, or the police have invited you to participate in a voluntary interview, our team of Cum-Ex Fraud Investigation Lawyers in Leeds, Sheffield & York offer the best advice, support and advocacy.

Cum-Ex trading investigation solicitors

To discuss your requirements please contact Jeremy Scott on 07971520407

Cum-Ex trading is one of the most complex and high-profile issues currently affecting the financial services sector. There are ongoing investigations into the practice across Europe, including in the UK. As the scope of the tax fraud probe widens, more financial institutions and individuals are becoming embroiled. Regulators in more than 10 EU jurisdictions are involved in regulatory, civil, and criminal actions to try to recover some of the lost tax income. It is likely that the net will only continue expanding, drawing in more people and organisations.

Cum-Ex trading is reported to have cost European tax authorities more than €55 billion. As a result, regulatory bodies across Europe are undertaking huge civil and criminal investigations into the conduct of individuals and organisations, and their potential involvement in the scandal. The Financial Conduct Authority (the “FCA”) has confirmed that a number of UK institutions and individuals are being investigated in relation to Cum-Ex trading. Two London-based investment bankers were convicted recently in the first Cum-Ex criminal trial.

What does Cum-Ex mean?

Shares can be traded with (“cum”) or without (“ex”) dividend rights. Cum-Ex refers to a massive volume of trades which took place before 2012, taking advantage of a tax loophole which allowed multiple parties to claim the same capital gains tax rebate. This practice is sometimes called dividend stripping.

The parties in a Cum-Ex scheme therefore profit at a cost to the tax authority in question. The scandal is centred on Germany, where it is believed that the loss in tax revenue amounts to approximately €30 billion. However, the practice also took place in Denmark, Belgium, France, as well as other European countries.

How can Lupton Fawcett help?

Lupton Fawcett’s Corporate Fraud & Business Crime Solicitors have over 40 years’ experience defending clients facing charges of financial or regulatory offences. Our watchwords are confidentiality, discretion, and protection, and we are proud of our reputation for winning cases other firms would lose.

Our experience includes complex international financial services and tax authority investigations, so we understand what is required for a multi-jurisdictional operation. We have long-standing contacts with experts in foreign countries, which allows us to operate seamlessly in Cum-Ex cases spanning different jurisdictions. We understand the obligations individuals and institutions have to different regulators and tax authorities across Europe and beyond and can provide strategic advice in a dynamic and timely manner.

Ranked in the Legal 500 for Regulatory Crime and recognised by the Criminal Litigation Accreditation Scheme, our team will lead your defence with technical expertise and passion. We are tenacious and dynamic, as well as being practical and straightforward: you will always get clear, direct advice delivered in plain English – we never deal in jargon.

If you have received a formal notice of a Cum-Ex investigation, contact us immediately so we start building your defence strategy. If you are yet to receive a notification, but are concerned that you might have been involved, no matter how remotely, in a Cum-Ex scheme, speak to us about getting prepared. There are steps you can take before an investigation begins which can improve your position if a notification does arrive.

What was a Cum-Ex trading scheme?

At its most basic, a Cum-Ex scheme involved three parties, working together to exploit a loophole to share tax rebates payable to the owner of shares.

It worked like this:

  1. Party A owns shares in Company X worth €1 million.
  2. Shortly before a dividend payment, Party C short sells €1 million of shares in Company X to Party B (short-selling means that Party C does not own the shares at the time the sale is agreed). Party B pays €1 million to Party C.
  3. Company X distributes the dividend to all current shareholders, including Party A. Party A receives a €100,000 dividend, but only receives €75,000 due to withholding tax. Party A applies for a withholding tax refund of €25,000.
  4. Party C buys €1 million of shares in Company X from Party A. As the dividend has now been paid, the shares are now worth €900,000. Party C retains €100,000 from the €1 million paid to it by Party B.
  5. Party C delivers the €900,000 shares in Company X to Party B. To compensate Party B for the loss of the dividend, Party C also provides a payment equivalent to the net dividend of €75,000.
  6. Party B applies for a withholding tax refund of €25,000.
  7. Party B sells the shares back to Party A.
  8. The relevant tax authority has received one withholding tax payment but issued two refunds.

This is a simplified version of a Cum-Ex scheme. In reality, they were vastly more complex than this, often involving multiple parties across different jurisdictions.

What defences are available to a charge of Cum-Ex trading?

The defence strategy employed in the face of a Cum-Ex trading charge will always be dependent on the actions of the individual or institution and the role they played in the overall scheme. Specific justifications for the practice may apply, depending on the level of responsibility for, and knowledge of, the overarching trading strategy, as well as how detailed an understanding an individual had of the counterparties involved. The complexity of many Cum-Ex schemes means it is inevitable that many individuals took part in them unwittingly.

It is important to recognise as well that most Cum-Ex transactions were considered to be normal market practice at the time. Such activities were commonplace and entered into as part of sensible tax planning. Most parties in Cum-Ex trades acted on the advice of lawyers and accountants who genuinely believed that they were simply taking advantage of a legitimate legal loophole. In fact, it is arguable that, as tax authorities and governments were aware of Cum-Ex trading for many years and took no action to stop it, the practice had been accepted.

Despite the fact that the transactions were not illegal, or carried out dishonestly at the time, the actions of parties involved in Cum-Ex trading are now coming under increased scrutiny, and a retrospective reanalysis of activity is taking place. A robust, pro-active defence strategy is required as soon as you suspect that an investigation may be launched. Defences to Cum-Ex trading are complex and require detailed analysis of decisions made many years ago – we have the experience to act quickly and decisively to best protect your position. In these kinds of cases, there are no prizes for second place.

Who is likely to be drawn into a Cum-Ex investigation?

Cum-Ex trading was usually highly complex, involving multiple parties and often large numbers of people across different institutions. The amount that any individual was aware of the overall scheme would obviously vary considerably.

Regulatory investigators are spreading their nets wide as they seek to uncover exactly what took place in these transactions and are increasingly willing to broaden the scope of their enquiries. It is possible that those occupying any of the following roles could be investigated:

  • Chief Investment Officers (CIOs)
  • Portfolio managers
  • Partners and hedge fund managers
  • Asset and trading managers
  • Investment bankers
  • Prime brokers
  • Expert advisors (eg. lawyers and accountants)
  • Custodians
  • Fund administrators

Anyone with exposure to Cum-Ex trading, no matter how remote, is liable to fall under the remit of the authorities investigating these transactions at some point. We have over 40 years’ experience dealing with regulators and tax investigations. We understand how they operate. Speak to us as early as possible so we can assess your likely risk of investigation and begin to put together the most effective defence strategy.

Contact us

Lupton Fawcett’s team of Business and Financial Crime Solicitors are highly regarded for successfully defending businesses and individuals facing investigation or prosecution for all types of fraud offences.

If you are facing a Cum-Ex Trading Investigation we can provide comprehensive support, specialist legal advice, and skilful representation.

Our team is led by Jeremy Scott who has 25 years’ experience of defending clients across the full spectrum of corporate and financial crime cases so you can rest assured that whatever the circumstance are, we’ll be able to help find the optimal outcome.

At such a critical time for the reputation and future of you and your business, it is imperative that you choose the right lawyers to advise and represent you. Lupton Fawcett, ranked in The Legal 500 for Regulatory Law, is known for winning cases that other firms would lose.

Part of a nationally recognised full-service law firm, we are able to assemble a multi-disciplinary team to support you through a criminal regulatory investigation or prosecution with the utmost care.

We also understand that business has to continue as, so our approach is always highly commercial, putting business continuity at the heart of our advice and representation whenever possible.

Within every area of law, we put your interests first.

Our Cum-Ex Fraud Defence Solicitors act regularly for corporate clients across England and Wales including Bradford, Birmingham, Hull, Leeds, Liverpool, London, Manchester, Sheffield, York, and Nottingham.

We can support your needs wherever you live in England or Wales

We will always respond promptly, and we will be happy to help.

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