Cum-Ex investigator Brorhilker explains how tax fraud works

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Anne Brorhilker has set herself some goals for her new role in the citizens’ movement Finanzwende. Instead of fighting financial crime on the basis of individual cases, as she recently did as the Cum-Ex chief investigator, she wants to “get to the root of the problem” in the future. Public pressure should encourage politicians to ensure greater transparency in tax scandals and to recover the tax money that banks have stolen on a massive scale. This goal is still being thwarted by a powerful financial lobby whose influence on the judiciary, legislation and administration is preventing real clarification and investigations.

“This is not about small things, but about many billions,” said Brorhilker on Tuesday in her new role as managing director of the Finanzwende association. Even in the context of the budget debate, it is incomprehensible that the banks’ illegal profits have not yet been reclaimed in many cases. Instead, the traffic light coalition wants to save millions from citizens’ allowance recipients in the future in order to plug the budget hole. “This shows that the standards have obviously become completely wrong. And this is where we want to correct it,” said Brorhilker. Financial crime and tax evasion in the billions should not be treated more gently than welfare fraud.

Cum-Cum: Greater damage than Cum-Ex

In order to be able to fight financial crime more effectively, Brorhilker resigned from her post as senior public prosecutor in May. She became known as the most important investigator in the Cum-Ex scandal: the stock transactions that allowed clever investors to get multiple tax refunds – and thus cheated the state out of at least ten billion. Under Brorhilker’s leadership, the Cologne public prosecutor’s office investigated around 120 cases against 1,700 defendants.

In the future, Brorhilker wants to uncover the background of the Cum-Cum scandal, the big brother of the Cum-Ex scandal, at the non-governmental organization Finanzwende, of which she has been managing director since June. According to conservative estimates, the state lost around 28.5 billion euros due to Cum-Cum transactions – three times as much as the estimated damage from Cum-Ex transactions.

But how do such cum-cum transactions work? Cum is Latin and means “with”. In stock market jargon, cum-cum describes a share with a right to a dividend. When German stock corporations pay out dividends, their investors from home and abroad must generally pay capital gains tax in Germany. Banks from Germany, however, can subsequently reclaim this tax from the tax office.

Major foreign shareholders therefore liked to lend their shares to a German bank before the dividend record date and send them on a “dividend holiday”. The German institute then collected the dividend on the record date, paid 25 percent capital gains tax on it – and then had this refunded by the tax authorities. Shortly after the dividend record date, the bank then returned the shares to the foreign shareholder – with almost the entire dividend, because the tax that was actually due on it had been refunded. Many small regional banks, including savings banks and cooperative banks, were also involved in these structures.

Few answers, blacked out papers

In 2015, the Federal Finance Court, Germany’s highest financial court, ruled that such cum-cum transactions are inadmissible. Nevertheless, the tax authorities have only recovered a fraction of them to date. Finanzwende is trying to find out why this is the case and initially made several requests under the Freedom of Information Act to the Federal Ministry of Finance (BMF) and various state finance ministries. Specifically, the citizens’ movement asked about several BMF letters: Although the Federal Finance Court’s ruling had set out a clear list of criteria for when cum-cum transactions are illegal, the Federal Ministry of Finance sent two complicating letters in 2016 and 2017 on the basis of which banks could keep their illegal cum-cum profits. This was only corrected with another BMF letter in 2021.

Finanzwende received hardly any answers to their inquiries. In some cases, they were sent agreed-upon, blanket text blocks, “which are obviously always used for such inquiries,” said Brorhilker. “We were also sent masses of paper, but it was completely blacked out.” According to Finanzwende, the authorities are stonewalling instead of clarifying and fulfilling their duty to provide information.

In some cases, the authorities questioned even referred to the banks’ economic interests and possible reputational damage, said Brorhilker: If their involvement becomes known, all those potentially involved in these transactions face “significant damage to their image, which can also have economic consequences,” she said, quoting from a rejection notice from North Rhine-Westphalia in response to a request for access to files. “You can obviously get the impression that the tax authorities are still closer to the banks than to the citizens in this regard,” continued the former senior public prosecutor.

Powerful financial lobby as opponent

At this point, the influence of the financial lobby, especially the banks, is unmistakable, said Brorhilker. At the level of the Bundestag, they have the largest budgets, even ahead of the pharmaceutical and automobile lobbyists. “This is a large, very well-connected industry that has a great interest in preventing effective controls and prosecutions, and that gets away with it,” said Brorhilker. Another problem is that the financial lobby trivializes cum-ex and cum-cum deals. At the same time, these deals are presented to the specialist authorities as extremely complicated. With masses of paper and terribly complicated legal explanations, the lobbyists are overburdening poorly staffed and overburdened offices.

The citizens’ movement Finanzwende has now filed lawsuits against the rejection notices that it received from the authorities in response to its requests. Anne Brorhilker wants to continue to fight financial crime and draw attention to abuses. Her new role at Finanzwende is a change of strategy. “Since I am no longer a civil servant, I can now say a lot of things that I could not say as a public prosecutor,” says Brorhilker. “My freedom of expression will no longer be restricted.”