Billion-dollar tax scandal: Former senior public prosecutor Brorhilker: “Cum-Ex continues”

Former Cum-Ex chief investigator Anne Brorhilker is firmly convinced that tax fraud with illegal stock transactions is still widespread in the financial world. “Cum-Ex continues – even long after the change in the law in 2012,” said the former senior public prosecutor and current managing director of the citizens’ movement Finanzwende of the German Press Agency.

Cum-ex deals, which peaked between 2006 and 2011, are considered the largest tax heist in the history of the Federal Republic. Banks and other investors staged a confusion game with stocks and were reimbursed by the tax authorities for taxes that they had not paid at all. The state is estimated to have lost at least ten billion euros, and politicians responded with a change in the law that took effect in 2012.

“The deals are definitely still possible”

But according to Brorhilker, the tax robbery continued afterwards. As an example, she cites a foundation set up by suspected criminals that was used for cum-ex deals in 2016. In their opinion, the likelihood that cum-ex transactions and related cum-cum deals will still be carried out is high.

“It is always said that the transactions are now technically impossible because the regulations have been changed,” said Brorhilker. But the perpetrators carried out cum-ex deals across Europe and therefore also in countries with different regulations and systems than in Germany. “The perpetrators may have to handle the deals a little differently, but they are definitely still possible.”

“The banks know: Nobody can prove it to us”

The risk for banks of being discovered in criminal activities is still very low, said Brorhilker, who was responsible for cum-ex cases at the Cologne public prosecutor’s office from 2013 to spring 2024 and significantly advanced the prosecution. “The banks know: Nobody can prove it to us. We have a control deficit, no matter what rules we set. And the criminal energy of the industry is not drying up.”

A big problem with Cum-Ex investigation is that banks hoard data abroad, said Brorhilker. “Banks and tax consultants move large amounts of data to almost lawless areas in other European countries, but criminal prosecution actually ends at the German border.” During Cum-Ex investigations, she experienced that banks gave false information to the authorities, but this was very difficult to verify.

The 51-year-old demands that banks have to store their data in Germany. “If a tax authority has the feeling that cheating is taking place at a hairdressing salon or a snack bar, then it can check whether the cash register system has been manipulated – but this is not possible at banks, whose technical systems are so secure that no state can do so without the help of them Bank gets the data.”

“Investment banks are robbing us”

Brorhilker was the most important cum-ex investigator in Germany. In April she announced that she was leaving the civil service – combined with criticism of the way she was dealing with serious white-collar crime. Brorhilker is once again calling for quicker clarification of cum-ex transactions and cum-cum deals, which are estimated to have cost the tax authorities a further 28 billion euros. “In Germany we allow international investment banks to rob us.”

In cum-ex deals, shares were moved back and forth between parties on a large scale around the dividend record date with (“cum”) and without (“ex”) dividend entitlement. Many banks are involved in the scandal. In 2021, the Federal Court of Justice made it clear that cum-ex transactions should be viewed as tax evasion. With Cum-Cum, banks generated illegal tax advantages for foreign owners of German shares.

The scandal extends to the highest levels of politics with allegations against Chancellor Olaf Scholz. Before the committee investigating the cum-ex scandal in Hamburg, he categorically ruled out any political influence.

Little by little, more and more people accused in the scandal are convicted, especially key figure Hanno Berger. The Cologne public prosecutor’s office alone is investigating around 1,700 suspects.

Brorhilker: Need a central authority in Germany

In Brorhilker’s opinion, Germany needs a central authority against serious economic crime based on the Austrian model. In this country there is a problem with cooperation between authorities such as the financial supervisory authority Bafin, the Federal Central Tax Office, the auditors at the Federal Ministry of Finance and the state tax authorities, which are also responsible.

There is also a lack of specialized and experienced public prosecutors in Germany. In the judiciary, it is common for officers to frequently change departments in order to get to know different areas. “As a result, the investigators do not have enough time to familiarize themselves with the complex cum-ex matter. In some cases, investigators are involved with it who have no trial experience whatsoever.”

The judiciary is forced to concentrate on smaller cases that are easier to process in order to demonstrate success. “The big cases are left behind.”

Only a small part of the funds was recovered

Brorhilker criticized that the investigation of illegal stock deals is still going slowly. According to figures from the Federal Ministry of Finance (BMF) from the end of 2023, the state has only legally recovered 3.1 billion euros of the lost cum-ex funds. 380 cases with a volume of 3.8 billion euros are in progress. In the case of cum-cum, the balance sheet is even poorer: according to the BMF, the tax authorities had only secured 205 million euros at the end of 2023.

Brorhilker is calling for more commitment from a new federal government in educating people, especially about cum-cum deals. “I expect that she will make the fight against white-collar crime a top priority. Otherwise, many cases will expire and billions of taxpayers’ money will be irrevocably gone.”