Taxes

Alleged Tax Fraud Mastermind Gets More Jail Time For Role In Billion Dollar Scheme

A German lawyer widely regarded as the mastermind of a massive tax fraud scheme has been sentenced to an additional eight years and three months in jail. Hanno Berger had already received an eight-year jail sentence last December for his role in the cum-ex scheme, which has been called “the biggest tax theft in the history of Europe.”

Berger is accused of having made money for himself and his clients through cum-ex transactions. Admit it: you don’t want to Google
GOOG
it, so here’s a quick explanation.

Cum-Ex

Cum-ex is Latin for “with/without”—that’s exactly how the practice worked. Shares of stocks were traded with dividend rights attached but delivered without them.

Here’s how that typically happened. Networks within the financial world—tax advisors, bankers, lawyers, and investors—loaned each other shares in large companies. That made it look like there were two owners of the same shares. The bank or other institution that settled the trade would confirm that the tax on the dividend payment had been paid, typically in the form of withholding. Depending on residency and other factors, the owners of the shares would then file for a tax rebate.

The key was speed—if the shares were traded fast enough—before the payout date for the dividend— both “owners” could claim tax rebates for the same shares even though the tax had only been paid once, if at all. These transactions, multiplied over many countries and even more companies, resulted in more than $60 billion in tax losses to European countries—some estimates place the number much higher.

U.S. Involvement

The transactions were eventually flagged and deemed illegal. In Germany, the break happened when an administrative assistant noticed unusual activity coming from a U.S. pension fund—it bought and sold $7 billion in German stock and requested a tax refund of $60 million. Niels Fastrup, a co-author with Thomas Svaneborg of “The Great Tax Robbery,” told the New York Times
NYT
in 2020, “These U.S. pension plans became the holy grail for cum-ex trading.” Fastrup explained, “They were perceived by tax authorities as very trustworthy, and all European countries had agreements with the U.S., so these plans could claim 100 percent of withheld taxes.”

Overall, the schemes were an easy sale with lawyers occasionally offering opinion letters confirming the validity of the transactions. Another point in their favor? The practice had not yet explicitly been outlawed in most countries caught up in the schemes. However, prosecutors have consistently maintained that those involved in the practice knew they were cheating.

Berger’s Role

Berger was accused of masterminding cum-ex schemes in Germany between 2006 and 2013. His reputation—he had previously worked as a tax inspector in the German government—gave him credibility when he turned to private practice. His history, however, has likely also contributed to the distaste for his alleged maneuvers, with some believing that he knew better.

Berger has maintained his innocence, saying that the transactions were legal and he was simply serving his clients. Nonetheless, in 2012, when German authorities raided his home and office, he fled to Switzerland, where he lived as investigators built a case against him.

Berger was extradited to Germany in February 2021, where he was accused of crimes related to the schemes. In December 2022, he was found guilty in a Bonn courtroom of three counts of tax evasion committed between 2007 and 2011. He faced up to 15 years in prison and was sentenced to eight. He has since appealed the verdict.

A few months later, Berger returned to court—this time in Wiesbaden. There, he was convicted on three additional counts of tax evasion for years spanning 2006 to 2008. Prosecutors sought a prison sentence of more than ten years, but he was sentenced to eight years and three months. The extra jail time is likely a life sentence if served consecutively—Berger is currently 72 years old.

Products You May Like

Articles You May Like

Here are 6 buying categories cheaper today than they were before the pandemic
Darden Restaurants to acquire Chuy’s for approximately $605 million
The election could have a ‘massive impact’ on the municipal bond market, analyst says
Lower capital gains tax, cuts to food benefits: What Project 2025 could mean for your wallet in a Trump presidency
With corners of the media industry in upheaval, Netflix makes clear it’s staying out of the fray

Leave a Reply

Your email address will not be published. Required fields are marked *