In the multi-billion dollar Cum-Ex tax scandal, the Federal Court of Justice found for the first time that the stock exchange traders involved had made themselves liable to prosecution.

The highest German criminal judges confirmed on Wednesday the conviction of two stock market traders who had been sentenced to suspended sentences last year.

The judges also made it clear that the state may collect the profits that have been drawn from the criminal acts (Ref .: 1 StR 519/20). 

Corinna Budras

Business correspondent in Berlin.

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In the first cum-ex criminal judgment, the Bonn Regional Court sentenced the two defendants, Martin S. and Nicholas D., to suspended sentences in several cases for tax evasion or aiding and abetting tax evasion.

S. is also supposed to repay 14 million euros in income from the business.

The Warburg bank was the only one of the five financial institutions originally involved to pay 176 million euros. 

The criminal proceedings underlying the judgment were unusual in several respects.

The two stock exchange traders from London confessed and had for the first time publicly presented in court how the complicated cum-ex deals work in practice.

That was taken into account in the penalty.

They asserted that it had not occurred to them at the time that they were doing anything criminal.

Investigations against more than a thousand suspects

In contrast, the Karlsruhe judges made it clear that there was no doubt about the “deliberate inspection”.

The parties involved worked towards the payment of unpaid capital gains tax "deliberately by dividing their work". 

The basis for the deals were transactions in shares that were traded around the dividend date of the respective company.

In this context, professional investors were able to have the capital gains tax paid on the dividends reimbursed.

Due to a wrong design in the processing of such transactions, investors could have the tax paid only once reimbursed several times.

The name of these transactions arose from the fact that the shares were traded both with - ie "cum" - dividend entitlement and without - ie "ex".

The judgment of the Federal Court of Justice has a signal effect far beyond the individual case. It is the first supreme court judgment in the complex that is considered to be the largest tax scandal in the history of the Federal Republic. There are more criminal proceedings pending, and hundreds could be added: The prosecutors are investigating more than a thousand suspects.