Banco Santander SA became the latest addition to a long list of banks targeted by German prosecutors over controversial tax-driven transactions known as “Cum-Ex” that may have cost the German state about 10 billion euros ($11.5 billion).
The Spanish lender confirmed on Thursday that it is being investigated and said it is fully cooperating. It has also started an internal investigation to look into the allegations. A group of cooperating media organizations from a dozen countries, including Spanish newspaper El Confidencial, reported the news earlier, along with some other fresh details.
“Our current understanding is that the primary focus of the investigation relates to certain activities extending from 2007 to 2011 of three former employees who left our group a number of years ago,” Santander said. “To date we have not identified any evidence that the activities under investigation involved senior management or that any of Santander’s or its subsidiaries’ governing bodies were aware of these activities.”
The report also led Sweden’s SEB AB, which had not previously been named in connection with the issue, to disclose that one of its former employees in Germany is under investigation. However, it denied playing any role in helping clients avoid tax.
“Our business was done in accordance with German legislation, regulations, market practices and in full transparency,” SEB said in a statement.
One bank already known to be under investigation, Hamburg-based MM Warburg & Co, may be in more trouble than at first thought. German broadcaster NDR, another contributor to Thursday’s reports, said Warburg’s current Chief Executive Officer Joachim Olearius is now among the Cologne prosecutors’ suspects, in addition to his father Christian, who is also chairman of the supervisory board. The prosecutors have also upped their estimate of the potential tax shortfall in the case to 330 million euros, NDR reported.
Warburg rejected the allegations as wrong. All trades the lender did were in line with the law and there was no collusion with others, the bank said in an emailed statement.
German investigators are looking at the role of dozens of banks, brokerages, accounting companies, and law firms in the deals, and the cases involve hundreds of individuals, people familiar with the issue said in June. The investigations include transactions handled by lenders including Barclays Plc, Goldman Sachs Group Inc., Bank of America Corp., Macquarie Group Ltd., and BNP Paribas SA, the people said.
Goldman said in June it doesn’t know of any investigation against the bank or its employees. The other banks contacted at the time either declined to comment or didn’t respond. Macquarie in August confirmed the probe, adding that about 30 people at the lender may be interviewed by prosecutors and that its CEO may become a suspect at some point.
Scores of banks across Europe and the U.S. participated at some level -- doing the deals themselves, arranging them for clients by acting as custodians, issuing tax certificates, or financing transactions in the practice. It’s become known as “Cum-Ex”-- a Latin phrase that means “with-without,” a reference to the vanishing dividend payments in the trades.
The probe, already some five years old, is picking up speed as several witnesses have agreed to cooperate. The leading prosecutor team in Cologne is working in parallel with prosecutors in Munich and Frankfurt, who have charged six people, including former investment bankers at UniCredit SpA’s HVB unit in London.
The transactions involved short sales just before dividend time. Companies withheld taxes on dividends and custodian banks issued certificates that shareholders could redeem at the tax office in the event of an over-payment. In the short sales, the buyer’s bank also issued a certificate that could be redeemed for a full refund. Prosecutors say that in some instances, several parties may have been issued tax-refund certificates, multiplying the damage.