German cum-ex mastermind handed 8-year jail sentence for tax fraud

By Matthias Inverardi and Marta Orosz

BONN, Germany (Reuters) -A tax lawyer, alleged to have masterminded one of Germany’s biggest post-war frauds, was sentenced to eight years in jail on Tuesday after a landmark trial that has gripped the country.

Hanno Berger, a 72-year-old former tax inspector turned legal tax expert, is the most high profile professional to be convicted after sprawling investigations into the cum-ex dividend stripping scheme, which some experts estimate has cost German taxpayers around 10 billion euros ($10.5 billion).

Berger, who fled to Switzerland in 2012 before being extradited to Germany in February, was also ordered to repay more than 13 million euros as he became the 11th man convicted in Germany over the scandal after an eight-month trial.

Germany and Denmark are leading cross-border investigations into the trading scheme, which involved banks and investors claiming multiple bogus tax rebates on dividends, aided by now-closed loopholes in their tax systems and the failure of authorities to spot and halt the practice.

Berger’s sentence is the longest to date after around eight years of investigations that government officials say span around 1,500 suspects and 100 banks on four continents.

In closing arguments at the Bonn court last week, prosecutors accused Berger of orchestrating tax scams that siphoned 278 million euros from German taxpayers.

Berger rejected accusations of tax fraud, although he conceded he should have paid better heed to a 2009 finance ministry letter that expressed concerns about the “tax optimisation scheme”. He also insisted some transactions were legal at the time.

Judge Roland Zickler said the case turned on a particularly serious form of white-collar crime, labelling Berger “the inventor of cum-ex 2.0” because his schemes were so prolific.

“You were right at the centre,” he told Berger.

Richard Beyer, a lawyer representing Berger, said his client would study the judgment before deciding his next steps.

MILKING THE STATE

Prosecutors said Berger designed and promoted the cum-ex scheme, defrauding the German state and profiting, along with a colleague, of 27.3 million euros between 2007 and 2013.

Berger is on the hook for half. The former colleague, who cannot be named for legal reasons, is due to pay the remainder, although the court heard that his efforts to pay his share have been partly blocked by a bank on compliance grounds.

The scheme, which flourished after the 2008 credit crisis, involved the rapid dealing of company shares around dividend payout days, blurring stock ownership and allowing multiple parties to claim rebates.

The scandal has sparked a public and political outcry as ordinary Germans face a cost-of-living crisis.

Authorities have raided the German branches of companies including Barclays (LON:), Bank of America (NYSE:), JP Morgan and Morgan Stanley (NYSE:) in their investigations. All four banks have said they are cooperating with inquiries.

In September, Bank of New York Mellon (NYSE:) Corp, Germany’s Warburg Group and Deutsche Bank (ETR:) said they would pay a combined 60 million euros to tax authorities over the scandal.

Berger has also been charged by Frankfurt prosecutors over another alleged cum-ex tax fraud, valued at 113 million euros, with a trial in the city of Wiesbaden which is expected to reach a verdict next year.

“Even if there are those who might have wished for a longer sentence, the key takeaway today is that the law is more powerful than criminal money,” said ex-lawmaker Gerhard Schick, who instigated a parliamentary inquiry into the scandal.

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