UK regulator probes 14 firms for tax scandal involving 4 countries

*British FCA examining dividend-stripping schemes in Denmark, Germany, France and Italy

Emmanuel Akosile | ConsumerConnect

For their roles in the tax scandal known as Cum-Ex, concerning substantial and suspected abusive share trading in London’s markets, the United Kingdom financial regulator is investigating 14 firms and six individuals spread across four countries.

The Financial Conduct Authority is looking at firms that operated dividend stripping schemes in Denmark, Germany, France and Italy, said the person, who asked not to be identified because the investigations are private, says Bloomberg report.

The regulator has been quiet about its plans since February 2020, when an official revealed that a decision on whether to pursue Cum-Ex cases was imminent.

Report indicates the controversial practice, where shares were traded rapidly to earn duplicate tax refunds on dividend payments, has spawned investigations throughout Europe.

Danish prosecutors in recent weeks have stepped up attempts to interview London traders over what they knew about Cum-Ex.

A familiar source with the probe didn’t identify the firms or individuals being investigated.

A spokeswoman for the FCA declined to comment, report stated.

Mark Steward, FCA’s Head of Enforcement, in February said that the regulator had been working with European authorities to investigate what he called “substantial and suspected abusive share trading in London’s markets.”

Though he said that the investigations were “very close to their conclusion and decisions about action are imminent,” the Coronavirus pandemic has pushed back timetables since then.

Though UK taxpayers weren’t harmed by Cum-Ex transactions, many of the deals were carried out by traders working at financial institutions in London regulated by the British authorities, according to report.

At a German trial earlier this year, two former London traders were convicted of aggravated tax evasion.

Matthew Banham, a lawyer at Dechert in London, who specialises in investigations and regulatory issues said that the Cum-Ex cases could eventually the leave the same sort of “stain” on the financial industry as previous scandals related to the rigging of FX rates and Libor.

Banham stated: “If the FCA can find the evidence then they have ample powers to bring action against those firms and individuals involved in abusive share trading.”

The FCA investigations could still be at an early stage as lawyers for traders caught up in other countries’ probes said their clients haven’t been contacted by the UK regulator.

Danish officials, however, have contacted several traders who previously worked at large London banks, according to people familiar with the probe.

The people are being sought as witnesses at this point and aren’t considered suspects.

The move marks a major escalation for the Danish regulators, who had previously focused on Sanjay Shah, the founder of Solo Capital Partners LLP.

Prosecutors have seized Shah’s London mansion and other assets over allegations that he illegally claimed duplicate tax refunds. Shah has denied any wrongdoing.

Danish prosecutors declined to comment on pending investigations.

Cum-Ex transactions took advantage of a now-abandoned method of taxing dividends, that seemed to allow multiple refunds through a combination of short sales and other transactions, report added.

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