There are ‘lots of indications’ that some managers discussed ‘the reputational risks’ of Deutsche Bank’s involvement in a share-trading scheme that is the subject of Germany’s biggest post-war fraud investigation, according to a conclusion in one of five internal audits.
The bank issued tax certificates for withholding tax that had never been deducted and made loans to clients to allow them to participate in the scheme to claim tax rebates, according to the audits.
German prosecutors say the scheme’s participants misled the government into thinking a stock had multiple owners on its dividend payday who were each owed a dividend and a tax credit, according to court documents.
The authorities say the scheme, called “cum-ex” and involving several other global banks, cost the state 5.6 billion euros in rebates that should not have been paid.
Deutsche Bank commissioned law firm Freshfields to write the five audits as part of an internal investigation into its role in cum-ex trading between 2006 and 2011. They are dated from 2013 to 2015 and marked “highly confidential”.
The audits were prepared by Freshfields in Germany and London. One of the five documents is a summary that was handed to the prosecutors in May 2017.
One part of the audit addresses Deutsche Bank’s decision to lend money to companies — what the audit calls “provision of finance” — so that those companies could carry out cum-ex trades and the discussion of risks to its reputation.
“Even though evidence is not clear-cut, there are a lot of indications that the staff of SETG (Strategic Equities Transactions Group) and managers, who were responsible for Prime Brokerage at the SEF-IM (Structured Equity Finance - Inventory Management) trading desk, discussed the reputational risk for Deutsche Bank from its provision of finance in January 2009 and came to the conclusion that this was acceptable,” one of the Freshfields audits said.
“Group Tax confirmed in March 2009 the provision of leverage for cum-ex trades through Deutsche Bank.” A Deutsche Bank spokesman said that Deutsche Bank was involved in some of its clients’ cum-ex transactions and that it was fully cooperating with investigators.
The audit dated April 16, 2015 pointed to “significant failings” in overseeing two traders, Simon Pearson and Joe Penna, who they say acted as middle men between the clients and the bank departments that lent money to fund the cum-ex scheme and issued tax certificates. — Reuters
Oman Observer is now on the WhatsApp channel. Click here
