With Cum-Ex investigations in a number of countries gathering momentum, an increasing number of individuals and financial institutions are likely to come under scrutiny. Their response to this will be vitally important.
Rahman Ravelli represents organisations, their officers and personnel who are affected by Cum-Ex investigations. We were one of the first law firms to identify Cum-Ex as a major issue, have hands-on experience of Cum-Ex investigations and recognise the implications for the financial services industry and those working within it.
We also have in-depth expertise and an enviable track record when it comes to managing and defending investigations that cross borders and involve numerous investigating agencies.
Cum-Ex is a multinational tax fraud probe focused on a large volume of transactions before 2012 that exploited a loophole in dividend payments. Shares were traded in a way that disguised the identity of their owner so that more than one party could claim tax rebates on capital gains tax, even though that tax had only been paid once at most.
This created huge profits for those involved but deprived countries’ treasuries of tens of billions of euros in tax revenue. The investigations into this that are either ongoing or planned could involve many that worked in banking, investment or asset management at the time.
The Need for the Right Representation
As the details emerge regarding the nature and scale of investigations taking place in Europe and beyond, it is clear that any Institution or individual who has been involved in Cum-Ex trading, directly or indirectly, may find themselves under scrutiny.
Countries may hold differing views regarding the level of Cum-Ex involvement required for an organisation or person to be investigated, but the reach of their investigative bodies extends far beyond their own borders. Given the complexity of the trading and the range of legal issues involved, it is imperative that those who are investigated are represented by experts in this field - who are adept at dealing with the wide array of challenges that arise in investigations involving multiple jurisdictions.
Anybody that has not yet received formal notice of investigation but has concerns relating to their involvement with Cum-Ex would be advised to seek legal advice as early as possible. In all such cases, preparation is key.
The Likely Subjects of Investigation
The nature of Cum-Ex and the trading it involved mean that many will inevitably come under investigation. While not exhaustive, the list below gives an idea of the positions and roles that may come under scrutiny from investigators because of their likely involvement in Cum-Ex:
- Partners and hedge fund managers who approved the trading practices.
- Chief investment officers (CIOs) and portfolio managers who were involved in investment decisions and built strategies for Cum-Ex trading.
- Asset and trading managers who provided the day-to-day support that was necessary for the large volume of trading activity.
- Investment bankers and senior figures in investment banks who backed this type of trading and built relationships with the hedge funds that created the Cum-Ex models.
- Prime brokers who provided leverage opportunities in return for a lien or control over hedge fund accounts.
- Banking general counsel who oversaw the activity.
- Custodians of funds who would transfer the funds to the exchange once the shares had been purchased.
- Fund administrators responsible for, among other things, calculating the net asset value of the trades.
- Lawyers, financial advisers and accountancy firms who advised on the legality of the schemes.
The authorities are currently casting their nets far and wide to determine exactly who is worthy of investigation. It will be advantageous for those corporates and individuals who may have had exposure to Cum-Ex to have taken advice on all the relevant legal issues at the earliest possible opportunity.
The Need for Defence
A specially-tailored defence strategy will be required as soon as the authorities look set to investigate a corporate body and /or its officers.
While we cover the major aspects of Cum-Ex in our detailed guide (see below), it is worth emphasising that most transactions at the time were considered by many to be sensible, typical market behaviour. But with investigations gaining pace and, in some cases, involving more than one country, those coming under scrutiny may have to contend with a fresh retrospective analysis of previous actions - which may take a different view - together with added issues such as extradition and mutual legal assistance between countries.
This all means that those facing investigation need to get their house in order immediately and seek the best available legal advice. We are known for providing a rapid response to existing or potential clients, whatever the circumstances.
To learn more about the issues involved in Cum-Ex and meet our specialist team, please read our detailed guide for financial institutions.
