U.K. Dishes Out First Fine to Broker Linked to Shah in Tax Scandal 

(Bloomberg) -- The U.K.’s financial regulator handed down its first penalty over the Cum-Ex tax scandal, fining a broker 178,000 pounds ($248,000) for failings regarding its relationship with hedge-fund manager Sanjay Shah.

Sapien Capital, which executed more than 6 billion pounds of trades in Danish and Belgian stocks on behalf of Shah’s Solo Capital group through 2015, had inadequate financial-crime controls in place, the Financial Conduct Authority said in a statement Thursday.

Shah has emerged as a key figure in a scandal over alleged tax fraud that has engulfed multiple European countries, with investigators raking over a trading strategy that allowed investors to claim multiple refunds on a dividend tax that was paid only once. The FCA said the trading “is highly suggestive of sophisticated financial crime.”

“These transactions ran money-laundering and other financial-crime risks, which Sapien incompetently failed to see,” Mark Steward, the agency’s director of enforcement and market oversight, said. The fine was reduced due to serious financial hardship.

Ramesh Kumar Ahuja, Sapien Capital’s chief executive officer, declined to comment by phone. The firm told the FCA that “it is only with the benefit of hindsight that the shortcomings in relation to the Solo business have become apparent,” according to a summary of its submissions.

While more than 25 bankers, traders and lawyers have been charged in Denmark and Germany, U.K. authorities have faced criticisms from the courts for the speed of their investigations.

Danish prosecutors said earlier this year that Shah was the mastermind behind a a 9.6 billion-krone ($1.6 billion) tax-fraud case. Shortly after that, Shah and six others were indicted by Hamburg prosecutors over more than 50 cases of money laundering relating to Cum-Ex trades in Denmark and Belgium that went through German accounts.

Shah has consistently said he did nothing wrong other than take advantage of loopholes in national laws.

The FCA said Sapien had just 40 clients before adding more than 160 customers linked to Solo. The brokerage was expecting to take in as much as 700,000 pounds in brokerage fees annually.

Even when Sapien couldn’t be sure about the identity of one of the Solo clients, a mix of offshore companies and pension plans, it proceeded to add the firm as a customer anyway, the FCA said. The client presented mismatched signatures as part of a bundle of documents and Sapien simply asked it to re-sign the forms, the regulator said.

Inside Sapien, the mismatched signatures were known as a “touchy subject,” according to the FCA.

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