More Traders Likely Face Charges in Danish Tax Investigations

Danish prosecutors who charged hedge-fund manager Sanjay Shah with running a $1.6 billion tax fraud say they’re looking at a “number of other suspects” in the case.

Prosecutors said they’ll be in a position by March to decide whether to press charges against more members of a network that they say was set up to defraud the government in the biggest and most complex tax case in history.

Prosecutors still need to finish some of their investigation, including interviewing “several people,” Per Fiig, acting head of the State Prosecutor’s Office, said in an interview.

Denmark is one of several countries cracking down on trading schemes that reaped billions of dollars by claiming duplicate refunds on dividend taxes. Germany, Belgium and the Nordic country are all trying to extradite financial professionals in relation to the controversial strategy.

“We have had a hard time finishing because of Covid, but we expect to be done in the next couple of months,” said Fiig, whose office has grown by 100 to manage the case and a money-laundering scandal at Denmark’s biggest bank, Danske Bank A/S.

Danish prosecutors have three primary investigations into groups stretching from the U.S. to Malaysia that they say illegally claimed dividend tax refunds of around $2 billion. They’ve frozen assets worth around $485 million, including Shah’s $20 million London home.

“We are investigating, along several tracks, several people who formed a loosely knit network,” Fiig said. Regarding the other tracks, “it will take longer before our investigations show whether there are grounds for raising formal charges.”

Shah, who founded a London hedge fund that specialized in Cum-Ex trades, was one of two Britons charged earlier this month. Prosecutors allege he was the central figure in the $1.6 billion arm of the scam that hit Denmark.

More Traders Likely Face Charges in Danish Tax Investigations

Now living in Dubai, Shah has said he’ll show up in court to prove his innocence. Still, Fiig said the agency is working with “all the tools we have” to ensure that the suspects, whom SOIK declined to name, “stand before a judge.”

A spokesman for Shah reiterated his contention that “the trades were legal and he received professional advice to that effect.” Shah faces a sentence of as long as 12 years in prison.

Cum-Ex was a trading strategy that used the rapid trade of shares to claim ownership and thereby become eligible for tax refunds. The practice, named for the Latin term for “With-Without,” seemed to allow multiple investors to claim refunds on a dividend tax that was paid only once.

The efforts by national authorities to track down suspects are likely to lead other traders involved in similar strategies to consider their options, said Jasvinder Nakhwal, a lawyer at Peters & Peters in London. That includes contacting prosecutors, since once authorities move ahead with charges, the scope for striking a deal shrinks.

“I could see this expanding into a much larger, more global investigation,” Nakhwal, co-author of the Extradition U.K. blog, said by phone. “The alleged loss is being pitched very high so there’s probably scope for that to happen.”

Because of the case’s size and complexity, there’s been international collaboration since 2016 between the U.K., Germany, Belgium, and Denmark which headed the joint effort, Fiig said. Europol has also been involved, and U.S. authorities are participating as observers.

Germany has already held a trial related to Cum-Ex, winning the conviction of two investment bankers who organized the trades. And Belgium is seeking the extradition of one trader from London to answer questions related to a 22 million-euro ($26.7 million) tax fraud.

There’s a 10-year statute of limitations on the crimes in Denmark, so prosecutors have “at least until 2022 and perhaps as late as 2025” to file preliminary charges, Fiig said.

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