TP ICAP Fears BlackRock, Warburg Suits in European Tax Scandal

(Bloomberg) -- TP ICAP Plc said it may face lawsuits from BlackRock Inc. and others as firms caught up in Germany’s Cum-Ex probe seek to find other companies to blame.

BlackRock notified one of TP ICAP’s subsidiaries about possible claims last year, the London-based broker said in a court filing for a different case. The accusations relate to exchange-traded funds managed by BlackRock and its predecessors, TP ICAP’s lawyers say.

The possible lawsuit between the world’s biggest asset manager and the largest inter-dealer broker shows how financial institutions are turning on each other amid the prospect of regulatory fines arising from probes into the controversial trading practice. Investors and lenders exploited the German revenue-collection system to get multiple refunds on taxes on dividends, which the country says cost it more than 10 billion euros ($12 billion).

TP ICAP also says Investec Plc has initiated proceedings against another of its units in Germany. M.M. Warburg & Co. is also appealing a suit it lost against Deutsche Bank AG and has suggested it may also come after ICAP.

The potential threat from BlackRock was disclosed as part of TP ICAP’s lawsuit against NEX Group Plc, which in 2016 sold the voice-broking business that created TP ICAP. The company accuses NEX of failing to reveal the unit’s alleged role in Cum-Ex trading during the sale and is seeking to force NEX to pay any fines and litigation costs that may arise from ongoing criminal probes and civil lawsuits.

“An explosion of litigation” between companies involved in Cum-Ex trading “will sit well with prosecutors who have lit the litigation touch paper,” said Aziz Rahman, a London lawyer who represents people caught up in the Cum-Ex probes.

According to TP ICAP’s lawyers, BlackRock has contended that ICAP was involved in the creation of ETF units that contained shares involved in Cum-Ex trades and that tax authorities or third parties may seek to hold BlackRock liable. BlackRock has said it would be able to make claims against ICAP if it receives lawsuits related to the issue, according to TP ICAP’s court filing. ISL was involved in the creation of ETF units which contained shares being, or to be, traded on a cum-ex basis

TP ICAP, BlackRock and Investec declined to comment. In a 2018 statement, BlackRock said it has cooperated with the German investigation and will continue to do so.

Cum-Ex trading ended in 2012 in Germany when the country revised its rules. Now, prosecutors are starting to pursue cases against companies and charging more traders and bankers, increasing pressure on financial firms to find culprits.

“Given the amount of losses said to have been incurred, the penalties which they will be seeking are huge,” Rahman said. “It is, therefore, unsurprising that companies will seek to ensure they are well positioned to preserve their own standing or seek redress from previous incarnations of it.”

In a July appeals court ruling, Societe Generale SA won the dismissal of a lawsuit filed by Helaba over Cum-Ex deals. The original 2018 ruling by a Frankfurt court awarded Helaba 22.9 million euros. The suit was dismissed because SocGen, as the stock seller, wasn’t liable for tax issues, a Frankfurt appeals court ruled.

Helaba also sued Unicredit in Munich over Cum-Ex transactions. Unicredit declined to comment.

In September, Warburg lost a lawsuit over whether Deutsche Bank should pay a 167 million-euro tax bill related to the scandal. Warburg contended that Deutsche Bank should have transferred the funds to the tax authorities about a decade ago in its role as a custodian for some of the disputed transactions. But the Frankfurt Regional Court said that it might be possible for Warburg to go after ICAP, which sold the shares in the deal.

In response to questions about its Cum-Ex legal cases, Warburg referred to a statement it made in September. At that point, the Hamburg-based lender stressed that there were many people and entities involved, including ICAP, and that it will pursue its claims against them.

Investec’s application against TP ICAP unit, Link, is related to a liability of CACEIS, which is majority-owned by Credit Agricole, to German tax authorities in relation to 224 million euros of tax reclaims and interest allegedly arising from transactions carried out with the support of Investec and Link, according to TP ICAP’s court filing.

The application was filed in March and noted that CACEIS was asserting claims against Investec in the same amount. It said that insofar as such claims were well-founded, Link would be liable to Investec in respect of them, according to TP ICAP’s lawyers.

CACEIS declined to comment.

TP ICAP said in its lawsuit against NEX that it’s already spent around 3.7 million pounds ($4.9 million) on legal and professional costs in relation to Cum-Ex.

Its lawyers said it’s “entitled to an indemnity under the Tax Deed in respect of its costs to date in dealing with the German Tax Matters and Cum-Ex Conduct.” That includes “the threatened civil claims.”

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