BNY Mellon, SocGen May Have to Pay Lost Taxes in Fraud Trial

(Bloomberg) -- Bank of New York Mellon Corp., Societe Generale SA, M.M. Warburg & Co. and German investment company Hansainvest will likely have to reimburse the roughly 400 million euros ($440 million) in lost tax revenue at stake in the first German Cum-Ex trial, a court said.

The four firms, which were ordered to stand trial as associated parties in the case, are likely to face an order seizing the money from Cum-Ex deals, Presiding Judge Roland Zickler said at a hearing in Bonn on Wednesday. The court’s assessment is preliminary and could still change before the judges issue a verdict, he said.

All four are liable under German rules that allow the seizure of profits from illicit actions that went through their accounts, even if the money ultimately went to other people. The four institutions all had units that provided services for Cum-Ex investors. Warburg is also on the hook because of deals it was doing on its own books.

The four companies are parties in the trial of two former investment bankers over so-called Cum-Ex tax deals that allegedly robbed German taxpayers of nearly half a billion euros. There are dozens of lenders caught up in the scandal that German lawmakers say may have cost the country at least 10 billion euros in total.

While the court didn’t suggest any numbers Wednesday, the judges had previously listed deals linked to the financial institutions. Under that order, BNY Mellon could face a bill of 46.8 million euros in five cases related related to one of its service companies and a SocGen may be liabe for a unit allegedly took part in 13 transactions leading to almost 60 million euros of tax loses. For Hansainvest, the amount is about 11 million euros in two cases. The biggest chunk, roughly 280 million euros, was incurred in 13 instances that prosecutors tied to Warburg units.

The case in Bonn covers 34 cases of tax evasion via the transactions. The court is also looking into whether some of the money can be seized from the bankers on trial.

Cum-Ex transactions took advantage of a now abandoned German practice of taxing dividends, which made it possible to get two lots of refunds on a tax paid only once by using a combination of short sales and future transactions, investigators claim. The practice ended in 2012 when Germany revised its rules.

Warburg said last night that its owners made sure the privately held bank can cover the financial impact, which it set at a maximum of 278 million euros. Judge Zickler said that the bank couldn’t use the statute of limitations to avoid repaying some of the losses.

Under German law, businesses can’t be charged with crimes, but prosecutors and courts often make use of various administrative procedures to sanction companies for wrongdoing or to seize any money derived from illegal conduct.

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