German Tax Trial Starts With Key Figure in Scandal Missing From Proceedings

Germany’s third trial over Cum-Ex opened in the city of Wiesbaden on Thursday in unfamiliar surroundings: a makeshift industrial hall erected on a deserted fairground ringed by barbed wire.

Switching from the usual wood-paneled court room to the postmodern metal-clad venue allow to uphold the required social-distancing regulation, in a case originally targeting six defendants over deals at the Unicredit SpA’s HVB investment bank unit from 2006 to 2008. The case that opened this week started with just two accused, both former HVB bankers, who are standing trial over an alleged tax damage of 113 million euros ($133 million).

Absent from the proceedings was a key figure in the entire Cum-Ex saga that lawmakers have called the biggest tax heist in modern history: Hanno Berger. The tax lawyer’s attorney said the court had failed to properly summon his client by mailing the subpoena directly to Berger’s home in Switzerland instead of using the diplomatic channels required by law.

“If you’re not properly invited to the party, of course you don’t show up,” said Kai Schaffelhuber, Berger’s attorney.

Diplomatic protocol notwithstanding, Berger already told the court months ago that he was too sick to travel to Germany for the trial. He denies the charges. Besides, Berger is currently in hospital, his lawyer said.

German Tax Trial Starts With Key Figure in Scandal Missing From Proceedings

Duplicate Refunds

The court has decided to split off Berger’s charges, in the same way that the cases against three other London-based ex-HVB bankers were previously separated. The two bankers who remained can only be identified as Andreas B. and Michael G. At the time of the deals, Andreas B. was head of HVB’s Family Office and Michael G. was executing the trades, prosecutors claim.

The Wiesbaden case is based on the first investigation in Germany of the controversial trading strategy, which took advantage of loopholes on dividend taxes to obtain duplicate refunds. The probe commenced in 2012, the year Germany ended the practice by changing the way dividend tax was collected. Five years later, Frankfurt prosecutors filed the charges.

German Tax Trial Starts With Key Figure in Scandal Missing From Proceedings

The trial was set to open last year, but was postponed twice due to the coronavirus pandemic. In all, German prosecutors have linked more than 1,000 suspects from across the entire financial-services industry to Cum-Ex trades, named after the Latin terms for with-without.

Prosecutor Christoph Weinbrenner, who read out the charges in court, described how a large number of shares were sold back and forth around dividend day, saying there was no other reason for the trading than generating certificates used to claim refunds on dividend tax that was never paid.

Low Rank

ICAP Securities Ltd. acted as a short seller in the transactions and HVB delivered the shares, he said. Days later the deals were unwound, ICAP retook the shares and redelivered them to HVB. TP ICAP Plc bought ICAP’s voice-broking operations in 2016. William Baldwin-Charles, a spokesman for the company, declined to comment.

“There was never a real market situation because all parties in the deal made a profit without any one of them making a loss,” said Weinbrenner. “The profit of all involved was only possible because of the loss on the side of the tax authorities.”

Attorneys for Michael G. and Andreas B. rejected the allegations, saying the deals were centrally set up in London not Munich, where both men had been based.

Michael G.’s defense lawyer, Frank Eckstein, said his client was a low-ranking “recipient of orders” who had to implement the trades as he was told by London-based bankers. He was told by his superiors that the deals had been cleared by the legal department, and he had no further insight into how the transactions were structured, his lawyer said.

Andreas B.’s lawyer, Rainer Spatscheck, said Hanno Berger was the most esteemed German tax lawyer at the time and his client had no reason to questions his advise.

“Berger was the guarantee that the business was legal,” said Spatscheck.

The trial is set to last about several months.

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