Santander latest target in Germany’s fraud probe

Spain’s Santander is the latest bank to be caught up in Germany’s biggest post-war fraud investigation involving a share-trading scheme that the authorities say cost taxpayers billions of euros. In June, prosecutors in Cologne opened a tax investigation into Santander. Santander’s role in the scheme was to carry out trades, the prosecutors say, as one of many parties involved. They are also looking at Australia’s Macquarie Bank and Germany’s Deutsche Bank, as part of the broader investigation.

A letter from prosecutors to Santander’s lawyers sent on June 4 shows that they suspect the bank of having “planned and executed trades” that facilitated “severe tax evasion” from 2007 through 2011.

A Santander spokesman said that the bank was “fully cooperating” with German authorities and conducting its own internal investigation. The bank “doesn’t tolerate behaviour” that fails to comply with the rules and laws in the market where it operates, he said, adding “if our investigations do identify misconduct, we will take appropriate action.”

Media spoke to bankers, officials and people directly involved in the probe and reviewed thousands of pages of internal bank files, correspondence and legal papers obtained as part of a European media investigation called the “cum-ex files” coordinated by nonprofit newsroom Correctiv.

The prosecutors say the players in the cum-ex scheme misled the German government into thinking a stock had multiple owners on its dividend payday who were each owed a dividend and a dividend tax credit.

The prosecutors say the scheme was illegal and misled the government into paying tax refunds. A spokesman for Santander declined to comment on whether it had broken the law while a spokesman for Macquarie, which is also under investigation, said it had believed the practice to be legal.

The documents show that the Cologne prosecutors closed in on Santander and other banks this year as the investigation, which began in April 2013, rapidly accelerated.

The models were designed to generate multiple tax rebates, prosecutors say. In essence, here is how it worked, according to the documents. A bank would agree to sell a company stock, for example to a pension fund, before the dividend payout but delivered it after it had been paid. The bank and the fund would both reclaim withholding tax.