Au­dits re­veal Deutsche Bank’s links to tax trade scan­dal

Business a.m. - - WORLD BUSINESS & ECONOMY - Busi­ness a.m.

THERE ARE “LOTS OF in­di­ca­tions” that some man­agers dis­cussed “the rep­u­ta­tional risks” of Deutsche Bank’s in­volve­ment in a share-trad­ing scheme that is the sub­ject of Ger­many’s big­gest post-war fraud in­ves­ti­ga­tion, ac­cord­ing to a con­clu­sion in one of five in­ter­nal au­dits seen by Reuters.

The bank is­sued tax cer- tifi­cates for with­hold­ing tax that had never been de­ducted and made loans to clients to al­low them to par­tic­i­pate in the scheme to claim tax re­bates, ac­cord­ing to the au­dits.

Ger­man prose­cu­tors say the scheme’s par­tic­i­pants mis­led the gov­ern­ment into think­ing a stock had mul­ti­ple own­ers on its div­i­dend pay­day who were each owed a div­i­dend and a tax credit, ac­cord­ing to court doc­u­ments.

The au­thor­i­ties say the scheme, called “cum-ex” and in­volv­ing sev­eral other global banks, cost the state 5.6 bil­lion eu­ros in re­bates that should not have been paid.

Deutsche Bank com­mis­sioned law firm Fresh­fields to write the five au­dits as part of an in­ter­nal in­ves­ti­ga­tion into its role in cum-ex trad­ing be­tween 2006 and 2011. They are dated from 2013 to 2015 and marked “highly con­fi­den­tial”.

The au­dits were pre­pared by Fresh­fields in Ger­many and Lon­don. One of the five doc­u­ments is a sum­mary that was handed to the prose­cu­tors in May 2017. Reuters does not know whether the Fresh­fields doc­u­ments are the fi­nal ver­sions, but prose­cu­tors have been given the sum­mary for use in their in­ves­ti­ga­tion, ac­cord­ing to a let­ter sent to the chief pros­e­cu­tor, seen by Reuters. A spokesman for Fresh­fields de­clined to an­swer any ques­tions for this story.

One part of the au­dit ad­dresses Deutsche Bank’s de­ci­sion to lend money to com­pa­nies – what the au­dit calls “pro­vi­sion of fi­nance” — so that those com­pa­nies could carry out cum-ex trades and the dis­cus­sion of risks to its rep­u­ta­tion.

“Even though ev­i­dence is not clear-cut, there are a lot of in­di­ca­tions that the staff of SETG (Strate­gic Eq­ui­ties Trans­ac­tions Group) and man­agers, who were re­spon­si­ble for Prime Bro­ker­age at the SEF-IM (Struc­tured Eq­uity Fi­nance — In­ven­tory Man­age­ment) trad­ing desk, dis­cussed the rep­u­ta­tional risk for Deutsche Bank from its pro­vi­sion of fi­nance in Jan­uary 2009 and came to the con­clu­sion that this was ac­cept­able,” one of the Fresh­fields au­dits said.

“Group Tax con­firmed in March 2009 the pro­vi­sion of lev­er­age for cum-ex trades through Deutsche Bank.”

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