The French newspaper Le Monde called it "the robbery of the century." So what was it? A Mission Impossible-style crew of balaclava-wearing acrobats bypassing sophisticated alarms to burgle a museum or gallery? Or maybe it looked like one of those "Oceans" movies: a crack team of hardened specialists tunneling deep underneath a casino or bank vault to blow the final hole at 5pm on Friday and spend a leisurely weekend looting stacks of bullion and currency?
Museums and banks may look like inviting targets. But if you want to make real robbery history, think bigger. As the playwright Bertolt Brecht once wrote, "Bank robbery is an initiative of amateurs. True professionals establish a bank." And so the heist we're talking about this week involves a years-long history of bankers, lawyers, and investors looting billions of dollars from a dozen European treasuries.
In today's economy, the brightest minds dream of inventing the next breakthrough technology. But there's a smaller group, nerdier and more devious, who dream of inventing tax shelters. Why risk failure investing in unknown technology when you can find a government-guaranteed gravy pipeline directly into your account?
The scheme involved a dividend arbitrage strategy called "CumEx" trading, named for the Latin phrase meaning "with-without." In most cases, traders bought and sold shares in a way that let them claim refunds on dividend tax withholdings they hadn't actually paid. In others, they took advantage of creative paperwork to exploit a loophole letting more than one person own the same share at the same time. (Schrödinger's stock?) Either way, the result was two refunds for one stock.
That sounds like an obvious party foul. But there weren't any laws specifically prohibiting it. Traders took that as their green light to siphon $60 billion out of various governments. This wasn't ordinary tax fraud. They weren't just evading tax on their income — they were taking refunds for taxes they had never paid. In 2017, a German clerk noticed a $60 million claim from a New Jersey pension fund covering just one guy and blew the whistle. (Spoiler alert: the guy wouldn't talk when the New York Times showed up at his door.)
Now, German prosecutors are pursuing 56 separate cases and targeting over 400 suspects, including the lawyers who issued high-priced opinions blessing the fraud. Hanno Berger, a former German auditor who crossed over to the dark side before fleeing to Switzerland, told his legal associates, "Whoever has a problem with the fact that because of our work there are fewer kindergartens being built, here's the door." A lot of people who never saw incarceration in their future need to start getting ready for 3-5 years of being picked last for the prison kickball team.
Are you wondering why those same traders didn't target Uncle Sam? Simple — we shut down dividend arbitrage back in 2008. That's worth noting for skeptics who think our patchwork system of government agencies and self-regulatory organizations is like putting Cookie Monster in charge of the Monster's Commission on Excellence in Nutrition.
Most Americans try to think of taxes as something you file with the government and forget about for the rest of the year. But the CumEx scandal reminds us that taxes are central to every investment decision you make. Our tax planning service helps you make tax-efficient decisions, and our Tax Operating System® helps you implement them for maximum advantage. Don't miss out on the savings!
Get started on your tax returns now for a complimentary MKE Tax Coach tax analysis.