Reuters-Frankfurt German chancellor Olaf Scholz faces grilling by legislators this week over a multibillion-euro tax fraud. A thorough investigation into the scheme threatens to bring him down as he deals with an energy crisis and the fallout from the war.
In “cum-ex”, or dividend stripping, banks and investors traded company shares around dividend payout days, obscuring stock ownership and allowing several parties to erroneously recover tax refunds.
The now-closed gap has grown into a political crisis, which was reignited by the news that prosecutors in Hamburg, where Scholz was mayor, found 200,000 euros in a politician’s safe.
The probe is huge. 100 banks on four continents and 1,000 suspects are involved, officials said. Since Russia invaded Ukraine, energy prices have gone up a lot, which has made people angry and hurt Scholz’s fragile coalition.
On Friday, Scholz will meet with local Hamburg MPs who are looking into why it took the finance ministry to force a local bank, Warburg, to give back millions of euros it got when Scholz was mayor.
Scholz has said that the bank shouldn’t be involved in politics, but local MPs say that the problem is still not solved.
Goetz is a Christian Democrat. Scholz will confront Wiese about political influence. “Scholz must be transparent.”
Scholz was under pressure over a wirecard scam during the 2021 election campaign. Fabio De Masi, a former German MP who looked into this and the Wirecard mess, said that this time might be different.
De Masi: “This might endanger Scholz.”
Gas prices have changed the political landscape.
In a survey, 48% felt the cum-ex scandal would “permanently damage” Scholz.
The chancellor had confronted Hamburg lawmakers last year and acknowledged holding a series of meetings with the then-chairman of Warburg. He denied using his influence as mayor to delay the recovery of the funds.
Scholz told reporters, “This has been an issue for 2.5 years.” “Countless files have been studied and interviewed. Political influence is usually absent.“
SAVINGS
In recent weeks, the case has resurfaced.
A source said that when state police were looking into the tax fraud, they found more than 200,000 euros in the safe deposit box of a Hamburg politician.
Scholz denies knowing where the money came from and says he no longer communicates with the legislator. The legislator didn’t comment.
The revelation, extensively reported in the German media, has renewed interest in the case and will heighten scrutiny of Scholz on Friday.
Authorities searched the local offices of Morgan Stanley (NYSE:MS), Bank of America (NYSE:BAC), and Barclays in one of Germany’s greatest post-war frauds (LON:BARC). The tax scheme mastermind was extradited from Switzerland to Germany.
Warburg repaid taxes. The banks declined to respond. Bank of America cooperated with authorities.
Legislators and officials insist the work isn’t done.
“It will take years for Germany to sift through this gigantic tax scam,” said Milan Pein, a Hamburg parliament committee member who will interview Scholz.
Reuters last week reported that 16 states had identified 3.9 billion euros in taxpayer damage and 1.8 billion euros had been or was being retrieved.
The government’s damage estimate is almost two years old, and experts suggest it might be far higher.
Christoph Spengel, a professor of international taxation at Mannheim University and member of the Finance Ministry’s Advisory Board, said that the damage could add up to 10 billion euros and that dividend stripping may continue.
The Hesse Ministry of Finance, home to Frankfurt, says 30 banks owe 527 million euros and have reimbursed 285 million.
Seven banks incurred 746 million euros in damage, according to Bavaria’s Finance Ministry. 347 million euros have been refunded.
German state-owned banks also participated and received tax rebates.
LBBW, a Stuttgart-based state-owned bank, says it repaid 166 million euros in tax money improperly claimed in 2007 and 2008.
Banks behaved as investors’ creditors, facilitated deals for fees, or claimed undeserved back taxes.
Cologne prosecutors are very aggressive. A spokesman stated that 50 financial institutions and brokers are being investigated.
Two British bankers were given suspended jail terms and one was given a 14 million euro fine in 2020.
An ex-M.M. Warburg banker was jailed this year. As managing director of Warburg, the judge said he helped set up two funds to make money from the transactions.
