Deutsche Bank’s top officer, ex-CEO ensnared in tax probe

Bloomberg

Deutsche Bank AG investment-banking head Garth Ritchie and former co-Chief Executive Officer Anshu Jain were swept into a widening German probe on dividend tax payments, adding to strain on top leadership as the shares hover near record lows.
Ritchie and Jain joined a growing list of potential targets for prosecutors investigating the so-called cum-ex tax scandal that’s rocked Germany’s financial industry, people familiar with the matter said. Ritchie is already contending with the lowest shareholder backing among top management and the pros-pect of massive cuts to his
division. Ex-CEO Josef Ackermann also faces scrutiny,
German media reported.
Deutsche Bank confirmed that prosecutors in Cologne widened the investigation to include a list of current and former staff and some members of the management board. The decision to expand the inquiry was prompted “purely” by a statute of limitations, and Deutsche Bank doesn’t assume the prosecutor’s assessment of the facts has changed, it said in a statement that didn’t name Ritchie or Jain.
Cum-ex transactions took advantage of a now abandoned German practice for tax refunds on dividends. At the time, a corporation paying dividends automatically withheld the tax but the tax payment was certified by the shareholder’s bank.
Cum-ex deals were set up around dividend day in a way that enabled a buyer in a short sale and the actual stock owner to both get a certificate stating that the dividend tax was paid. While the tax was paid only once, both could use the certificates to claim full refunds. The practice ended in 2012 when Germany revised its rules, and lawmakers estimate the government may have lost out on at least 10 billion euros ($11.3 billion) in tax revenues.
A call to Ritchie’s office
was referred to the company’s press office, where a spokesman declined to comment. A spokesman for Jain also declined to comment.
Prosecutors have been conducting a criminal probe into some of the biggest names in European and US finance, looking at the roles banks, law firms and others played in so-called cum-ex trades. The Latin phrase, meaning “with-without,” refers to a strategy that made dividend payments appear to vanish, potentially costing Germany’s coffers billions of euros in taxes.
The widening investigation includes banks that didn’t initiate deals for clients themselves but may have provided services that helped to carry them out.
Sueddeutsche Zeitung reported that about 70 current and former employees at Deutsche Bank are facing scrutiny, though it has yet to be seen whether investigators’ suspicions will be borne out. Among the names mentioned by the paper was ex-CEO Ackermann. At least two big US banks also are being examined.
Eberhard Kempf, a lawyer who’s represented Ackermann in the past, didn’t reply to
a message from Bloomberg seeking comment.
The bank said at its annual shareholder meeting last month that an internal review found Ritchie was among recipients of an email in 2007 that explained how trades could take advantage of German tax laws, and that a meeting to discuss cum-ex transactions was once held in Ritchie’s office.
Deals being reviewed by Cologne prosecutors took place roughly between 2007 and 2012, overlapping the period when Jain was responsible for the investment-banking arm of the German lender. Ritchie now heads the division, which has been at the center of many of the lender’s woes.
He and fellow management board member Sylvie Ma-therat received the lowest approval votes at the AGM. That has fuelled speculation the two might be among the management board members that may get replaced when Chief Executive Officer Christian Sewing unveils a new restructuring plan, which is expected to happen by the end of next month, people familiar with the matter have said.
The widening of the years-long inquiry “is a common practice and the prosecutor has proceeded in the same way with other banks,” Deutsche Bank said in its statement.