German prosecutors ramp up probe in tax dividend scandal

German prosecutors are preparing to bring the first criminal charges against staff who worked at Macquarie Group Ltd. over the Cum-Ex tax scandal, in a signal that officials are ramping up their years-long probe.

Prosecutors based in Cologne plan to initially charge a few of the bankers who were working at the lender before 2012 when the trading occurred, according to people familiar with the matter. Macquarie has previously said that as many as 100 people were swept up in the probe.

A spokesman for Cologne prosecutors confirmed that they're planning to issue new indictments but declined to disclose the names or banks involved. Macquarie declined to comment.

Cum-Ex was a controversial trading strategy designed to obtain duplicate refunds by taking advantage of how dividend taxes were collected. Germany stopped the practice in 2012 and is now probing about 1,800 suspects from across the global financial industry. More than 20 people have been convicted in German courts for their part in Cum-Ex. 

Investment bankers at Macquarie's London office were central to Cum-Ex deals and have been in prosecutors' cross-hairs for years. In the fallout from the scandal the lender has already settled two separate matters involving German dividend trades between 2006 and 2009. The bank paid €100 million ($105 million) to German authorities as part of this agreement.

The number of suspects in the German Cum-Ex probes linked to Macquarie has continually increased. In 2018, Macquarie said about 30 staffers were targeted. In 2020, the bank disclosed that the number had climbed to 100, most of whom are no longer at Macquarie. In a 2024 company report, the bank reiterated that number, adding that the lender has provided for financial risks out of the case.

Under German law, companies can't be charged with crimes but prosecutors can use a related form of proceeding to add them as parties to criminal cases. That is how investigators targeted VW, when the automaker settled with prosecutors over the diesel scandal for €1 billion in 2018. 

British hedge fund trader Sanjay Shah was sentenced to 12 years in prison by Danish judges in December for orchestrating the same scam in Denmark, the heaviest jail term handed down so far in Europe.

Charges against Macquarie bankers have been expected for years but Cologne prosecutors repeatedly delayed decisions. The pandemic slowed law enforcement on multiple fronts, including reduced court capacity. 

However, the Cologne prosecutors office, which is investigating suspects in 130 different probes, has also struggled with its own work management. This week Tim Engel, the new head of Cum-Ex prosecution, told reporters this broad approach is taking a toll on investigators who have to wade through enormous amounts of seized documents.

After more than a decade of investigations, Cologne prosecutors are now also facing the prospect of running out of time to prosecute, at least in some of their cases. But only very few proceedings against individual suspects will have to be dropped completely, Engel said.