ONET THAT VERY At the last minute, Christian S.’s lawyers tried to end his trial, arguing that the 77-year-old former bigwig was with M.M. Warburg, one of Germany’s oldest private banks, was too frail to go to court in a pandemic. However, on the evening of November 16, the German constitutional court ruled that the trial could continue the next day. With judges, lawyers and defendants wearing devices that looked like oversized diving masks, each protected by a plexiglass partition, a prosecutor read the charge sheet. It took so long for the judge to order half a break.
Mr S., who cannot be fully named due to reporting restrictions in Germany, is one of four Warburg bankers who were accused of serious tax evasion through so-called “cum-ex” transactions carried out by the German tax officials in 13 cases between 2006 and 2013 cost more than € 325 million. (The other three are tried separately.) Cum-ex trades are stock transactions that occur at high speed on or just before dividend payments are recorded. Before paying, stocks receive (cum) dividends that are reflected in their prices. after that they come without (ex). A variety of deals can allow two or more investors to reclaim tax on a particular dividend even though it was only paid once.
The defendant said very little. He was a confidante of Christian Olearius, the patrician co-owner of the Hamburger Bank, who was head of the supervisory board until his resignation last year because of his alleged involvement. (Mr. Olearius denies any wrongdoing.) Last month the effects of the scandal spread to the political sphere and seemed to attract Olaf Scholz, the German finance minister and former mayor of Hamburg. The city’s parliament initiated an investigation into why Hamburg under Mr Scholz let the bank’s tax payments of EUR 47 million forfeit due to a limitation period. As mayor, Mr. Scholz met twice in 2016 with Mr. Olearius, a donor and fundraiser for the city’s cultural institutions. He says such meetings with bankers and business people were common and he cannot remember what was discussed. According to Warburg, the investigation is purely political, as Mr. Scholz is the Social Democratic Party’s candidate for chancellorship.
This is the second cum-ex attempt. In March the same court found two former British bankers guilty of tax evasion. They received a suspended sentence for working with prosecutors. Warburg made a frequent appearance during the trial because of its role in the British duo’s dealings. As part of the March judgment, the payment of around EUR 176 million was ordered. It is said to have broken no law and is appealing.
Mr S.’s lawyers stuck to a similar line. The process, which should be completed in January, is likely to be more confrontational than the first – and perhaps more embarrassing for Germany’s political and financial class. Many expect Mr. Olearius to be charged soon.
Whatever happens, Warburg’s reputation may already have suffered. “It could have lost customer confidence,” says Christopher Kopper from Bielefeld University. Her future depends on how much she has to pay out, when all the fines are added up – and whether customers leave the big old bank. ■
This article appeared in the Finance & Economics section of the print edition under the heading “Judicial Controversy”