UK watchdog narrows dividend-stripping probe | Daily News Byte

LONDON, Dec 15 (Reuters) – A British investigation into a trading scheme claiming multiple tax breaks on dividend payments is now focused on nine companies and three individuals, one independent, said by European countries to siphon billions of euros from state coffers. Indicates an Information (FOI) request.

Britain’s market watchdog, the Financial Conduct Authority (FCA), has been part of a cross-border ‘com-ex’ inquiry for seven years, although the current scope of its operations – reported here for the first time – is dwarfed by widespread fraud. Investigations led by Germany and Denmark.

A German court this week sentenced tax lawyer Hanno Berger to eight years in prison, accused of masterminding one of the country’s biggest post-war frauds. It is the highest prosecution and the longest sentence so far in a series of trials that also incriminated British bankers.

Although Britain was not affected by the Come-X trading, much of the scheme’s structure and planning took place in London, according to lawyers and authorities, some of whom turned to the country to help figure out what happened.

The FCA said in 2020 that it was working with European authorities to investigate “significant and suspected abusive share trading” on London markets that allegedly supported dividend stripping tax avoidance schemes in Denmark, Germany, France and Italy.

The watchdog, which has fined three small brokerages a combined 2.9 million pounds ($3.5 million) to date, said by mid-November it had closed inquiries into eight individuals due to a lack of evidence. It has also stopped investigating one company.

“We have already achieved a number of outcomes and we continue to conclude the remaining investigations into individuals and companies,” the FCA said, adding that it was still investigating.

Watchdog investigations are regulatory and to date have focused on penalties for failures to control financial crime. It does not have powers to investigate tax fraud, but can investigate civil and criminal market abuse.

Reuters could not determine whether other British agencies were conducting criminal inquiries.

The Serious Fraud Office and the tax authority HMRC, which can prosecute such cases, declined to comment.

The crackdown

Come-ex trading, also known as dividend stripping, involves banks and investors quickly trading companies’ shares around dividend-paying days, obscuring stock ownership and allowing multiple parties to claim tax rebates.

The scheme developed after the 2008 credit crisis when banks, traders and hedge funds devised a strategy to trade large volumes of stocks to cash in on the now-closed loophole.

Labeling it a “mass theft case”, a German judge sentenced two British bankers in 2020. German prosecutors have since secured 11 convictions, and government officials say the investigation spans about 1,500 suspects and 100 banks on four continents.

Danish prosecutors charged eight British and US nationals last year, and Danish tax authority SKAT is separately pursuing nearly 80 defendants in London for alleged tax fraud in a civil case that centers on Dubai-based Briton Sanjay Shah and his hedge fund Solo Capital. partners.

The alleged fraud is said to have been committed mainly by British-based entities, Court of Appeal judges noted in a February ruling.

Shah has denied wrongdoing. His lawyer said last year that he and his businesses acted legally and in accordance with the Danish tax rules in force at the time. A spokesman declined to comment further.

Wanted by Denmark and Germany, Shah seemed beyond the reach of authorities until Denmark signed an extradition treaty with the UAE in March.

The $148 BLN question

The three brokerages fined by the FCA to date – The TJM Partnership, Sunrise Brokers and Sapien Capital – traded a total of 121.2 billion pounds ($148 billion) in Danish and Belgian equities for Solo Capital and affiliated companies, according to the FCA, between January 2014 and November 2015. . The documents show.

All three brokerages qualified for discounts on their fines for cooperating with the investigation.

The FCA also issued warning notices to five firms and one individual about impending regulatory action on com-ex trading by mid-November, according to an FOI request.

According to a 2021 High Court judgment, a warning notice was sent to an unnamed former chief executive in June 2020.

The individual challenged the FCA notice in court and proceedings have been stayed pending preliminary rulings in an estimated £1.44 billion case brought by SKAT in London against Shah and others.

($1 = 7.0672 Danish crowns)

($1 = 0.8207 pounds)

Reporting by Kirstin Ridley, additional reporting by Marta Oroz in Frankfurt, editing by John O’Donnell, Kirsten Donovan

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