Santander Joins List of Banks in German Crackdown on Tax-Dodge

(Bloomberg) -- Banco Santander SA became the latest addition to the long list of banks targeted by Cologne prosecutors over controversial tax transactions known as “Cum-Ex” that may have cost German tax payers about 10 billion euros ($11.5 billion).

The Spanish lender on Thursday confirmed that it is being investigated, saying it is fully cooperating. It has also started a internal investigation to look into the allegations, Santander said in an emailed statement. A group of media organizations from a dozen countries, including Spanish newspaper El Confidencial, reported the news earlier.

“Our current understanding is that the primary focus of the investigation relates to certain activities extending from 2007 to 2011 of three former employees who left our group a number of years ago," Santander said. "To date we have not identified any evidence that the activities under investigation involved senior management or that any of Santander’s or its subsidiaries’ governing bodies were aware of these activities.”

German investigators are looking at the role of dozens of banks, brokerages, accounting companies, and law firms in the deals, and the cases involve hundreds of individuals, people familiar with the issue said in June. The investigations include transactions handled by lenders including Barclays Plc, Goldman Sachs Group Inc., Bank of America Corp., Macquarie Group Ltd., and BNP Paribas SA, the people said.

Goldman said in June it doesn’t know of any investigation against the bank or its employees. The other banks declined to comment or didn’t respond to messages at the time.

Scores of banks across Europe and the U.S. participated at some level -- doing the deals themselves, arranging them for clients by acting as custodians, issuing tax certificates, or financing transactions in the practice. It’s become known as “Cum-Ex”-- a Latin phrase that means “with-without,” a reference to the vanishing dividend payments in the trades.

The probe, which is already about five years old, is picking up speed as several witnesses have agreed to cooperate. The Cologne team is working in parallel with prosecutors in Munich and Frankfurt, who have charged six people, including former investment bankers at UniCredit SpA’s HVB unit in London.

The transactions involved short sales just before dividend time. Companies withheld taxes on dividends and custodian banks issued certificates that shareholders could redeem at the tax office in the event of an over-payment. In the short sales, the buyer’s bank also issued a certificate that could be redeemed for a full refund. Prosecutors say that in some instances, several parties may have been issued tax-refund certificates, multiplying the damage.

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