BERLIN, June 23 (Xinhua) -- Officials in Germany failed to react to concrete evidence of the largest tax fraud scheme in the country's history, the news site "ntv.de" reported on Friday.
In what is known locally as the "Cum-Ex" scandal, it was revealed by journalists from the newspaper "Die Zeit" that domestic and international banks and investment funds used loopholes in stock trading regulations over the course of several years to strip the German state of billions of Euros.
Estimates put the total damage caused as high as 31.8 billion euros, by far the largest incident of tax fraud in the history of Germany.
The figure cited would have been sufficient to cover the German states' entire provision for refugees (21.3 billion euros estimated for 2017) for over a year, or double payments to Hartz IV welfare recipients (34 billion euros in 2016) for one year.
Scores of lawyers, lobbyists, and banking staff assisted their clients with two methods of relieving taxpayers of their money.
The first method, known as "Cum-Cum", is a legally-disputed practice whereby financial institutions assist foreign investors in securing tax rebates they are not entitled to. In broad terms, banks sell the stocks of a foreign client to a German buyer, for example a domestic brokerage firm, shortly before dividends are paid out. The brokerage can then claim a tax rebate from the German state which a foreign auctioneer would not have received. After dividends are disbursed, the stocks are sold back to the original foreign owner immediately and the tax rebate is split between participants.
The second method, known as "Cum-Ex," is more complex and was outlawed in 2015. According to this variant, a tax bill is settled by the owner of stocks once before being claimed as a refund twice, or indeed multiple times. The profit hence achieved is again split between participants in the transaction.
A long list of major banks, including Citigroup, Barclays, and Deutsche Bank, participated in and benefited from the multibillion-euro scheme.
The news site "ntv.de" now reports that senior members of Germany's relevant financial and regulatory authorities had received information about the ongoing theft of public funds as early as 2007, but failed to react and even undermined the progress of investigations.
When the Federal Financial Supervisory Authority (BaFin) received a tip-off from an anonymous informant about "Cum-Ex" deals conducted by banks in 2007, it did not contact the Ministry of Finance, tax inspectors, or public prosecutors.
Former BaFin chief Jochen Sanio justified his organization's inaction with its legal obligation to protect banks' operational secrets, as well as its inability to exchange views with tax authorities before a change in German legislation in 2015.
However, the law in question already allowed for such BaFin action in the case of serious tax crimes "whose prosecution is in the urgent public interest."
The governing coalition between the CDU/CSU and SPD used its majority during the ongoing parliamentary enquiry to declare all files from the case as secret, a move criticized by the Green party.
Furthermore, aside from failing to pass on information about Cum-Ex deals, "ntv.de" cites one case in which BaFin allegedly revealed the identity of a whistleblower to his employer.
Frank Tibo, who was the head of the tax department of HypoVereinsbank between 2002 and 2014, was fired after reporting suspicious deals to the bank's compliance team and subsequently to BaFin.
Tibo successfully appealed his sacking which he described as a "brutal elimination" and has complained that he was uncovered by the financial services watchdog after expressly seeking anonymity.
Similarly, several attempts by whistleblowers to contact the Federal Ministry of Finance between 2009 and 2015 were ignored or brushed aside by ministerial staff.
An insider using the alias "Juergen Schmidt" wrote to the Darmstadt tax office in November 2010, warning of the machinations of a "mafia-like organized network."
When he received no response, Schmidt contacted the authorities again asking "why the German financial authorities have no urgent interest in the investigation of transactions...which will lead to massive damage of 300 million euros again in 2011 alone?"
Schmidt also warned officials at the Darmstadt tax office not to pass on any information to the relevant department in the Ministry of Finance in Berlin, as the "initiators [of the scheme] have a direct and excellent contact to its employees."
Arnold Ramacker, a civil servant at the office in question, appears to have had particularly close links to financial institutions in the context of the "Cum-Ex" scandal.
When the Ministry of Finance first tried to close regulatory loopholes in 2007, Ramacker copied proposals of the German Banking Association (Bankenverband) word for word into law.
The number of dubious transactions grew exponentially thereafter, albeit via international structures where the new German rules did not apply.
Finance lobbyists were delighted by the development and paid Ramacker a salary in 2008, while he was officially on leave but continued to participate in the drafting of legislation in the Finance Ministry.
In the final declaration of the subsequent parliamentary enquiry, the Green party stated that Ramacker's role in the scandal spoke volumes about the "naïve trust [of authorities] in their dealings with industry representatives".
The German state only awoke from its costly slumber at the prompting of tax prosecutors in Wuppertal in 2015.
Unlike in other instances in which whistleblowers had sounded alarms, investigators received clearance to purchase a USB stick containing the names of 129 involved banks from an insider for five million Euros.
Since the government obtained the data and began using it in an attempt to demand the repayment of tax rebates, several individuals involved in the transactions have confessed their complicity.
Nonetheless, German opposition such as the Greens and Left party have attacked the government's handling of the scandal as inadequate and slow.
The Green party's finance expert, Gerhard Schick, said that the ruling CDU/CSU and SPD had "downplayed the extent of damage, distracted the public from the failure of financial authorities, and blocked investigations at critical points."
The Left party's Richard Pitterle (Linke) lamented that "catastrophic mistakes" by authorities had enabled the "multibillion Euro theft of the Cum-Ex mafia in the first place."
The Ministry of Finance sees no failings on its part in the "Cum-Ex" scandal.
The parliamentary enquiry had shown that financial authorities worked in an "exemplary and efficient" fashion on the case.
"Financial authorities acted responsibly with regards to information provided by whistleblowers," Finance Minister Wolfgang Schaeuble (CDU) further stated.
