Clearstream Probed Over Cum-EX Fraud

Staff allegedly helped facilitate the scheme and lied to authorities about their ability to detect suspicious behavior

Post-trade services provider Clearstream, which is owned by the Deutsche Boerse Group, is being probed by investigators over its alleged involvement in the Cum-Ex tax scandal.

According to Bloomberg, staff at the company were more involved in the scheme than previously known.

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Cum-Ex deals are thought to have allowed a number of large financial institutions, including Barclays, BNY Mellon, and Deutsche Bank, to take advantage of a loop-hole in German taxation law.

Firms were able to receive multiple rebates on a tax that they had only paid once. Lawmakers say the practice cost governments across Europe 55 billion euros ($60.6 million).

The scheme was carried out through a complex share lending process.

And as Clearstream was – and still is – the only depository for shares of companies listed on German exchanges, the company is likely to have played a key role in the Cum-Ex scheme.

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Helping hand

Citing a legal document, Bloomberg reported on Thursday that Clearstream staff not only knew about Cum-Ex deals, they actively helped to facilitate them.

The document allegedly says that Clearstream employees met with companies to discuss how trades would be handled.

Bloomberg also noted that, even after a 2012 change in German law to prevent Cum-Ex transactions from taking place, Clearstream worked with firms to ensure they could continue – albeit in a slightly different manner.

Shockingly, Clearstream is also thought to have misled German authorities about its ability to detect suspicious transactions.

A core component of the Cum-Ex trading process was to have one party short sell shares to another. Identifying those trades would have helped authorities identify suspicious behavior.

Clearstream told local authorities that they couldn’t identify which clients were short trading, when in fact they could.

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