25 May 2024 | 09:24 AM

Investec implicated in investigations into the world’s largest tax fraud – the cum-ex files part one

Key Takeaways

A new trove of confidential documents lays bare the shocking extent to which Investec was involved in suspect deals worth hundreds of millions of Euros that resulted in European governments being defrauded through the infamous “cum-ex” withholding tax scam. 

In doing so the elite bank joins the ranks of lawyers, bankers and financial services outfits from across the world already implicated in what is widely reported to be the largest fraud in history, allegedly costing European revenue services over EUR55-billion, mostly between 2007 and 2012.  

The cum-ex project 

This story stems from the CumEx Files 2.0, an international investigation coordinated by German newsroom CORRECTIV following on the heels of a 2018 exposé, the CumEx Files.

The Files contain around 200,000 pages. These include investigation reports from various authorities, interrogation protocols from key witnesses and accused, internal bank documents, emails, protocols from phone calls that have been tapped.

The documents come from various sources. Find out how cum-ex effects other countries worldwide on cumex-files.com.

Evidence contained in the leak also raises the possibility that senior staff, some of whom still occupy top positions at Investec, may have approved the bank’s involvement in these schemes – laying themselves and the bank open to potential criminal and civil liability. 

This allegedly includes the current chief executive of Investec Europe, Michael Cullen, and a former executive director, Alan Tapnack (since deceased), the latter of whom signed a key contract that facilitated Investec’s participation in cum-ex schemes.

Other employees openly planned deals in emails and, according to witnesses, were well aware of what they were doing.

Cum-ex is, in the jargon of investment banking, a complex type of trading “strategy”. It involves multiple role-players who rapidly buy and sell shares among each other immediately before and after the declaration of dividends by a company listed on a stock exchange. The point is to claim back a withholding tax on the dividend that got paid out – but to claim the reimbursement twice.

The trades exploited an interpretation of the tax code that appeared, at the time, to let multiple people claim ownership of the same shares. This technically enabled more than one investor to claim a refund on a tax that was paid only once.

Prosecutors argue that suspects involved in the transactions knew they were cheating (Read Cum-ex: the basics).

There has been some uncertainty around the legality of these transactions, with some implicated parties claiming that they were simply exploiting a tax loophole.

But in a landmark judgement earlier this year, the German Federal appeal court convicted two bankers over trades carried out between 2007 and 2011 involving the M.M. Warburg bank. One was ordered to repay EUR14-million personally and the bank was fined EUR176-million (R3-billion).

The court noted that the targeted cum-ex transactions were not “the mere exploitation of a loophole in the law because the legal regulation was clear. It was much more a matter of getting a smooth grip on the till, which all taxpayers normally pay into, as is the case with normal sales tax fraud”.

AmaBhungane has secured access to the massive German leak as a member of a joint effort between newsrooms worldwide, coordinated by German non-profit independent newsroom CORRECTIV.

Investec does not appear to be one of the main targets in the German investigations but details of its involvement are scattered throughout the leak.

Cum-ex, the basics explained

Cum-ex scams only work in countries that impose dividend withholding tax on shareholders in companies. Germany does and so does South Africa. 

A share is “cum” dividend (Latin for “with”) until the dividend gets declared and it becomes “ex” (without) dividend afterwards.

It’s the same idea as having employers deduct PAYE from employees’ paycheques rather than wait for them to pay it themselves. The company issuing the dividend pays the tax on behalf of shareholder and those shareholders who qualify can go claim back this tax at the end of the tax year.

Cum-ex scams also only work in a few countries that have two loopholes in their stock exchange and tax systems. 

One loophole is that a share sale takes two (or more) days to take effect.

The second is that the tax certificates that allow you to reclaim your tax are not issued by the company paying the dividend but by your custodian bank. 

A custodian bank is one that holds your shares in an account for you, pays out your dividend and takes care of the mechanics of selling your shares. 

Every cum-ex transaction involves the following:

1. A company on a stock exchange declaring dividends..

2. At least three conspirators plotting to score unearned tax “refunds” on those dividends:

a. A short seller. This means a payment made before dividend is declared, on shares that will be transferred after the dividend is declared
b. A buyer of shares from the short seller
c. A supplier of shares to the short seller

Consider three scenarios:

First, if Investor A owns shares in a company which declares dividends, he gets a net dividend because the company has paid dividend withholding tax on his behalf. If the tax is 25%, then Investor A gets 75% of the dividend plus a tax certificate for the other 25%. He gets that certificate from his custodian bank.

Second, consider a case where Investor A carries out a normal (read: legal) cum-ex sale. Investor A has shares on the day (or the day before) a dividend gets declared but then sells them to Investor B. The nature of the German market system meant that Investor B was only going to get those shares two days later – ex-dividend. That’s not fair because when he bought them they were cum-dividend.

So what kicks in is what the Germans called a “compensation payment”. Investor A’s custodian account automatically gets debited by the net dividend amount he had received (75% of the dividend) and this goes to Investor B. Most important, the dividend withholding tax certificate issued to Investor A gets transferred to Investor B, representing 25% of the dividend. 

Third, in order to rig the system and carry out a cum-ex fraud you introduce Investor C – the short seller.

Investor C sells shares to Investor B without actually owning those shares. Instead, the two agree that Investor A will deliver shares on some day in the future. Investor B pays upfront.

Come delivery day, Investor C will acquire shares from Investor A, the supplier, and deliver them to Investor B, the buyer, as agreed.

Usually the point of a short sale is to bet on how the share’s value will change because Investor B paid a pre-arranged price while Investor C is going to pay the market price at delivery day. Both have taken a risk: Investor C could either be in the money or make a significant loss.

For a cum-ex scam, short-selling has a completely different function.

The story still starts with Investor A who owns shares at the time the dividend gets declared. However, before he sells the shares, his conspirators have to set up a covert short sale transaction in the background.

Investor C, who doesn’t have any shares before the dividend is declared, short sells shares to Investor B. These yet-to-be-acquired shares are sold “cum” dividend before the dividend gets declared. After the dividend gets declared Investor C goes to Investor A to buy the shares he needs to deliver to Investor B.

Now there is a tricky situation. Investor B had bought “cum” shares upfront from Investor C but when Investor C goes knocking at Investor A’s door to buy shares to pass on to Investor B, these are now “ex” shares minus the dividend and tax that got paid.

So who gets the tax certificate?

Investor A has paid the tax and received the tax certificate but is selling to Investor C ex-dividend. That means that there is no compensation payment and no transfer of the tax certificate. Investor A rides merrily into the sunset with his certificate in hand.

Investor C had sold the shares upfront to Investor B cum-dividend at the full price. So Investor B still needs his “compensation”. Crucially (and this is the foundation of the fraud) that includes a tax certificate that gets issued by Investor B’s custodian bank – a role Investec sometimes played while allegedly knowing full well Investor B never actually paid tax. 

So now there are two tax certificates even though there had only been one tax payment. Investor B takes this “extra” certificate to the taxman, gets a refund and divides it between himself, Investor A and Investor C. The illicit profit is exactly equal to the tax that was not paid.

The documents comprise of memos, letters, emails, affidavits and interrogation transcripts from multiple sources related to multiple ongoing investigations. In Germany it is an offence to republish or extensively quote such documents, so we have refrained from doing so on request from CORRECTIV, while the names of some witnesses have also been changed for their protection.

The leaked documents suggest that Investec actively played at least two roles indispensable to every cum-ex scheme over the course of several years: someone to provide a massive amount of short term loan funding to enable others to trade as many shares as possible – and someone to produce the documentation needed for duplicate tax refund applications, allegedly while being aware that the overall transaction was designed to be misleading. 

In other instances, Investec also allegedly acted as a broker and carried out the necessary trades itself.

Under interrogation by German authorities one of the major tax law experts who designed cum-ex schemes cited Investec as one of the “leading protagonists” in cum-ex lending alongside major players like Macquarie, Deutsche Bank, Merrill Lynch and UBS. 

The documents show Investec providing funding and other services to different groups of collaborators between at least 2008 and 2012 and also show that German prosecutors have been digging for evidence on Investec since as far back as 2014. 

An interim report from a German tax investigation office dated 13 December 2019 indicates that “criminal proceedings” against at least one Investec employee based in Ireland had begun on 23 March 2018 – with Investec itself becoming a secondary target. The wording of the document suggests that, while criminal investigations have seemingly commenced and may be ongoing, not all persons named as suspects have as yet been formally charged. 

Investec Plc declined to provide answers to a detailed list of questions sent to it by amaBhungane and instead responded with a general statement. It indicated that “no current or former employees, nor the Bank itself, have been criminally charged, indicted or subpoenaed.” 

The bank did however say it had first been informed by the Cologne Public Prosecutions Office about the initiation of an investigation into current and former employees of the Investec Bank Plc’s Irish Branch in August 2018, and that it was cooperating with authorities.  

Investec has an unusual dual-listed structure that splits it between the South African Investec Limited and the UK-based Investec Plc. Investec Bank Plc is a subsidiary of the main UK entity.

The statement said that Investec Bank Limited (the South African arm) was not involved in any aspect of this business and denied that Investec plc provided tax advice or tax reclaims services to clients. 

Read Investec’s full response to our questions here

Read amaBhungane’s questions in full here

Among other things, the leaked documents show how Investec allegedly funded schemes directly tied to the German cum-ex “mastermind” Hanno Berger who was arrested in July this year after nine years in luxurious exile in Switzerland. 

The Swiss authorities approved his extradition in August, but Berger is appealing and has always claimed what he did was within the law.

Leaked documents indicate short term loan funding extended by Investec could total anything between EUR100-million and EUR340-million (R1-billion to R3.4-billion at the time) per transaction for cum-ex trades. 

Investec has also been named by authorities in relation to an alleged scheme to defraud the German government using US pension funds, an evangelical church and a Jewish charity, also via allegedly bogus tax refund claims. 

Leaked letters indicate that a criminal case was being prepared against multiple parties, including Investec as an indirect target, specifically relating to this endeavour. (More details to follow in part two, tomorrow)


It is unclear what potential fallout, if any, awaits Investec, but both criminal and civil court cases in relation to cum-ex transactions have only recently started picking up steam. Prosecutors have, at least since 2014, been faced with unpacking immensely complex financial transactions and proving that they involved intentional fraud. 

The majority of the transactions that are now the subject of criminal investigations took place before a legislative amendment that finally quashed the practice in 2012. There has therefore been uncertainty as to whether these transactions were illegal at the time or whether it was merely a loophole that was being exploited. 

But given the recent judgment in the German appeal court, Investec may be hard-pressed to argue that these transactions were all entirely above board.  

Roughly 1000 individuals are reportedly being investigated but only three have been successfully criminally prosecuted to date with many cases still pending. Some banks and other companies have paid fines or have entered into settlements.

In principle, it is possible that Investec could be made to pay a fine in Germany that would be equal to whatever its income from cum-ex deals was. 

To date, Investec has consigned its exposure to the cum-ex scandal to a “contingent liability” disclosure buried deep in its annual reports, starting in 2019:

“Investec Bank plc (‘Investec’) has been notified by the Office of the Public Prosecutor in Cologne, Germany, that it and certain of its current and former employees may be involved in possible charges relating to historical involvement in German dividend tax arbitrage transactions (known as cum-ex transactions).”

The vague formulation makes it unclear what the exact nature of the interaction with prosecutors has been, given that Investec told us that no current or former employees have been charged, indicted or subpoenaed at all. 

The note in the bank’s annual report continues: “Investec is cooperating with the German authorities and is conducting its own internal investigation into the matters in question.” 

According to the footnote there are, however, “factual issues to be resolved which may have legal consequences including financial penalties”.

There has been no disclosure of what exactly Investec and its “current and former” employees may have done – until now.

Not without Joburg’s say-so

The leaked documents show the point persons at Investec were, in most cases, head of equity finance Loman Gallagher and deal structurer Michael Byrne, both based in the Dublin office of Investec Bank Plc. 

AmaBhungane was not able to reach Byrne or Gallagher to obtain their comment.  

It is Byrne who is facing criminal investigation, according to the 2019 prosecutors’ report.

The leaks suggest it is unlikely Investec would be easily able to dismiss these deals as the actions of rogue employees in a peripheral part of the Investec group.

The documents include affidavits from alleged co-conspirators from two different companies deeply implicated in the cum-ex scandal, both claiming that there is no doubt whatsoever that the cum-ex deals were approved by Investec’s head office in Sandton – despite being carried out by its small Dublin branch.

One witness is “Aiden Finn”, a partner in a prolific cum-ex investment management firm whose real name cannot be published. The actual name of the firm, here referred to as “Excel Investments”, likewise cannot be published because it would identify him.

Finn dealt extensively with Gallagher and Byrne.

“There are no high-ranking employees in the Dublin office itself. Therefore all far-reaching decisions were made in Johannesburg. The team in Dublin planned and organised everything in advance. However, the activity then had to be confirmed in Johannesburg,” Finn said in a statement prepared for prosecutors, which forms part of the leak.

“Investec has been involved in the cum/ex business for a number of years. They knew the business very well. We talked openly with them, especially that it would concern cum/ex deals. This was then passed on to Johannesburg,” he said.

Another infamous cum-ex outfit was Duet Asset Managers where the employee dealing with Investec, Aneil Anand, independently echoed Finn’s claim.

“In my view they understood the cum ex trade and had a formal sign off process that would require approvals from their Dublin office, UK office and their head office in South Africa…The trade and strategy contemplated were discussed openly,” Anand said in his own statement to German prosecutors.

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A prosecutor’s report dated 4 June 2018 names no less than eleven Investec staff in the bank’s Dublin office as being suspected of tax evasion, including Investec Europe chief executive Michael Cullen. 

According to the report, traders and back office personnel “were consistently aware that the trades in question were cum/ex deals…and everyone understood the trade”.

One series of emails between Gallagher and Anand demonstrate Cullen’s close involvement in vetting Investec’s work with Varengold, one prominent investment outfit creating funds for cum-ex deals.

On 18 March 2010 Gallagher informed Anand by email that, “Our CEO (Investec Ireland); Michael Cullen, would be able to fly up to Hamburg to meet the Varengold guys next Friday (March 26th)…the most important thing for us is to get the site visit done asap.”

At Varengold it was clearly appreciated that Cullen had to be convinced that Investec should do business with them.

On 19 March the personal assistant of Varengold partner Yasin Qureshi emailed the board:

“Dear Management Board members,
This appointment is very important! YQ asked me to confirm this appointment on March 26th, 2010 at 9:00 am and asks that you be there.”

Cullen told amaBhungane’s Irish partner in the CORRECTIV joint venture, the Irish Times, that “it is Investec’s policy never to comment in relation to its transactions with existing or former clients”.

“I can confirm that these matters have been raised and discussed with all relevant regulatory authorities and Investec continues to co-operate and assist the authorities,” he said.

The size of the short term loans Investec provided to cum-ex traders also makes it highly improbable that the deals were not authorised high up the chain of command – something that is reflected in leaked emails. 

On 24 February 2010 Investec’s Gallagher had sent an email to Anand confirming that Investec could put up the cash for imminent cum-ex transactions, explaining that “we cannot commit to funding or sizes on specific names but I believe that we could offer a soft-limit of €250m of funding and we are willing to apply for this quickly”. 

He continued that Anand could provide additional information that the Investec team could “include in our committee presentations”.

Lastly he asked Anand for “any other information you believe would further the application’s credibility as soon as possible, this would ease the process and generate an appealing proposition for the Board“.

By providing EUR250-million per “name” Investec would provide this level of funding for the purchase and sale of shares in one company and then provide the same amount repeatedly for another “name” and then another and so on. 

In practice, a cum-ex deal involves a succession of massive back-and-forth share transactions, each time using the shares of a different company that was declaring its annual dividend.

Anand’s email seems to show that cum-ex funding opportunities had to be presented not only to an investment committee, but also to one of the Investec boards.

Both evidently gave Gallagher the green light because Investec shortly thereafter did an immense amount of business with Duet. Other emails also appear to indicate that Investec’s Irish team had to get approvals from headquarters.

An email dated 23 December 2009 shows how Excel’s Finn was pushing Investec in Ireland to convince the parent company to put up guarantees for cum-ex funding. He was reporting to colleagues that would be possible but would require work. 

After meeting with Investec he told colleagues that securing a guarantee “will involve them getting additional approvals from their head office in South Africa, above that which would normally be required for this type of project”.

In its statement issued in response to our questions, Investec said that “normal” procedure was followed:

“Credit, capital, market and liquidity risk limits were approved in terms of Investec Bank plc’s normal processes. Investec Bank Limited was not involved in any aspect of this business.”

Keeping bad company

The earliest allegation of tax fraud in which Investec is implicated that amaBhungane could identify from our analysis of the voluminous leaked documents related to large-scale cum-ex trades of BMW shares in May 2008. 

In a letter addressed to Commerzbank dated 14 January 2014 the Darmstadt tax office, on instruction from the Cologne public prosecutor, demanded records for accounts Investec had at the German bank. The letter, in German, cited “suspicion that your customer [Investec] was involved … in the transactions that led to an evasion of capital gains tax and solidarity surcharge in the amount of € 2,012,940.00”.

A report on the relevant transactions, also contained in the leaks, shows that Investec bought and sold BMW shares worth almost €340-million immediately before and after the declaration of BMW’s dividend that year. This would serve little purpose except for facilitating a cum-ex duplicate tax refund. Investec’s counterparties in the trades are now well-known as cum-ex practitioners.

More worrisome for Investec, the demand for records was in relation to the case against Berger, the alleged “mastermind”, as well as two bankers called Paul Mora and Martin Shields.

Shields and Mora achieved immense notoriety for their prolific cum-ex dealings and Shields happens to be one of only three cum-ex practitioners that have been successfully criminally prosecuted to date.

Mora, who has denied wrongdoing, lives in his native New Zealand but is on Interpol’s red list to stand trial in Germany.

This means that Investec was already in 2008  involved in transactions with traders who would later turn out to be some of the most high-profile cum-ex criminals in the whole international saga.

Some of the most damning and detailed evidence against Investec however stems from its large-scale participation in the 2010 German “dividend season” – the three months from April to June when most companies hold their AGMs and declare their dividends. 

This is when the cum-ex scamsters reaped their annual harvest.

The setup

In 2010 Investec was recruited as “prime broker” for cum-ex trades planned by at least two different purpose-made investment funds. A prime broker is an investment bank providing any number of services – but in this case specifically providing a lot of funding or leverage. 

This meant that Investec would – for a handsome fee – briefly provide hundreds of millions of Euros to augment the much smaller amounts that (unknown) investors had put into the funds. This allows the fund investors (or rather the people managing their investments for generous fees) to maximise the volume of cum-ex trading and make huge profits purely from duplicated tax rebates that get shared between everyone.

The actual identity of the investors was often obscured behind offshore structures with even the entities involved in the deals not knowing where the money came from.

One fund Investec got involved with that year was the Varengold Caerus II Equity Fund (Varengold Caerus fund) which was the one requiring the “site visit” from Investec’s Cullen. 

Another was called Avana Multi Assets III (Avana fund). 

Once again, Investec seems to have found itself in the company of leading lights in the cum-ex world. Both the Avana and Caerus funds (and others) were ultimately controlled by Berger. 

According to testimony of one collaborator, it was Berger who had contact with the investors and “called the shots”.

Berger effectively subcontracted the work of coordinating the parties required for the cum-ex trading, including banks like Investec.

For the Avana fund the manager was Excel represented by Finn and with Varengold Caerus it was Duet represented by Anand. 

According to Finn, Excel approached a large number of banks to potentially act as prime brokers and “Investec Bank in Dublin and Merrill Lynch in London had emerged as the most likely to be able to provide the Prime Broker facilities that were required”. 

As it turned out the Merrill Lynch was given one Avana fund while Investec got another.

In an email to colleagues dated 18 December 2009 Finn cites Investec as a particularly exciting prospect:

“We know Investec very well, and they are currently providing similar facilities for funds carrying out very similar business (but outside of Germany).”

It is a testament to Investec’s reputation in the field that Duet independently made its way to the bank’s door looking for funding for cum-ex deals in the 2010 “season”. 

According to Finn, Gallagher and Byrne made Excel jump through hoops to design a structure for the trades that suited Investec legally and financially.

This was evidently well worth it because “Investec were lending amounts which were high multiples of the Avana investor capital.”

Investec met directly with Berger to iron things out, claims Finn.

“Everyone is very pleased”

Cullen, Investec Europe’s boss, had made his site visit to Varengold on 26 March. 

Things presumably went well because three days later his subordinate Michael Byrne signed a series of contracts with Varengold establishing Investec’s role in the imminent trades.

Investec made sure to cover its back. On the same day as signing all the contracts Investec addressed a letter to Varengold for countersignature indemnifying Investec “against any loss which Investec suffers as a result of any failure by Varengold to comply with its obligations pursuant to any Futures Transactions”.

[sidebarContentSingleImage target=modal url=https://amabhungane.org/wp-content/uploads/2021/10/Chief-executive-of-Investec-Michael-Cullen.-e1634786906578.png]Chief executive of Investec Europe, Michael Cullen.[/sidebarContentSingleImage]

And more protection. The next day, 30 March, Investec received a legal opinion assuring it that “entry into, and performance by VARENGOLD of its obligations under, the Opinion Documents does not contravene any provision of the German Investment Act“ and that “no consents, licences, approvals or authorisations of or registrations or filings with, any governmental or other authority or agency of or in Germany are required”.

The opinion came from none other than Berger’s own law firm, Dewey & Lebeouf – and was penned by a partner who would later join him in starting a new tax law firm specialising in cum-ex “advice”.

On the Investec side, all of the contracts were signed by Byrne as well as Investec’s then head of credit and risk in Ireland.

The trades involving Investec started shortly afterwards in April. Tables in the leaked documents show how this played out in practice with Investec loans being used to churn hundreds of millions of Euros’ worth of shares in blue chip German stock like BAYER, Deutsche Bank and Volkswagen. 

According to a table setting out trades by the Varengold Caerus fund, Investec effectively provided EUR3,7-billion in leverage across 22 transactions during the three-month “season”.

Each one paid out a dividend and Investec negotiated a maximum 4,5% fee on the value of these dividends. 

According to a note by prosecutors dated 29 March 2018 this “leverage fee was only agreed orally” after Investec had earlier asked for 5%.

The nature of the ‘profit’ generated by cum-ex transactions however means that the 4,5% could hypothetically amount to as much as 17% of the total profit. 

The reason for this is that the total profit is equal to the total withholding tax on the dividends involved. In Germany this tax is 26,375%. If Investec’s fee is 4,5% of the total dividend then its share of the  profit would be 4,5% divided by the tax rate.

As things turned out, Investec’s profit on the Caerus cum-ex trades in 2010 was 10% or EUR2,8-million of the EUR28-million this one fund allegedly skimmed from the German taxman that year. 

These figures are just for one of the two funds we know Investec was involved in that year because solid testimony and data on them happened to be available in the leaks. 

More fragmented evidence indicates that there were others that same year and suggests that Investec had been involved in this line of work for some time.

By August 2010, Finn was already setting up preparations for the 2011 German dividend season. This time around, the documents reveal, Excel’s main funders were likely going to be Australian banking giant Macquarie and the US giant Merrill Lynch, in addition to Investec. 

In an email exchange with Berger and staff at Avana, Finn explained how talks with the funders were going.

According to Finn Investec offered the following: 

“Likely level of divs to be traded : EUR330mm
Likely cost: Probably at least 4% again.
Likely Appetite: Investec have appetite for more than 1 fund.”

And then.

“Likelihood of success: Extremely high. Everyone at Investec was very pleased with how the 2010 season went, and are keen to trade again next year.” As it turned out Investec was way ahead of them and already setting up cum-ex deals across the Atlantic.

Look out for Part Two tomorrow. Sign up here to get our newsletter and be the first to know what amaBhungane’s investigating.


Dewald van Rensburg and Sam Sole

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