In its 2024 annual report, Investec Bank remained steadfast in providing extremely limited information on ‘formal claims’ from the German Federal Tax Office in relation to its involvement in the so-called cum-ex scandal that rocked European financial markets several years ago.

AmaBhungane has in the past reported extensively on information suggesting Investec’s complicity in massive tax fraud: here, here and here.

Cum-ex transactions involve several parties colluding to trade shares in a company right before and after dividends are declared. The aim, as we explain in our introduction to cum-ex scams, is to generate two claims for a refund of dividend withholding tax that has only been passed once.

The cum-ex transactions in question resulted in European governments losing billions of euros in tax revenue because of various banks, lawyers and investment funds cashing in on what they claimed was a tax loophole.

In a brief note in its financial statements, Investec said it was cooperating with the German authorities and continues to conduct its own internal investigation.

“A provision is held to reflect the estimate of financial outflows that could arise as a result of this matter. There are factual issues to be resolved which may have legal consequences, including financial penalties,” the bank stated.

When there are such potential liabilities, a company would normally be obliged to disclose the size of the provision it has set aside in case it has to pay up. However, Investec asserts that in this case, providing more information would “seriously prejudice the outcome” of its interactions with authorities.

When amaBhungane wrote to the bank to query this decision, Investec cited International Accounting Standards (IAS) provisions permitting limited disclosure of material information.

The relevant IAS passage states that “in extremely rare cases, disclosure of some or all the information …. can be expected to prejudice seriously the position of the entity in a dispute with other parties on the subject matter of the provision, contingent liability or contingent asset. In such cases, an entity need not disclose the information but shall disclose the general nature of the dispute, together with the fact that, and reason why, the information has not been disclosed.”

Invoking this ‘extremely rare’ eventuality might indicate that Investec is concerned it may be facing a significant financial blow and that any detailed disclosure might prejudice negotiations with the German authorities.

In last year’s 2023 report, it was mentioned by the bank’s auditors that their engagements with Investec’s executives had included discussion of probable outcomes, “including a commercial settlement”. 

This year’s report omits that reference, suggesting that attitudes may have hardened despite the departure of the leading prosecutor on the cum-ex scams in Germany.

In April 2024, Anne Brorhilker resigned from the Cologne Prosecutor’s office and joined the German consumer financial lobby group Finanzwende as head of its financial crime unit.

Brorhilker, a prominent figure in the investigation, has successfully brought several individuals involved in the scam to justice. Her departure came after she expressed frustration with how white-collar crime was being handled with kid gloves in Germany.

The Investec annual report states that the office of the Public Prosecutor in Cologne is investigating potential charges against not only the group’s UK arm, Investec Bank plc, but also “certain current and former employees,” while the German Federal Tax Office in Bonn has also made “formal claims” in relation to tax reclaims connected to the cum-ex transactions.

Limited disclosure

In its response to AmaBhungane on 12 September 2024, Investec told us that neither it nor any of its current or former employees have to date been charged, indicted or subpoenaed in connection with the cum-ex investigations.

The bank declined to commit to any public disclosure of the results of its internal investigations, noting that “once the external investigations and our internal processes have been concluded, we will communicate with relevant parties as appropriate.”

In response to follow-up questions about the very limited disclosure of the provision, Investec told us that “we remain satisfied that the provisions stated in our annual financial statements are adequate, the disclosure of which is in accordance with the relevant accounting standards and signed off by independent auditors.”

The bank stated that it was not currently involved as a claimant or defendant in civil claims, and that it has taken precautionary steps by issuing third-party notices and entering into standstill agreements.

Standstill agreements are deals struck between potential litigants to delay any possible proceedings until an agreed date or event.

These measures are intended to safeguard the bank’s interests should it become involved in future civil proceedings in Germany, it said.

Background on cum-ex transactions

Three years ago, AmaBhungane uncovered leaked documents and emails implicating Investec as part of a multinational joint investigation coordinated by the German non-profit newsroom CORRECTIV.

AmaBhungane previously reported, in a three-part series on the cum-ex file leak, that Investec was also involved in facilitating deals where US pension funds were used in similar cum-ex scams. We also revealed that Investec supported infamous trader Frank Vogel’s company, MF Finance, with up to 12.7 billion euros between 2011 and 2015.

These investigations suggested that Investec had been acting with the apparent approval of senior Investec managers, including now-deceased executive director Alan Tapnack.

The leaked documents further showed that Investec worked with key individuals involved in the cum-ex scandal, including Paul Mora, Martin Shields and Hanno Berger.

Martin Shields received a suspended sentence in 2020 for his involvement in illegal cum-ex trades, while Hanno Berger was sentenced to eight years in prison in December 2022.

Mora, considered one of the masterminds behind the cum-ex scam, is reportedly still on the run and the German authorities have put him on Interpol’s ‘most wanted’ list while also seeking his extradition from New Zealand.

Investec’s probity?

AmaBhungane posed detailed questions to Investec about the cum-ex legacy. These included:

• what lessons had the bank learned from these ongoing legal challenges, and how are they being applied to improve governance and compliance across the organisation?
• how did Investec reconcile its involvement in these tax arbitrage strategies with its ethical standards and commitment to responsible banking?
• how did Investec hold its senior executives accountable – executives who allegedly played key roles in approving the bank’s participation in cum-ex schemes?

Without directly addressing these specific questions, Investec told us that it “continually reviews its governance and risk management practices to ensure alignment with industry standards and regulatory obligations.”

It also stated that “the bank maintains that it operates with the highest integrity and will take appropriate action if any wrongdoing is found once the investigations are concluded.”

They added that “Investec upholds cast-iron integrity in all our dealings and appropriate action, if any is required, will be taken against those who may be found to have acted illegally or unethically when this matter is finally concluded.”