(Bloomberg) -- Two former partners of a now-defunct German asset management firm should expect prison terms of 5 to 6 years if convicted over their alleged roles in the Cum-Ex tax trading scandal, a Munich court said on the first day of their trial.
Judges called the prospective jail time “adequate” at a recent meeting with prosecutors and lawyers for the two founders of Avana Invest GmbH, according to a memo read out at a hearing on Thursday. The terms reflect mitigating circumstances, including their confessions. Without them, sentences should be 6 to 8 years, prosecutors said at the meeting in September.
The pair, who can only be identified as Götz K. and Thomas U., are standing trial over a tax loss of about €343 million ($367 million) caused by Cum-Ex deals in 2009 and 2010 in which their firm was involved. Both men will face up to their responsibilities by confessing, their lawyers said in opening statements.
The Avana case is the first Munich trial in the sprawling investigation into Cum-Ex, the controversial trading strategy that exploited how dividend tax was once collected. Frankfurt, Wiesbaden and Bonn courts have already convicted several bankers, managers and a lawyer over the scheme that exploited double-tax refunds, costing Germany at least €10 billion in lost revenue.
In a personal statement to the court, Götz K., 71, said he and Thomas U. founded Avana in 2008, and that the company began using Cum-Ex after lawyer Hanno Berger offered them a ready-to-use package with a facade that dressed up the deals as legal. Berger has already been twice convicted over his role in Cum-Ex.
Götz K. said his own mistake was to turn a blind eye to the growing cracks he saw in that facade. He continued with the transactions, mainly because he wanted the money, and it felt like a game of Monopoly, he told the judges.
“But it was and is no game,” Götz K. said, shedding tears as he spoke. “For me it’s now: do not pass go, do not collect 4,000 Deutschmarks, go directly to jail.”
Thomas U., 63, said while he did notice several red flags, he calmed himself by thinking that so far things had worked. When his father, a policeman who was always very interested in his career, learned what his firm was doing, he asked his son whether he was convinced this was legal, said the ex-manager.
“I should have listened to his doubts,” Thomas U., who was also tearful, told the judges. “Instead, I stuck my head in the sand and hoped everything would go well.” He said he’s now in treatment because he has suicidal thoughts.
Avana Invest was a client of Credit Agricole SA’s Caceis Bank, which in May 2019 disclosed that that Bavarian tax authorities ordered it to repay €312 million and €148 million in interest for dividend tax that was refunded to some of its customers in 2010. The bank said at the time that it was challenging the order.
Caceis acted as a custodian in the deals as did a BNP Paribas SA unit. The London branch of UBS AG was also involved, according to the indictment. The custodian banks handled the electronic tax-refund claims for their clients.
Munich prosecutors are still probing 38 people over Cum-Ex, including bank employees who handled the tax refunds. BNP is also facing a tax order to repay some of the damage, as do Götz K. and Thomas U. Additionally, Caceis sued the two accused, seeking about €200 million, money the lender had to pay under the tax order.
“The defendants are financially ruined, they’re facing claims that by far exceed their assets,” their lawyer Christoph Dannecker said. “Financially and personally, they face shambles.”
(Updates with statement by second accused in eighth paragraph)
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