German prosecutors raid Commerzbank in tax evasion probe
German prosecutors raid Commerzbank in tax evasion probe
Prosecutors said on Friday they had searched the offices of a major Frankfurt bank and private homes this week.
The bank involved was Commerzbank, according to a person familiar with the matter who was speaking on condition of anonymity.
Commerzbank, Germany’s second-biggest lender, said it was cooperating with authorities.
Dividend stripping, also known as “cum-ex” transactions, involved buying a stock just before losing rights to a dividend, then selling it, taking advantage of a now-closed legal loophole that allowed both buyer and seller to claim tax credits.
Frankfurt prosecutors, together with federal crime police and tax officials, conducted the Commerzbank searches on Tuesday. They included the offices of the bank as well as the flats of three suspects in Frankfurt and nearby Hanau.
The legal news agency Juve first reported the news.
Investigations into the use of such schemes by a number of banks in Germany have been going on for several years. The practice may have cost the state billions of euros in tax over many years.
Last year, Portigon Financial Services, formed from parts of failed German lender WestLB, was searched by prosecutors as part of a probe into allegations that WestLB may have been involved in cum-ex trades..
Last month, prosecutors raided the Frankfurt offices of law firm Freshfields Bruckhaus Deringer in relation to a former client’s cum-ex transactions.
A number of banks have already paid hundreds of millions of euros in back taxes and tens of millions to settle disputes with German authorities.
Last year, German financial watchdog BaFin closed the German operations of Maple Bank due to over-indebtedness relating to the tax evasion investigations.
The Commerzbank investigation focuses on five current and former employees aged between 51 and 63, as well as unknown individuals suspected of involvement in the scheme to evade 40 million euros of taxes from 2006 to 2010, prosecutors said.
The investigation also extends to unknown individuals and trades in 2008 at Dresdner Bank, which was taken over by Commerzbank in 2009. Prosecutors said the volume of those trades was more than 10 billion euros, with a further 75 million euros in evaded taxes.
In a statement on Friday, Commerzbank said it had identified cum-ex trades at Dresdner Bank that it halted upon the 2009 takeover. Commerzbank also said it conducted a voluntary investigation at the end of 2015 into all trades between 2003 and 2011 that “revealed that there were cum-ex trades at Commerzbank.”
Commerzbank said it proactively notified the authorities with the preliminary results of that investigation and is cooperating fully.
Shares of Commerzbank dipped on the news midafternoon, but recovered somewhat to trade 0.7 percent lower at 1613 GMT.
Breaking up is hard to do for GE, America’s industrial aristocrat
- Experts question whether GE can survive in its present form much longer.
- Company removed from Dow Jones Industrial Average on Tuesday
DUBAI: You would not have noticed it from the self-confident assurance of GE’s executives last week, but their company — an aristocrat of the American business scene, a symbol of the power of US capitalism and a major partner of Saudi Arabia — is in serious trouble.
The 125-year-old company hosted journalists from around the world to showcase its expertise in power generation and distribution at major plants in the southern US, and it spun a persuasive story for GE to be regarded as a giant of the “digital industrial” universe.
GE is without doubt at the cutting edge of the power industry, from the gigantic monitoring walls in Atlanta, Georgia — where it can instantly diagnose problems at any one of nearly 1,000 plants in 76 countries — to the 3-D printing or “additive” facilities at Greenville, South Carolina, where it produces technology for the latest, most efficient and environmentally sound gas turbines.
But all the time there was a big elephant in the control centers, research labs and conference rooms: GE at group level is going through one of the most testing times in its history, with many experts questioning whether it can survive in its present form much longer.
Shareholders are in open revolt because the value of their investment has been halved in the past 12 months. Last year the dividend was cut for the first time since 1938 and only the second time in its history. Corporate debts are huge, and the company’s paper, once triple A-rated, is careering toward junk status.
The latest humiliation came on Tuesday when the company founded by Thomas Edison, the legendary technology entrepreneur and the inventor of the light-bulb, was kicked out of the Dow Jones Industrial Average, the 30-strong stock index of which it was an original constituent in 1896.
As recently as the 1990s, GE was America’s largest company by market capitalization, and less than 10 years ago was in the top five. Now it is ranked 44th by market size on the bigger S&P 500 index.
All this made the commitment of GE power executives all the more commendable, given the fact many of them are involved in pensions and savings schemes linked to the company’s plummeting shares.
The men and women who still proudly wear the GE badge were not willing to talk openly about the reasons for the company’s grand demise, or give their public views on what should be done to turn it around. Executives spoke of the need to make GE a “simpler, leaner” organization, especially regarding the big expensive group functions spawned by such a sprawling conglomerate.
But privately, they unanimously blamed the stewardship of former CEO Jeff Immelt, who a year ago stepped down from the job after nearly 16 tumultuous years. He is credited with getting GE through the difficult period after the 9/11 terrorist attacks and the global financial crisis, but generally is reckoned to have made a bad job of managing and directing future growth.
Many of his acquisitions and disposals over those 16 years were badly timed and value-destructive; some have landed GE in regulatory investigations that could cost further billions of dollars in write-offs and charges.
As to the way forward, the current chief, John Flannery, seems to be considering what some big investors are openly advocating: A break-up of the sprawling GE portfolio into its still-valuable constituents, including the power business.
The four big divisions are power, health care, aviation engineering and oil services, and there may be some industrial logic for keeping them together. Technicians and engineers were keen to point out that there are significant synergies between the aircraft engines and turbines businesses, and that some of the X-ray machines developed by health care are also used in turbine diagnostics.
But faced with the investor onslaught, such marginal benefits may not be enough to justify holding the conglomerate together. Oil services, in particular — only recently added with the merger of Baker Hughes to GE’s existing energy business — looks like an odd man out.
All of this matters in Saudi Arabia because of the prominent role GE continues to play in the Gulf. It has been involved in Saudi Arabia almost since the Kingdom was founded, and is still a valued and respected industrial partner for Saudi Aramco and Saudi Electric, among others.
Journalists were reminded of this when Scott Strazik, the power services division chief executive, announced that GE is planning a big manufacturing program for gas turbines — perhaps including the latest model the 9HA — in Dammam in the Eastern Province, and was committed to creating 100 jobs for Saudi male and female workers there.
Saudi Arabia was a major partner in one of Immelt’s few successful deals — the $11.6 billion disposal of GE’s plastics business to SABIC
Might Saudi Arabia play a part again in what many observers regard as the inevitable break-up of GE? Executives in the southern US were tight-lipped on that, too, and, of course, it will be decided at GE’s Boston HQ and in Riyadh — if it gets that far.
But it is clear that all options are under consideration and nothing can be ruled out for GE in extremis.
“Everything is on the table,” Flannery said recently.