In Germany, a new round of a corruption scandal linked to a scheme that allowed financiers and bank shareholders to withdraw billions of euros in taxes. The key figure this time could be Johannes Kahrs, a former member of the Bundestag of the Social Democratic Party of Germany. In addition to the poignancy of the scandal, Kars has been a lawyer for Olaf Scholz, the former mayor of Hamburg and current federal chancellor, for many years. So one of the main questions that interests everyone who has heard at least something about the so-called cum-ex financial crime now sounds like this: what did Scholz know?

More than 200 thousand euros in bank vault

The cum-ex scheme includes a lot of criminal cases investigated by the Cologne prosecutor. A few days ago, investigators found 214,800 euros in one of the vaults of the Hamburg bank MMWarburg, whose management is also suspected of involvement in the scandal.

The owner of the vault turned out to be Johannes Kars, who the investigation suspects of mediating to facilitate tax evasion. Some media believe that the former Bundestag member “tested the ground” in an attempt to get the MMWarburg out of tax payments if the bank’s participation in the criminal scheme is proven, and the value found in the vault could be reserved just for that in case. .

How the robbery scheme worked, or what does cum-ex mean

But what exactly is a cum-ex scheme and why are these transactions considered a financial crime? These Latin prepositions are used on the stock exchange to describe a stock in a company before (cum) and after (ex) the payment of dividends.

Here’s how cum-ex worked: financier X negotiated with a group of accomplices Y and Z about a multi-way buy and sell of a particularly large block of company stock on the day he paid dividends. Why buy and sell? So that two or even several participants in the scheme can immediately apply to the German tax authorities for (illegal) compensation for allegedly paid taxes, explains DW law professor Christoph Spengel (Christoph Spengel).

How to persuade the tax authorities to pay the money? And here’s how: from the dividends received, the state receives 25% of the taxes from the owner of the shares, on which the owner receives a certificate. This document entitles you to a refund of overpaid taxes. For it, a scheme of multiple purchase and sale of shares is necessary: ​​each one of the participants received a paper giving the right to a tax refund. It happened like this: dividends were paid and taxes were withdrawn only once, but the state returned the supposedly paid tax money twice or even several times.

Hamburg refused to levy taxes

Across Germany, several banks are now under investigation for this practice. But special attention is paid to the MMWarburg bank in Hamburg. The fact is that in 2016, entrepreneur Johannes Kars organized a meeting of the bank’s shareholders with the then mayor of Hamburg and the current German chancellor, Olaf Scholz. At that time, the managing directors of the financial institution were already under investigation and the Hamburg tax authorities demanded that the bank return 47 million euros in taxes on cum-ex transactions. But a few days later they suddenly refused to charge.

Johannes Kars resigns from parliamentary mandate in 2020

The following year, 2017, then-Federal Finance Minister Wolfgang Schäuble unexpectedly ordered the city of Hamburg to recover €43 million from the bank, which was a highly unusual step in the financial relationship between the federal government and state authorities.

The inexplicable generosity of the Hamburg tax authorities aroused the interest not only of the Public Prosecutor’s Office, but also of the local opposition, which launched its own parliamentary investigation. During the course, Scholz kept silent about the meeting with the bank’s management precisely on those days when the municipal tax authorities demanded tax refunds. Scholz admitted at first to only one encounter, then two more: they forced him to admit entries in the MMWarburg co-founder’s diary, which came to investigators during one of the searches.

Scholz does not remember the details of the meeting.

At the same time, Scholz categorically denied his influence on the tax authorities’ decision. “That would be political stupidity, and I am not inclined towards stupidity,” the leader of the Social Democrats said in April 2021, speaking to members of the parliamentary committee investigating the MMWarburg case. He then claimed that he allegedly did not remember any details of the meetings.

Warburg bank headquarters in central Hamburg

Olaf Scholz’s memory was not refreshed by the more than 200 thousand euros discovered by the investigation in the bank vault, belonging to one of the defendants in the financial fraud case. At least that’s what the spokesman for the German chancellor, Steffen Hebestreit, said. However, there is still no reliable information on whether the large amount found is in any way related to cum-ex transactions – the prosecution refrains from making statements about this.

The prosecution had access to Scholz’s email

In any case, the Federal Chancellor’s situation could become extremely unpleasant. On August 19, Scholz is due to appear as a witness before the Hamburg Parliament committee of inquiry investigating the case of cum-ex transactions. Local media reports that the prosecution allegedly had access to Scholz’s email during his tenure as mayor of Hamburg. To this, the Chancellor’s press secretary replied: “I don’t know any of that. And there’s nothing to hide either.”

But the opposition in Berlin is increasing the pressure. “More evidence is emerging that influential SPD politicians in Hamburg exerted undue influence on the MMWarburg tax investigation,” said Matthias Middelberg, deputy leader of the CDU/CSU parliamentary faction in the Bundestag. Is Olaf Scholz among these “authoritative SPD politicians”? The coming weeks may shed more light on this issue.