The more I read about it,
the more I investigated, the more I began to realize that, oh my God, this is a huge story and it raised so many obvious questions about culture within these institutions that I was just hooked and I've been following it ever since. Next to a landmark ruling on what's been called the
biggest tax heist ever, Germany's top criminal court has outlawed the
controversial trading practice known as Cum-Ex. In short, it was the
world's biggest banks, brokerages, lawyers,
accountants, hedge funds, coming together over a decade to make billions and billions of dollars at the direct expense of
taxpayers across Europe. How much did you make
from cum dividend trading? How much did you make? I think it was in the
region of 700 million, but it's hard to put a figure on it because of currency exchanges and so on. Sanjay Shah is basically a trader who has become the poster
boy for that scandal. It's hard to think of
too many other traders in the history of the city who have become so rich in
such a short space of time. So at the moment, my financial situation
is everything is frozen and I'm allowed money to live on. So the court in the UK has approved for me to get paid
every month living expenses and also my legal fees and that's it. So Sanjay grew up in London
in the '70s and '80s. London-born, London-raised,
son of a doctor, went to medical school
himself, dropped out. He first started off
working at Merrill Lynch and then Morgan Stanley
in the back offices. I think he found it quite mundane. He very much was desperate to get on the trading
floor, in the action. Every morning, I used
to turn up to the office and see a row of sports
cars parked outside and I said to my boss,
"Who drives these cars?" And he said, "The traders
do on the fifth floor." So I then decided that I wanted
to be one of those people. And he eventually landed
on the trading floor at Credit Suisse, which was where he first learned about dividend arbitrage trading. He began to observe these
quite complex trades that exploited taxes on dividends
in a really lucrative way. Now, what he told us was while you're doing various kinds of trades trying to profit from dividend
taxes up to that point, the first time he started
doing Cum-Ex trades was at Rabobank on the eve
of the financial crisis around 2007, 2008. I think to understand Cum-Ex, you kind of have to go back to London in the early 2000s, which was when traders in
the city began to figure out how they could profit from something that's
called a withholding tax. These traders would make what is known as withholding
tax applications. So they would make claims for tax refunds multiple times on dividend
taxes that they only paid once. Analogies for this that I've read are like it's the equivalent of saying, you know, me, you and a few other people were
entitled to tax refunds because we all made a donation to charity whereas in reality, it was
just me who made that donation. But through a series of kind of very complicated
rapid transactions, we concealed or we made
it very difficult to tell exactly who it was that made that donation on
the date that it was made. So they hand out the tax
relief to a number of parties. That's what Cum-Ex is except that it doesn't take
place with charitable donations, it takes place with taxes on dividends. This is gonna be one of the watershed days in the financial market's histories. The day began with a bailout, the prime minister and the
chancellor making it clear that the financial system is
so important to our society that by saving our banks, we're saving ourselves. During the financial crisis, however, Rabobank decided to stop doing Cum-Ex and dividend tax kinds of transactions. So Sanjay was out of a job once again. And he decided in 2009 instead of finding more work at a bank, that he would set up his own hedge fund. I didn't want to be someone who is trying
to get a job in a bank when no banks were hiring. I think he very much
wanted to reap more awards from the trading floor than
what a bank would allow. So he set up his own fund and called it Solo Capital Partners to reflect that desire to keep all the profits for himself. He started his fund in 2009 with just half a million pounds, which really wasn't much at all. But this trading strategy
was so profitable that he amassed a fortune
of several times that. Within three or four years, he had turned that into a personal fortune of about $700 million. And for about six years,
he lived the high life. He was making hundreds
of millions of pounds as were his employees and he eventually went over to Dubai. And he used that fortune
to buy a 32 foot yacht. He then traded that in
for a 62 foot yacht. He bought property in Hong Kong. He bought property in London. He bought property in New
York, property in Dubai, where he was now based. He amassed this global property portfolio and he amassed this huge personal fortune. I was advised don't leave Dubai because you will be arrested and you'll be put in pretrial detention. In 2016, after Sanjay had made hundreds
of millions of dollars, Solo Capital Partners shut down. Around this time, investigations into Cum-Ex
trades were swirling, not just around Sanjay and Solo, but around the industry in general. The Cum-Ex tax fraud scheme, this has been mentioned
has cost EU countries, a reported €55 billion,
a huge sum of money, to complex share deals
with no economic purpose other than to receive tax
reimbursements from the state and no actual tax being paid. European citizens have, to
put it bluntly, been robbed. Cum-Ex, it was always an aggressive, controversial trading strategy, but what people in the industry say is that Sanjay Shah and Solo
Capital went even further. He's accused by prosecutors of creating this network
of global entities, including small U.S. pension funds, and in one case a Jewish
school in New York to claim refunds on taxes
on behalf of them as well. So in terms of the Jewish school, that one really was audacious. The German prosecutors say he claimed to represent this school, which had tax exempt status because of their religious status in this agreement between
Germany and the U.S. So he claimed that they
would buy German shares and then his fund on behalf of them would claim these refunds on those taxes apparently without their knowledge. What German prosecutors allege is that Sanjay used
this small Jewish school and its tax exempt status to pull off about $1.1 billion of trades. This presumably delivers
huge profits to Sanjay and his hedge fund Solo Capital. Sanjay is now facing a legal assault on multiple fronts, okay? He's got the Danish criminal charges which have been pressed against him. Then more recently,
prosecutors in Hamburg, Germany have also pressed criminal
charges against Sanjay. You feel that you you're
being targeted individually? Yeah, I feel I'm being targeted and one of the reasons why is that right from the beginning the Danish authorities
accused me of fraud. Being accused of fraud means assets can be frozen by
prosecutors around the world. It puts a label to me, which is unfair and after five years,
nothing has been proven. There's two things. There was the legality of
this and the morality of this. And for Denmark, they say that Sanjay masterminded a two billion dollar fraud
against their country, and that's nearly one
percent of their GDP. And so the morality of this at a time when a country is
reeling from financial crisis and there's mass unemployment and state funding is being
squeezed across Europe, to defraud a small economy like that out of two billion dollars is really quite something. When we pushed him on the,
I guess the morals of this, he said himself that bankers
and traders have no morals. The only thing that matters is whether you make money legally or not. "All I was doing", he says, "was exploiting that arbitrage the same way that traders have done down through the decades, nothing new." Well, yeah, the barn doors were open. They were told the barn doors were open. People were driving trucks into the barn taking out truckloads of cash for decades and it's their bad. There was an opportunity to be had. I'm not the only one who
took the opportunity. There are many others. So it's really important to remember that even if Sanjay is the poster boy of the Cum-Ex scandal, he's a product of an industry, he isn't the industry by himself. This was not a rogue trading strategy that Sanjay dreamed up
in his flat in London. This was a trading strategy that as we've reported and
as others have reported was signed off at the highest levels of some of the world's biggest
financial institutions. Cum-Ex investigations have really taken off in the past year. Germany now has around 1,000 suspects. They've convicted three former bankers. They've charged around a dozen others. Three trials are currently underway and it's really spread to some of the biggest
institutions in Europe. I don't know where to
start with Deutsche Bank. As Alex said, they had a
downgrade at the end of last week. There are reports that
Garth Richie and Mr. Jane, the former CEO under investigation
now for this tax problem. So for example, at Deutsche Bank, 80 current and former employees
are being investigated. Deutsche Bank has specifically said that it never directly participated as a short seller or a
buyer in Cum-Ex deals and it is cooperating with authorities and in Denmark where Sanjay
Shah is under investigation, things have moved more slowly. He and others have now been charged. But as far as we know, nothing has been done to
try and extradite them. He remains in Dubai where it's very hard to
extradite individuals, but this isn't the end of the story when it comes to Cum-Ex investigations, really we really are
right at the beginning. I got to tell you that when I'm, I believe I'm gonna be clear of this soon, maybe in a year or two. When I am, I will be back in business and I will be pursuing
these types of trades.
