Investec embroiled in German tax fraud probe
Publish date: 23 September 2024
Issue Number: 1095
Diary: IBA Legalbrief Africa
Category: Forensic
In its 2024 annual report, Investec Bank remained steadfast in providing extremely limited information on ‘formal claims’ from the German Federal Tax Office concerning its involvement in the ‘cum-ex scandal’ that rocked European financial markets several years ago. The South African news outlet, AmaBhungane, has previously reported on Investec’s alleged complicity in massive tax fraud. Cum-ex transactions involve several parties colluding to trade shares in a company immediately before and after dividends are declared. The aim 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 after banks, lawyers and investment funds cashed in on what they claimed was a tax loophole. In a brief note in its financial statements, Investec said it was co-operating with the German authorities and continued to conduct an 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,’ it said.
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 queried this decision, Investec cited International Accounting Standards (IAS) provisions permitting limited disclosure of material information. The relevant IAS passage states: ‘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 could face a significant financial blow and that any detailed disclosure might prejudice negotiations with the German authorities. In its 2023 report, the bank’s auditors said 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 dealing with the cum-ex scams in Germany. Anne Brorhilker in April resigned from the Cologne Prosecutor’s office and joined the German consumer financial lobby group Finanzwende as head of its financial crime unit. amaBhungane notes that 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 leaked documents further showed that Investec worked with key individuals involved in the cum-ex scandal.
