On 19 March 2020, in a verdict brought forward to beat the Covid-19 lockdown, a German court found two former London-based bankers guilty of tax evasion offences in the first criminal trial related to 'Cum Ex' trades. They received suspended sentences totalling 34 months, in light of their extensive cooperation with prosecutors. They, and a Hamburg-based bank involved with the transactions, are also reported to have been required to repay over EUR 190 million in illegally obtained earnings.

The case is notable for establishing for the first time that 'Cum Ex' transactions were ineffective under prevailing German tax rules, and that this should have been so obvious to participants that the transactions in question amounted to criminal tax evasion.

More background on cum ex transactions can be found here

Although the transactions in question mainly took place at least seven years ago, it appears that the fall-out is only just beginning.

Although the UK tax authorities are not impacted by the transactions (unlike many European jurisdictions, the UK does not impose dividend withholding tax), it is not a coincidence that the individuals in this case were based in London. Many financial institutions had teams engaged in equities trading based in London at the relevant time. UK financial institutions may also have been involved in transactions in ancillary transactions, for example, acting as custodians or prime brokers and/ or providing liquidity or hedging for transactions.

As a result, UK financial institutions have been a focus for investigating European tax authorities, including various proceedings to obtain information through the English courts. The Danish tax authorities are also seeking to recoup lost tax through the New York courts.

Unusually for a tax matter, the UK Financial Conduct Authority has also confirmed that it is investigating.

The overall amount of tax at stake has been estimated by the New York Times at $60 billion. The fall-out is likely to be significant and it is likely to be felt in London.