Cum-ex case a headache for Germany's Scholz
August 15, 2022
It sounds like the plot of a financial thriller, full of secretive moves by banks and shareholders to allegedly evade taxes. Johannes Kahrs, a former member of parliament with the center-left Social Democrats (SPD), from Hamburg, is suspected of having played a role in the scheme.
On Thursday August 11, Chancellor Olaf Scholz, a member of the SPD and a former mayor of Hamburg, faced questions from journalists as to whether he had advance knowledge of the latest developments.
Over €200,000 in a safe deposit box
Recently, €218,000 ($225,500) in cash were found in a bank safe deposit box belonging to Kahrs, who left the Bundestag in 2020. He is being investigated for cronyism in connection with the Hamburg Warburg Bank's role in the so-called cum-ex scandal. And now questions have arisen as to whether the former lawmaker was working to protect the bank from back taxes, and was paid handsomely for the service.
When Scholz was asked at his summer press conference what he knew about the dubious transactions, he said succinctly: "Nothing."
Then he added, referring to the many media outlets investigating the affair, "No idea, I suppose you'll know sooner than I will."
The cum-ex scandal was the result of traders using a loophole to trick governments and receive millions in repayments for taxes they had never paid. This involved banks, lawyers and stockbrokers trading shares with ("cum") and without ("ex") dividend rights. Dividends due to shareholders were shifted back and forth so quickly that not only did they not have to pay the required 25% tax on them — in some cases, they were actually given a tax refund instead — sometimes they even received several refunds for the same transaction, as the financial authorities lost track. The practice was ruled illegal by Germany's Federal Court of Justice in July 2021.
Hamburg's special role
A number of banks across Europe are still being investigated over the sophisticated scheme. But the involvement of Warburg Bank has been particularly explosive in Germany because, at Kahrs' behest, Scholz, who was mayor of Hamburg from 2011 to 2018, met with the bank's shareholders in 2016, despite several top-level managers already being under investigation. Shortly thereafter, the city of Hamburg withdrew a request for €47 million in back payments from the bank.
The following year, then-federal Finance Minister Wolfgang Schäuble, a center-right Christian Democrat (CDU), ordered the city of Hamburg, which is also its own state, to reclaim €43 million from the bank. The move was a highly unusual one in the financial relations between federal and state governments.
Scholz cannot remember details
A few days ago, Chancellor Scholz had a spokesman explain he could no longer remember the details of his talks with the bank representatives in 2016.
At the press conference on Thursday, he added that over two years of dogged investigations by prosecutors and journalists had found "there has been no influence at a political level" in the scandal, and "I am sure that finding will not change."
Scholz said he has not been in contact with Kahrs for "ages," adding that there was no information yet as to whether the money in the safe deposit box was even related to the cum-ex scandal.
On Tuesday, August 15, the Hamburg Public Prosecutor General's Office dismissed a criminal complaint against Scholz, reiterating that he does not see any misconduct on the part of today's chancellor.
Hamburg lawyer Gerhard Strate had filed a complaint against the Hamburg public prosecutor's office for not initiating criminal proceedings.
Scholz to be questioned over scandal
The affair could nevertheless become uncomfortable for the chancellor. On August 19, Scholz will appear as a witness before the parliamentary committee investigating the cum-ex scandal in Hamburg. Local media there report that as part of the probe, public prosecutors have been granted access to one of Scholz's email accounts from his time as mayor.
Government spokesman Steffen Hebestreit said that he was not aware of the email investigation, but added that the chancellor had "nothing to hide."
The opposition in Berlin, however, is starting to apply pressure on the chancellor ahead of next week's questioning.
"The circumstantial evidence that key SPD politicians in Hamburg have exerted unlawful influence in the Warburg tax case is growing," said Mathias Middelberg, deputy chairman of the CDU parliamentary group in the Bundestag.
The next few weeks will show if Scholz was one of those "key" lawmakers that opposition leaders allege had knowledge of the scheme.
This article was originally written in German.
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