{"id":15252,"date":"2021-10-28T21:59:40","date_gmt":"2021-10-28T21:59:40","guid":{"rendered":"https:\/\/amabhungane.org\/?post_type=stories&p=15252"},"modified":"2024-09-19T13:46:18","modified_gmt":"2024-09-19T13:46:18","slug":"211029-investecs-multi-billion-euro-backing-for-legendary-tax-evader-cum-ex-part-three","status":"publish","type":"post","link":"https:\/\/further.co.za\/amabwp\/211029-investecs-multi-billion-euro-backing-for-legendary-tax-evader-cum-ex-part-three\/","title":{"rendered":"Investec\u2019s multi-billion Euro backing for legendary \u2018tax evader\u2019 \u2014 cum-ex part three"},"content":{"rendered":"\n

Between 2012 and 2015 Investec backed controversial Dutch stock trader Frank Vogel with up to at least EUR 12.7-billion (about R183-billion) to facilitate his business, which was allegedly based almost entirely on tax arbitrage schemes.<\/p>\n\n\n\n

Financial records accessed by amaBhungane suggest this astonishingly generous support amounted to almost all the funding Vogel\u2019s company MF Finance enjoyed in the period \u2013 during which he or his companies faced multiple investigations from tax authorities in Italy, Germany, Switzerland and Austria. <\/span><\/p>\n\n\n\n

Sign-up to receive our free newsletter<\/a> to make sure you can easily and instantly f<\/em>ollow this investigation and others like it.<\/em><\/p>\n\n\n\n

At the time he was also embroiled in a legal battle with Dutch authorities about an allegedly bogus \u201cpension fund\u201d he created to claim enormous tax refunds in that country as well as Belgium.<\/p>\n\n\n\n

Even more astonishingly, funding for this single controversial client seemingly amounted to nearly half of the UK-based Investec Bank plc\u2019s \u201cprime brokerage\u201d business at the time.<\/p>\n\n\n\n

Vogel, who incidentally owns a game lodge in Limpopo, is reportedly considered the \u201cspiritual father\u201d of the tax scheme known as cum-ex which he pioneered while employed at the Belgian bank Fortis in the early 2000s. <\/span><\/p>\n\n\n\n

The trading \u201cstrategy\u201d involves fooling a country\u2019s tax authority into issuing duplicate refunds for dividend withholding tax that had been paid only once.<\/p>\n\n\n\n

\n

*Investec\u2019s full answer available here<\/a><\/strong>.
*AmaBhungane’s detailed questions to Investec, are available here<\/a><\/strong>. <\/p>\n<\/blockquote>\n\n\n\n

AmaBhungane<\/span> last week revealed Investec\u2019s own extensive involvement in cum-ex schemes. This was based on a massive leak of documents we gained access to as part of a multinational joint investigation coordinated by German non-profit newsroom CORRECTIV<\/a>.<\/p>\n\n\n\n

Read part one and two of the Investec cum-ex financial series:<\/em><\/p>\n\n\n\n

\n

*Investec implicated in investigations into the world\u2019s largest tax fraud \u2013 the cum-ex files part one<\/a> <\/em>
*How Investec was a player in the world\u2019s largest tax fraud \u2013 cum-ex part two<\/a><\/em><\/p>\n<\/blockquote>\n\n\n\n

Various sources in these leaked documents show how Vogel was the major trailblazer in the cum-ex industry which, according to some estimates, ultimately cost European governments more than EUR 55-billion.<\/p>\n\n\n\n

Buried deep in the documents there is also an isolated reference to a partnership between Vogel and Investec that was apparently well-known in the cum-ex world.<\/p>\n\n\n\n

Vogel had left Fortis in 2006 amidst controversy after a whistle-blower at the bank revealed the secret to his department\u2019s extreme profitability was what looked an awful lot like tax fraud.<\/p>\n\n\n\n

Undeterred Vogel founded Global Securities Finance Services (GSFS) and became a leading light in the rapidly expanding cum-ex scene which was based on allegedly raiding European treasuries. <\/span><\/p>\n\n\n\n

Practitioners like Vogel still maintain that it was the legal exploitation of tax law loopholes, but Germany\u2019s appeal court this year retrospectively declared the trade a fraud.<\/p>\n\n\n\n

This week Vogel told us: \u201cFor the past 10 years I have been very consequent in my responses towards journalists in this matter: no comment. No reason to change that approach.\u201d<\/p>\n\n\n

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<\/p>\n\n\n\n

In 2018 UK banker Martin Shields, one of only three people to date criminally convicted for cum-ex fraud, mentioned Vogel in a statement to prosecutors that amaBhungane found in the Cum-ex files. <\/span><\/p>\n\n\n\n

While listing entities involved in the trade he added that, \u201cFrank Vogel’s GSFS group acting through Investec Ireland were also of considerable importance to\u2026the market in general.\u201d<\/p>\n\n\n\n

Vogel himself was the inspiration for a number of prominent cum-ex companies. <\/span><\/p>\n\n\n\n

Shields also told investigators that he was \u201cthinking of Frank Vogel\u2019 when he and his partner Paul Mora (who is on the Interpol red list) decided to set up their own firm.<\/p>\n\n\n\n

One of the most infamous cum-ex practitioners was UK banker Sanjay Shah. He told investigators that \u201c’Frank Vogel left Fortis to set up his own business. And I think many people, they took that as inspiration for doing the same thing\u201d.<\/p>\n\n\n\n

Best friends<\/b><\/p>\n\n\n\n

AmaBhungane has now acquired financial statements for Vogel\u2019s holding company MF Finance from the Dutch chamber of commerce which reveal the full astonishing extent of the partnership between Vogel and Investec.<\/p>\n\n\n\n

In particular the statements reveal how Investec doubled down in its multi-billion Euro support of Vogel after 2012, the year in which changes in German law were supposed to have quashed cum-ex trading. <\/span><\/p>\n\n\n\n

It was at that point that operators like Vogel pivoted towards other strategies that still relied on so-called \u201cdividend arbitrage\u201d to score tax refunds from governments. <\/span><\/p>\n\n\n\n

\n

Click: <\/strong><\/em>Cum-ex, the basics explained<\/em><\/a><\/p>\n<\/blockquote>\n\n\n\n

Like cum-ex, these still required massive short-term funding to churn shares around the day companies declare dividends. This is where a funder like Investec enters the picture.<\/p>\n\n\n\n

According to MF Finance\u2019s 2013 annual report the debt on its \u201cInvestec current account\u201d was an astounding EUR 8,8-billion at the end of 2012 and grew to EUR 12,76-billion at the end of 2013.<\/p>\n\n\n

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<\/p>\n\n\n\n

Importantly, this reflects the balance of the support from Investec at a single point in time. Over the year the actual support for share transactions could have been multiples of these figures as transactions came and went.<\/p>\n\n\n\n

The MF Finance annual reports for the next two years show that the Investec account levelled off slightly to EUR 11.1-billion at the end of 2014 but then suddenly dropped off to nearly nothing by the end of 2015. <\/span><\/p>\n\n\n\n

As before this does not at all mean that there weren\u2019t massive amounts of transactions in the course of these years. It simply means the balance at the end of the year was low.<\/p>\n\n\n\n

The astronomical size of this support can be gauged with a comparison to Investec\u2019s overall business in the UK and Europe where Investec Bank plc\u2019s \u201cnet core loans and advances\u201d stood at around EUR 9.8-billion at the end of 2013.<\/p>\n\n\n\n

The more comparable number is however the total \u201cobligations arising in equity transactions in our prime brokerage business\u201d which Investec declares in its annual reports. <\/span><\/p>\n\n\n\n

On March 31 2014 this was roughly EUR29-billion. The EUR12.7-billion balance MF Finance had with Investec three months earlier was almost half of that.<\/p>\n\n\n\n

Cum-cum trades<\/h4>\n\n\n\n

One of the popular trading \u201cstrategies\u201d employed to score underserved tax refunds from European governments was the so-called cum-cum scam. <\/span><\/p>\n\n\n\n

Like the \u201ccum-ex\u201d scam this was a form of \u201cdividend arbitrage\u201d that revolves around the tax that gets paid on the dividends that companies pay to shareholders.<\/p>\n\n\n\n

The object is to score tax breaks that are only supposed to be available to things like non-profits or pension funds.<\/p>\n\n\n\n

It works like this:<\/p>\n\n\n\n

1. There is an investor who would not qualify for tax breaks but owns shares in a company that is about to declare dividends.<\/p>\n\n\n\n

2. A cum-cum trader gathers a large amount of funding to buy those shares right before the company declares a dividend. It sticks these shares in an entity that does qualify for tax breaks like for instance a charity or pension fund.<\/p>\n\n\n\n

3. The dividend is declared and dividend withholding tax is automatically deducted. The tax-exempt entities however qualify for refunds from the taxman and get tax certificates to do this.<\/p>\n\n\n\n

4. The refund gets paid out and shared between the cum-cum trader and the original owner of the shares.<\/p>\n\n\n\n

5. The original owner simply buys back his shares (using the money the cum-cum trader paid in point 2) so he ends up with his original investment plus the tax he should have paid.<\/p>\n\n\n\n

Frank Vogel and other traders allegedly created their own pension funds for the exclusive purpose of conducting these kinds of trades in addition to cum-ex ones which were far more complicated.<\/p>\n\n\n\n

In its response to amaBhungane Investec pointed out that the figures from MF Finance \u201conly reflect the gross amounts and do not take into account the \u2018legally enforceable and settled net amounts\u2019. <\/span><\/p>\n\n\n\n

\u201cIt is important to note that the numbers you have quoted do not show the full correct actual legal context\u2026These disclosures clearly set out the legal nature of these transactions and the amounts subject to enforceable netting arrangements which is standard banking practice.\u201d<\/p>\n\n\n\n

In practice Investec is pointing out that it is not lending recklessly but rather has its position covered by claims on the assets of MF Finance. <\/span><\/p>\n\n\n\n

MF Finance\u2019s financial reports reflect this situation from the other side of the table: \u201cAll cash, equity, bond and derivatives positions and all the associated receivables and payables are pledged to Investec\u201d.<\/p>\n\n\n\n

Investec added: \u201cDuring the timeframe you have highlighted, [Investec] provided secured short-term lending, custodian and settlement services to our clients in relation to their business activities. Investec\u2019s maximum collateralised exposure that it had at any one time to a client was no more than \u20ac500m.\u201d<\/p>\n\n\n\n

Investec\u2019s explanation does not address the potential reputational and other risks associated with providing multiple billions in short-term funding to a business like Vogel\u2019s.<\/p>\n\n\n\n

Due diligence?<\/b><\/p>\n\n\n\n

Although Investec declined to comment  <\/span>on the specifics of its business with MF Finance, citing client confidentiality, it is highly unlikely that the bank was unaware what Vogel was using its funding for. <\/span><\/p>\n\n\n\n

It seems equally unlikely that it was unaware of the number of investigations and separate public fights with regulators the Dutchman was facing at the time.<\/p>\n\n\n\n

Starting from its 2014 annual report, MF Finance spells out how especially investigations in Germany, Switzerland and Austria threaten its income while its operations as far back as 2006 were being probed.<\/p>\n\n\n\n

\u201cIn Italy there is an investigation by the tax authorities to tax returns for the year 2006 to 2009,\u201d reads one note.<\/p>\n\n\n\n

Another note reports that the kind of share trading the company engages in has raised the ire of several authorities:<\/p>\n\n\n\n

\u201cThe German, Swiss and Austrian authorities are investigating the tax returns for the year 2011 and beyond related to these types of trades.\u201d<\/p>\n\n\n\n

In the period Investec was funding Vogel it was already public knowledge that he was engaged in a high-stakes battle with the Dutch financial regulator De Nederlandsche Bank (DNB) over an allegedly fake pension fund he had set up to conduct his dividend arbitrage transactions.<\/p>\n\n\n\n

This became front-page news in the Netherlands in March 2014.<\/p>\n\n\n\n

Allegedly bogus pension funds, especially American ones, played a major role in cum-ex schemes due to their tax-free status and US tax treaties with European countries.<\/p>\n\n\n\n

Don’t miss amaB investigative reporter Micah Reddy’s Tshwane fuel tender story update: Hawks investigating \u2018Malema-linked\u2019 fuel tender<\/em><\/a><\/p>\n\n\n\n

Besides these investigations Vogel\u2019s dramatic departure from Fortis in 2006 already placed a cloud firmly over his head.<\/p>\n\n\n\n

Investec told us that \u201cit is a matter of strict policy that Investec does not transact with, or advise, entities that have been convicted of tax irregularities\u201d.<\/p>\n\n\n\n

\u201cAll clients are subject to a detailed due diligence process. Any adverse findings would have been considered at the time of client take-on and at each subsequent review. At the time of on-boarding and dealing with our clients, Investec was not aware that any client had been convicted for tax irregularities.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"

The South African investment bank provided billions to one of the alleged pioneers of the alleged tax fraud dubbed \u201ccum-ex\u201d despite their client facing tax evasion investigations in four different countries.<\/p>\n","protected":false},"author":8,"featured_media":20959,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[2],"tags":[231,3,759,760,758,460,765,755],"class_list":["post-15252","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-stories","tag-amab","tag-amabhungane","tag-cum-ex","tag-cumex","tag-cumexfiles","tag-dewald-van-rensburg","tag-frank-vogel","tag-investec"],"acf":[],"_links":{"self":[{"href":"https:\/\/further.co.za\/amabwp\/wp-json\/wp\/v2\/posts\/15252","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/further.co.za\/amabwp\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/further.co.za\/amabwp\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/further.co.za\/amabwp\/wp-json\/wp\/v2\/users\/8"}],"replies":[{"embeddable":true,"href":"https:\/\/further.co.za\/amabwp\/wp-json\/wp\/v2\/comments?post=15252"}],"version-history":[{"count":6,"href":"https:\/\/further.co.za\/amabwp\/wp-json\/wp\/v2\/posts\/15252\/revisions"}],"predecessor-version":[{"id":30062,"href":"https:\/\/further.co.za\/amabwp\/wp-json\/wp\/v2\/posts\/15252\/revisions\/30062"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/further.co.za\/amabwp\/wp-json\/wp\/v2\/media\/20959"}],"wp:attachment":[{"href":"https:\/\/further.co.za\/amabwp\/wp-json\/wp\/v2\/media?parent=15252"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/further.co.za\/amabwp\/wp-json\/wp\/v2\/categories?post=15252"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/further.co.za\/amabwp\/wp-json\/wp\/v2\/tags?post=15252"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}