Irish-based funds and banks were used by a group of hedge funds and traders to carry out a massive multibillion-euro financial fraud which targeted tax authorities in European countries.
An investigation by The Irish Times, in partnership with German newsroom Correctiv and 15 other media organisations, reveals the extent to which funds set up in Ireland, and Irish-based financial institutions, were used by those perpetrating the scheme.
The scheme, known as cum-ex, is the subject of extensive investigations by prosecutors in a number of European countries, and has been labelled as fraud by a German federal court.
Through a complex series of co-ordinated financial transactions, a network of traders, hedge funds and banks was able to claim multiple refunds of dividend withholding tax that was paid only once, or in some cases not at all.
The scheme worked by buying and selling huge volumes of shares at key times around the date companies paid out dividends, to create confusion as to who was owed a tax refund.
Estimates from academics of how much was lost by European tax authorities due to cum-ex trades over the last 20 years, and similar schemes called cum-cum, range from €55 billion to €140 billion.
The number of hedge funds and banks involved in cum-ex trading increased from the mid-2000s, and reached a height in the years around the global
A huge leak of documents compiled by various authorities investigating the scheme, dubbed the Cum-ex Files, details the extent to which Irish funds and financial institutions were used by those involved.
While Irish tax authorities were not targeted, Ireland played a key role in facilitating the scheme. Several of the figures involved set up funds in Ireland as vehicles to trade and claim tax refunds from larger EU countries, with Germany one of the main targets.
The Dublin offices of two large international banks, Investec and BNP Paribas, were used by those perpetrating the scheme in cum-ex trades under investigation, internal emails and prosecutors’ case files show.
Bank of Ireland Securities Services (BOISS), a fund administration unit in the Irish bank, was also used by one of the main companies involved in the trades. BOISS was the custodian bank of EQI Irish Funds in 2011, meaning it was responsible for housing the fund’s assets and processing its transactions, a key role in cum-ex trades.
BOISS was later bought by US-based financial services company Northern Trust, which continued the arrangement. The Irish bank had meetings and discussions with two other hedge funds involved in cum-ex trading, but did not do business with them.