March 21, 2020 / 5:27 PM / 19 days ago

British banker hit with 14 million euro penalty in German fraud trial

BONN/FRANKFURT (Reuters) - Two British bankers were handed suspended jail terms on Wednesday and one a 14 million euro ($14.97 million) penalty in Germany’s biggest post-war fraud trial of a scam involving multi-billion-euro trades to get bogus tax reclaims.

A sign is seen during a break of a trial against British banker accused of involvement in bogus Cum-Ex tax reclaims of 440 million euros from the German state, at a regional court in Bonn, Germany, March 18, 2020. Sign reads "lawyer of accused person". REUTERS/Thilo Schmuelgen

The ruling is the first criminal conviction for what judge Roland Zickler dubbed “a collective case of thievery from state coffers”, activity that thrived during the years after the financial crash and as banks were bailed out by the state.

“Do we all want to live in a world where everyone is ripping each other off?,” Zickler said on Wednesday, addressing the defendants.

The trial comes after a years-long probe into sham stock trading, fuelling a public outcry over the government’s failure to stop a scam that cost Germany more than 5 billion euros. Experts believe most of the money will not be recovered.

The conviction potentially paves the way for the prosecutions of others in the network of big global banks, hedge funds and investors who allegedly profited from the scheme. “There will be further trials,” said Zickler.

The German court is preparing to set up as many as nine court chambers to deal with a string of further expected trials, a person familiar with the matter said, although this will likely be delayed by the coronavirus outbreak.

German state prosecutor Anne Brorhilker had outlined criminal charges against Martin Shields and fellow British banker Nicholas Diable, who she said organised a network of traders and lenders to make double tax reclaims with sham share trades.

Brorhilker told the court the two men made large rapid stock trades in companies - including carmaker BMW and airline Lufthansa - to give the impression of numerous owners, triggering tax rebate vouchers. She outlined more than 30 instances of double-tax reclaims totalling 447 million euros.

The court ordered Shields to pay 14 million euros, clawing back profits he had made. He received a suspended jail sentence of one year and 10 months. The judges imposed a one-year suspended jail term on Diable.

“I have made mistakes,” Shields told the court during the trial. “With the knowledge I have today, I would never have become part of the Cum/Ex nor dividend arbitrage industry ... I have learned my lesson.”

Shields cooperated with prosecutors during the trial. He gave detailed presentations to explain to judges how the scheme operated and told the court he would continue to help the German authorities with their work.

His lawyer Hellen Schilling outlined this cooperation in court, and said that Shields has already voluntarily repaid 3 million euros.

Diable told judges that his wedding, honeymoon, career and birth of his children had been overshadowed by the investigation, expressing regret that he had taken part in the so-called “cum-ex” scheme.

Judges also ordered MM Warburg, a bank part-owned by one of Germany’s oldest banking dynasties that profited from the scheme, repay 176 million euros. A spokesman for the bank said it would appeal the decision.

‘ASTRONOMICAL’ TRADES

During the trial, Shields had told the court how he earned millions of euros from deals involving “astronomical” trades that prosecutors said were a means to make bogus tax reclaims.

The former investment banker, said the trading, known as cum ex, thrived between 2005 and 2012, as investors from around the world made multi-billion-euro trades on German companies. That allowed them to generate multiple tax reclaims.

The engineering graduate told judges he had earned 12 million euros from the trades that often were bigger than the entire market value of the companies they targeted.

Shields said the trades involved were so vast it caused financial market mishaps because it was often not possible to find and match buyers and sellers in time.

Throughout the trial, Diable, had described his work as that of a salaried technician with a focus on getting trades done rather than a mastermind.

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He told judges about his modest start in the City of London, inputting data, taking lunch orders and going through rituals such as running through the office as colleagues threw things at him. He said he had no reason to believe cum-ex was illegal.

He later became a trader and worked with Shields at a German bank, before following him to Gibraltar, when Shields set up his own company.

He told the court how he entertained customers and contacts in “bars and restaurants” in London and Germany’s Oktoberfest beer festival.

Reporting By Matthias Inverardi and John O'Donnell. Editing by Jane Merriman and Rachel Armstrong

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