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A Briefing Guide to The Cum-Ex Guide for Financial Institutions trades. This could involve incorporating Reclaim agents to submit the tax refund In the UK, the issue of beneficial Corporate bodies (and individual parties) The requests are generally made to the Custodians business day before the record date. This Interdealer broker have settled before the close of business on compiled a team of specialists in represents benefit from bespoke, intelligent domestic companies to obtain a refund Three or more entities are needed for a Considerations for UK Financial companies in various jurisdictions with the applications on behalf of offshore investors, ownership of shares was addressed in J embroiled in Cum-Ex will, no doubt, have their Home Office. But for investigations Custodians are those who hold and settle means traded positions at the start of This is an intermediary who helps with the the record date. The opportunity for Cum-Ex anticipation of a Cum-Ex caseload. That defence that challenges each and every aspect The Cum-Ex Guide for Financial Institutions on shares under double taxation treaties. successful Cum-ex scheme. A simplified Institutions purpose of investing in certain listed obtain the refunds and then distribute them Sainsbury Plc v O’Connor [1990], in which own specific justifications for the practice. For relating to tax and fiscal customs matters trade equity. This is a service to hold and business on the ex-dividend date represent transactions between the financial existed where this was not the case, as caseload continues to grow – and our of the allegations made against his clients. It is worth noting that the UK does not use summary example is outlined here: Financial institutions involved with dividend securities. The hedge fund would create accordingly. Multiple offshore investors would Millett J said beneficial ownership was example, they may state they had no the requests are sent to HM Revenue and settle shares. the beneficial owner who is entitled to the institutions and the banks. described above. Share registers are kept experts are on hand to manage each and WHT, so the UK tax authorities are not arbitrage could be at risk of a number of relationships with prime brokers, apply for refunds based upon allegedly falsified “more than equitable ownership. It responsibility over - or limited knowledge of - Customs (HMRC). The issuing authority in dividend, whether that is paid as a real electronically. Settlement is the delivery of title every aspect of such cases. SYEDUR RAHMAN affected by Cum-Ex transactions, unlike 1. Three investors come together, Investors A, consequences of Cum-Ex investigations. These Cum-Ex was a series of trade strategies which were custodians and banks. The investments dividend credit advices from custodian banks requires more than the ownership of an the overall strategy and the counterparties a European country will make an Declaration date dividend (if they are also the holder of record) Leverage to shares against payment in accordance with Syed's great depth of experience and his many other states. B and C. include both civil and criminal sanctions and would be funded through private equity and refund applications from reclaim agents. empty shell bereft of those rights of involved, with the understanding that all application to HMRC, explaining that an The date that the dividend is announced or paid as a manufactured dividend (if the The margin your broker provides you with, the sale contract. NEIL WILLIAMS accomplishments in cross-border fraud and designed to allegedly exploit tax differences across Europe. 2. Investor A owns shares in company X. The the reputational effect that either of these can and leverage provided by prime brokers. beneficial enjoyment which normally parties had applied their own robust legal and offence has been committed or that there by the company’s board of directors. On shares have not settled by close of business based on the capital in your account. The Neil’s achievements and his expertise in business crime cases and high-stakes This was an arrangement where private investment holding Cum-Ex trading began when a tax shares are worth €20 million. have upon a firm. The global strategy was likely to involve Ownership of the shares was impossible to attach to equitable ownership.’’ tax advice. are reasonable grounds for suspecting this day, the company will give information on record date). It is this beneficial owner who leverage varies between brokers and may Short selling regulatory and criminal investigations have commercial and financial investigations have loophole was discovered in the 1990s. The 3. Investor B sells the same shares worth €20 obtaining a legal opinion approving such ascertain, given the speed of the transactions. that an offence has been committed. The about the size of the dividend, the date of is entitled to apply for a WHT reclaim. depend on what you are holding in the This occurs when you borrow shares from a led to him being viewed as a cross-border put him in high demand with corporates and companies and finance companies were organising double loophole was utilised by a network of million to Investor C without owning them Firms will be subject to FCA requirements, the investment activities. The timing of the shorts and dividend Cum-Ex Defence How it Affects the UK application will include the names of the record and the payment date. The account (cash and securities) and share broker and sell them with the expectation that financial crime specialist with a flair for their directors, financial institutions and high refunds of tax that had been paid on one dividend pay-out. institutions and professionals, including himself (short selling) before the dividend Money Laundering Regulations 2017 and any compensation payments had the effect of It is imperative that a defence strategy Many UK-based financial institutions were subject of the request, the operation company usually has a legal responsibility Ex-dividend price. the price will go lower and can be bought back high-profile, international white-collar net worth individuals traders, investors, tax advisers, lawyers, pay-out day. legislation preceding this, depending on the The aim was to take advantage of credit to which there was Cum-Ex transactions commonly involved essentially muddying the true beneficial tailored to the needs of the situation is involved in dividend arbitrage at the time, name and the reasons why a European to pay the dividend once it has been A term used in share listings to denote that the at a lower price. You return the borrowed crime matters. His advice is sought brokerage firms and banks. It was a 4. Company X then distributes its pay-outs. period of alleged offending. In addition to this, four trade legs: ownership of the stock (shares). devised the moment it is anticipated that whether that be through equities trading, Investigation Order is sought. declared. share is sold without the right to receive the Payment date share to your broker and keep the profit. regularly by senior business and financial His caseload includes many of the most no entitlement. lucrative trading practice until legislative Investor A receives a dividend pay-out of firms may well be subject to EU Market Abuse the authorities may take an interest in brokerage or in ancillary roles. Participants in dividend payment, which is marked as due to The date dividends are actually paid. The figures, corporates and major complex, challenging cases involving national changes were introduced in 2012. €750,000 (75% of total dividend - €1 million). Regulations (MAR). Financial institutions will • purchase of the stocks (shares) Legal Issues Surrounding the investigating a corporate body and /or its the Cum-Ex trades, such as hedge funds, An order following such an application will Delivery vs Payment (DVP) those shareholders who are on the share length of time between the initial record T + 2 Settlement organisations and he is consistently and international agencies. He has expertise in After pay-out, Investor A's shares are worth need to have adequate and considered • sale of the stocks Cum-Ex Investigations officers. In our experience, any defence would purchase substantial amounts of shares only be made if it is necessary and systems and controls in place to satisfy AML This is a mode of settlement of securities. register at a pre-announced date. This is the date and payment date varies between This is a processing time. When an order is highlighted by national and international handling regulatory and compliance cases in a As a result of these trades, there are now Germany is the country at the heart of the Put simply, banks and stockbrokers rapidly €19 million. • collateralised stock loan agreements to Cum-Ex trading allowed two parties to appear will be dependent on the different trading in order to make a profit. Due to the borrowing proportionate to make it for the purposes requirements, including due diligence on In DVP, the transfer of securities and funds opposite of cum dividend. stock exchanges but is typically anywhere placed and executed on the stock exchange legal guides. wide variety of countries and regularly handles active investigations in various European scandal and the country whose traded shares with (cum) and without (ex) 5. Investor A receives a tax certificate to facilitate the short sale to be the beneficial owners of the same strategies that were executed by the facilities provided by UK prime brokers (who of the investigation or the proceedings in clients/transactions. Firms who are concerned happen simultaneously. DVP settlement between the ex-date and one or two between buyer and seller, this is known as the the most notable financial services cases. jurisdictions, including (but not limited to) investigations into Cum-Ex are most dividend rights, in a way that enabled reimburse €250,000 of dividend tax • over-the-counter (OTC) forward shares, creating the opportunity for multiple corporate bodies and the roles that were offered services such as financing, securities question. A designated public prosecutor about their exposure should consider ensures that funds are paid, and the Futures contracts months. trade day (T – day). The transaction is then With a reputation for mounting the UK, Germany, Denmark and Austria. advanced. The German authorities have them to hide the identity of the actual (representing the 25% tax reclaim). agreements. WHT refunds on the same dividend payment. undertaken by CIO’s and their teams. lending and overdraft facilities), CIO’s or in England and Wales will then validate an conducting an internal investigation and be securities are then delivered. Futures are a contract that requires the buyer entered into the company’s record books strongest possible legal challenges and an JOSIE WELLAND claimed that Cum-Ex has cost the country owner. This meant that they could agree 6. Investor A sells shares worth €19 million to • Several parties were essential to the Any examination of the beneficial ownership of portfolio managers of hedge funds would be order pursuant to s7 of the 2017 prepared to self-report anything untoward to to purchase an asset at a specific price on a Prime brokers (settled) “T + 2” days after the trade day (i.e.: 2 acknowledged skill for forensically Josie is highly-rated for her defence of As such, there were no perceived risks approximately €30 billion in lost revenue. to sell a company stock before the Investor B. transactions, including finance and stock shares is likely to focus on whether beneficial Generally, most dividend arbitrage able to negotiate and leverage substantial regulation once the above conditions are the FCA and, possibly, the German authorities. Dividend arbitrage future date. A seller of the futures contract is In short, prime brokers would hold and days after the settlement of the transaction). examining every aspect of a case, his track white-collar crime cases, having built a involved at the time - only profit. Cum-Ex However, various other EU treasuries have dividend was paid out, but then deliver it 7. Investor B delivers shares worth €19 million lending providers. Access to liquidity in ownership was actually transferred. transactions at the time were considered borrowing terms. As a result, the relationships satisfied. Dividend arbitrage is an options trading contracted to deliver that asset at a specific settle shares and offer additional services record in financial investigations is reputation for intelligent and forceful was one of the most lucrative models in also been affected, with some estimates of after the dividend had been paid. This to Investor C and pays her an additional both the cash and the forward market sensible and legal tax planning. Those and agreements between these parties could It is highly likely that European enforcement strategy that involves purchasing put date and price. This is a method that is often such as financing, stock lending, overdraft Withholding tax (“WHT”) enviable. representation of corporates and individuals in recent years. There were no provisions put €55.2 billion being lost in tax revenue as a tactic enabled both parties to claim tax €750,000 was essential. In the context of Cum-Ex transactions, involved in the Cum-Ex transactions are now face scrutiny by the authorities. In our In the UK itself, the Financial Conduct agencies will target financial institutions, in options and an equivalent amount of used by sophisticated traders and financial facilities and credit lines. A withholding tax takes a set amount of money investigations spanning countries and in place by European states to prevent result of such schemes. rebates of WHT on capital gains tax (a tax 8. Investor C sells shares worth €19 million beneficial ownership of the shares and the sure to raise the point that the practice view, this is one of the many reasons why Authority (FCA) has been conducting a particular those with substantial resources. underlying stock before its ex-dividend institutions as part of hedging strategies. out of an employee's payslip and pays it to the AZIZ RAHMAN continents. Cum-Ex until it came to a head in 2012. that had only been paid once, if at all) from back to Investor A. Each trade leg required a professional rights this carries includes: was not illegal or dishonest, and was European investigations may well now have a review into the practices of some firms This is so that significant financial penalties can date, and then exercising the put after Record date government. The money taken is a credit Aziz’s success in some of this century’s The Cum-Ex scandal is now a EU tax authorities. 9. Investor C receives a tax certificate to intermediary, including: actually typical market behaviour. The particular focus on London. Investigations involved in dividend-stripping trades in be agreed; depending on how corporate collecting the dividend. When used on a Hedge funds The record date is used to determine who against the employee's annual income tax. If most notable financial crime cases and his Her intelligent management of investigations in The Cum-Ex Trading Scandal rapidly-widening cross-border tax fraud reimburse €250,000 of dividend tax. • The right to share in the company's strategies deployed were market neutral. have already led to two former London traders Germany. The FCA has confirmed it is bodies are perceived by investigators and what security with low volatility (causing lower Privately-owned and privately-managed funds is on the share register and, therefore, too much money is withheld, an employee will robust, incisive defence of clients mean he various jurisdictions and her eye for detail in Cum-Ex is the name given to a huge volume probe affecting many financial institutions Rapid trading between the various parties Investors A, B & C share the tax • Brokers to execute the purchase and/or profitability, income, and assets. In many cases, companies relied on advice being convicted in March 2020 of tax fraud in currently investigating financial institutions investigations discover about those bodies’ options premiums) and a high dividend, that are generally formed by institutional entitled to the dividend. The company sets receive a tax refund; if not enough is withheld, is viewed by legal guides and the large, complex cases have led to her of dividend trading strategies (dividend and individuals across 11 EU jurisdictions; could confuse the tax authorities reimbursements. sale of the stock. • A degree of control and influence over from their lawyers and accountants, and Germany – in what was the first criminal trial and individuals implicated in the scandal. activities. Depending on the merits of the case, dividend arbitrage can result in an investor traders who have expertise working in the date of record after it has announced an employee will have an additional tax bill. profession itself as one of the elite impressing senior figures in both the legal and arbitrage stock trading transactions) that with investigators engaging in regulatory, civil regarding beneficial ownership of the • Custodians to hold the stock once company management selection. would argue that they did nothing more relating to Cum-Ex trades. With the passage of time, there are now a corporate body will need to carefully realising profits while assuming very low to investment banks, creating strategies that that it will pay a dividend. At the close of international solicitors handling business world. As a result, she has been took place largely prior to 2012. The and criminal proceedings against those shares, by creating an appearance that Risk vs Reward Strategies purchased / sold. • Pre-emptive rights to newly-issued shares. than see an opportunity due to the extensive numbers of Cum-Ex-related consider a robust defence and/or remediating no risk. would be funded by private capital. Private business on the record date, the registrar Meet our CUM-EX large-value, high-profile investigations. He heavily involved in some of the most significant controversial practice involved exploiting a involved. the shares were short sold (selling when While the above is a simple example, the • Equity finance agents to execute the • General meeting voting rights. ambiguity of the law surrounding this area. Authorities in EU member states may well criminal and civil investigations ongoing, as measures in order to limit reputational harm. investors invest in the fund for a return on takes a snapshot of who is physically Investigations Team is a solicitor who has set legal precedents. tax fraud cases of recent years. loophole on dividend payments to trade the seller does not yet hold them) prior to reality is that Cum-Ex involved a highly complex stock borrowing. • The Cologne tax court held that under Furthermore, it is a practice that had obtain evidence from the UK authorities to well as significant amounts of litigation. It is Ex-dividend date investment based on those strategies. holding the shares (the holders of record) Rahman Ravelli was one of the very first UK law shares in a way that concealed the identity How a Cum-Ex Trading the dividend record date (cum-dividend), network of entities providing liquidity and • Legal and tax professionals to provide German law, in the case of an arguably been accepted by legislatures in assist in criminal investigations. This process is highly likely there will be more in the near Glossary of Key Terms Ex-dividend is where a stock is trading and pays the real dividends to these firms to recognise the possible legal His expertise in criminal and regulatory of the owner and enabled several parties to Scheme Works when in fact they were sold after the services essential to its operation. advice and consultancy services. over-the-counter short sale, the share some EU states, as they had known about governed by the Criminal Justice (European future. without the value of the next dividend Institutional Trader holders. Recent changes in most markets implications of Cum-Ex and its potential impact matters and his skill in leading claim multiple tax refunds for the same Cum-Ex is an example of a dividend dividend record date (ex-dividend). Immediately prior to key dates, high purchaser would not become the beneficial Cum-Ex for many years and took no early Investigation Order) Regulations 2017 (the Cum dividend payment. The ex-dividend date is the day A trader who works for an investment bank, mean that the record date is timed to on all levels of the financial services industry. As cross-border legal teams ensure that the dividend pay-out. It has also been known as withholding tax (WHT) refund model. Hedge funds and their Chief Investment volumes of loans were taken out and owner of the shares to be delivered at a later action. 2017 regulation). It is essentially a request for The full extent of how the Cum-Ex scandal A share-quoted cum dividend carries the right the stock starts trading without the value brokerage firm, mutual fund or hedge fund. ensure that cum-dividend trades, i.e.: a firm that prides itself on a rapid response to organisations and individuals he dividend-stripping. Cum-Ex entitled overseas investors in Officers (CIO’s) would develop and create several parties obtained legal and tax stage at the settlement of the purchase sharing evidence in criminal investigations is affecting the UK is, therefore, still yet to of its next dividend payment. Typically, the those executed before ex-date, should the needs of existing or potential clients, we strategies for investments relating to Cum-Ex to receive the next dividend. This is the advice to seek to ensure the propriety of agreement. through mutual legal assistance. be seen. opposite of ex-dividend. ex-dividend date for a stock is one their activity.

A Briefing Guide to : The Cum-Ex Guide for Financial Institutions trades. This could involve incorporating Reclaim agents to submit the tax refund In the UK, the issue of beneficial Corporate bodies (and individual parties) The requests are generally made to the Custodians business day before the record date. This Interdealer broker have settled before the close of business on compiled a team of specialists in represents benefit from bespoke, intelligent domestic companies to obtain a refund Three or more entities are needed for a Considerations for UK Financial companies in various jurisdictions with the applications on behalf of offshore investors, ownership of shares was addressed in J embroiled in Cum-Ex will, no doubt, have their Home Office. But for investigations Custodians are those who hold and settle means traded positions at the start of This is an intermediary who helps with the the record date. The opportunity for Cum-Ex anticipation of a Cum-Ex caseload. That defence that challenges each and every aspect on shares under double taxation treaties. successful Cum-ex scheme. A simplified Institutions purpose of investing in certain listed obtain the refunds and then distribute them Sainsbury Plc v O’Connor [1990], in which own specific justifications for the practice. For relating to tax and fiscal customs matters trade equity. This is a service to hold and business on the ex-dividend date represent transactions between the financial existed where this was not the case, as caseload continues to grow – and our of the allegations made against his clients. It is worth noting that the UK does not use summary example is outlined here: Financial institutions involved with dividend securities. The hedge fund would create accordingly. Multiple offshore investors would Millett J said beneficial ownership was example, they may state they had no the requests are sent to HM Revenue and settle shares. the beneficial owner who is entitled to the institutions and the banks. described above. Share registers are kept experts are on hand to manage each and WHT, so the UK tax authorities are not arbitrage could be at risk of a number of relationships with prime brokers, apply for refunds based upon allegedly falsified “more than equitable ownership. It responsibility over - or limited knowledge of - Customs (HMRC). The issuing authority in dividend, whether that is paid as a real electronically. Settlement is the delivery of title every aspect of such cases. SYEDUR RAHMAN affected by Cum-Ex transactions, unlike 1. Three investors come together, Investors A, consequences of Cum-Ex investigations. These custodians and banks. The investments dividend credit advices from custodian banks requires more than the ownership of an the overall strategy and the counterparties a European country will make an Declaration date dividend (if they are also the holder of record) Leverage to shares against payment in accordance with Syed's great depth of experience and his many other states. B and C. include both civil and criminal sanctions and would be funded through private equity and refund applications from reclaim agents. empty shell bereft of those rights of involved, with the understanding that all application to HMRC, explaining that an The date that the dividend is announced or paid as a manufactured dividend (if the The margin your broker provides you with, the sale contract. NEIL WILLIAMS accomplishments in cross-border fraud and 2. Investor A owns shares in company X. The the reputational effect that either of these can and leverage provided by prime brokers. beneficial enjoyment which normally parties had applied their own robust legal and offence has been committed or that there by the company’s board of directors. On shares have not settled by close of business based on the capital in your account. The Neil’s achievements and his expertise in business crime cases and high-stakes Cum-Ex trading began when a tax shares are worth €20 million. have upon a firm. The global strategy was likely to involve Ownership of the shares was impossible to attach to equitable ownership.’’ tax advice. are reasonable grounds for suspecting this day, the company will give information on record date). It is this beneficial owner who leverage varies between brokers and may Short selling regulatory and criminal investigations have commercial and financial investigations have loophole was discovered in the 1990s. The 3. Investor B sells the same shares worth €20 obtaining a legal opinion approving such ascertain, given the speed of the transactions. that an offence has been committed. The about the size of the dividend, the date of is entitled to apply for a WHT reclaim. depend on what you are holding in the This occurs when you borrow shares from a led to him being viewed as a cross-border put him in high demand with corporates and loophole was utilised by a network of million to Investor C without owning them Firms will be subject to FCA requirements, the investment activities. The timing of the shorts and dividend Cum-Ex Defence How it Affects the UK application will include the names of the record and the payment date. The account (cash and securities) and share broker and sell them with the expectation that financial crime specialist with a flair for their directors, financial institutions and high institutions and professionals, including himself (short selling) before the dividend Money Laundering Regulations 2017 and any compensation payments had the effect of It is imperative that a defence strategy Many UK-based financial institutions were subject of the request, the operation company usually has a legal responsibility Ex-dividend price. the price will go lower and can be bought back high-profile, international white-collar net worth individuals traders, investors, tax advisers, lawyers, pay-out day. legislation preceding this, depending on the Cum-Ex transactions commonly involved essentially muddying the true beneficial tailored to the needs of the situation is involved in dividend arbitrage at the time, name and the reasons why a European to pay the dividend once it has been A term used in share listings to denote that the at a lower price. You return the borrowed crime matters. His advice is sought brokerage firms and banks. It was a 4. Company X then distributes its pay-outs. period of alleged offending. In addition to this, four trade legs: ownership of the stock (shares). devised the moment it is anticipated that whether that be through equities trading, Investigation Order is sought. declared. share is sold without the right to receive the Payment date share to your broker and keep the profit. regularly by senior business and financial His caseload includes many of the most lucrative trading practice until legislative Investor A receives a dividend pay-out of firms may well be subject to EU Market Abuse the authorities may take an interest in brokerage or in ancillary roles. Participants in dividend payment, which is marked as due to The date dividends are actually paid. The figures, corporates and major complex, challenging cases involving national changes were introduced in 2012. €750,000 (75% of total dividend - €1 million). Regulations (MAR). Financial institutions will • purchase of the stocks (shares) Legal Issues Surrounding the investigating a corporate body and /or its the Cum-Ex trades, such as hedge funds, An order following such an application will Delivery vs Payment (DVP) those shareholders who are on the share length of time between the initial record T + 2 Settlement organisations and he is consistently and international agencies. He has expertise in After pay-out, Investor A's shares are worth need to have adequate and considered • sale of the stocks Cum-Ex Investigations officers. In our experience, any defence would purchase substantial amounts of shares only be made if it is necessary and systems and controls in place to satisfy AML This is a mode of settlement of securities. register at a pre-announced date. This is the date and payment date varies between This is a processing time. When an order is highlighted by national and international handling regulatory and compliance cases in a As a result of these trades, there are now Germany is the country at the heart of the Put simply, banks and stockbrokers rapidly €19 million. • collateralised stock loan agreements to Cum-Ex trading allowed two parties to appear will be dependent on the different trading in order to make a profit. Due to the borrowing proportionate to make it for the purposes requirements, including due diligence on In DVP, the transfer of securities and funds opposite of cum dividend. stock exchanges but is typically anywhere placed and executed on the stock exchange legal guides. wide variety of countries and regularly handles active investigations in various European scandal and the country whose traded shares with (cum) and without (ex) 5. Investor A receives a tax certificate to facilitate the short sale to be the beneficial owners of the same strategies that were executed by the facilities provided by UK prime brokers (who of the investigation or the proceedings in clients/transactions. Firms who are concerned happen simultaneously. DVP settlement between the ex-date and one or two between buyer and seller, this is known as the the most notable financial services cases. jurisdictions, including (but not limited to) investigations into Cum-Ex are most dividend rights, in a way that enabled reimburse €250,000 of dividend tax • over-the-counter (OTC) forward shares, creating the opportunity for multiple corporate bodies and the roles that were offered services such as financing, securities question. A designated public prosecutor about their exposure should consider ensures that funds are paid, and the Futures contracts months. trade day (T – day). The transaction is then With a reputation for mounting the UK, Germany, Denmark and Austria. advanced. The German authorities have them to hide the identity of the actual (representing the 25% tax reclaim). agreements. WHT refunds on the same dividend payment. undertaken by CIO’s and their teams. lending and overdraft facilities), CIO’s or in England and Wales will then validate an conducting an internal investigation and be securities are then delivered. Futures are a contract that requires the buyer entered into the company’s record books strongest possible legal challenges and an JOSIE WELLAND claimed that Cum-Ex has cost the country owner. This meant that they could agree 6. Investor A sells shares worth €19 million to • Several parties were essential to the Any examination of the beneficial ownership of portfolio managers of hedge funds would be order pursuant to s7 of the 2017 prepared to self-report anything untoward to to purchase an asset at a specific price on a Prime brokers (settled) “T + 2” days after the trade day (i.e.: 2 acknowledged skill for forensically Josie is highly-rated for her defence of As such, there were no perceived risks approximately €30 billion in lost revenue. to sell a company stock before the Investor B. transactions, including finance and stock shares is likely to focus on whether beneficial Generally, most dividend arbitrage able to negotiate and leverage substantial regulation once the above conditions are the FCA and, possibly, the German authorities. Dividend arbitrage future date. A seller of the futures contract is In short, prime brokers would hold and days after the settlement of the transaction). examining every aspect of a case, his track white-collar crime cases, having built a involved at the time - only profit. Cum-Ex However, various other EU treasuries have dividend was paid out, but then deliver it 7. Investor B delivers shares worth €19 million lending providers. Access to liquidity in ownership was actually transferred. transactions at the time were considered borrowing terms. As a result, the relationships satisfied. Dividend arbitrage is an options trading contracted to deliver that asset at a specific settle shares and offer additional services record in financial investigations is reputation for intelligent and forceful was one of the most lucrative models in also been affected, with some estimates of after the dividend had been paid. This to Investor C and pays her an additional both the cash and the forward market sensible and legal tax planning. Those and agreements between these parties could It is highly likely that European enforcement strategy that involves purchasing put date and price. This is a method that is often such as financing, stock lending, overdraft Withholding tax (“WHT”) enviable. representation of corporates and individuals in recent years. There were no provisions put €55.2 billion being lost in tax revenue as a tactic enabled both parties to claim tax €750,000 was essential. In the context of Cum-Ex transactions, involved in the Cum-Ex transactions are now face scrutiny by the authorities. In our In the UK itself, the Financial Conduct agencies will target financial institutions, in options and an equivalent amount of used by sophisticated traders and financial facilities and credit lines. A withholding tax takes a set amount of money investigations spanning countries and in place by European states to prevent result of such schemes. rebates of WHT on capital gains tax (a tax 8. Investor C sells shares worth €19 million beneficial ownership of the shares and the sure to raise the point that the practice view, this is one of the many reasons why Authority (FCA) has been conducting a particular those with substantial resources. underlying stock before its ex-dividend institutions as part of hedging strategies. out of an employee's payslip and pays it to the AZIZ RAHMAN continents. Cum-Ex until it came to a head in 2012. that had only been paid once, if at all) from back to Investor A. Each trade leg required a professional rights this carries includes: was not illegal or dishonest, and was European investigations may well now have a review into the practices of some firms This is so that significant financial penalties can date, and then exercising the put after Record date government. The money taken is a credit Aziz’s success in some of this century’s The Cum-Ex scandal is now a EU tax authorities. 9. Investor C receives a tax certificate to intermediary, including: actually typical market behaviour. The particular focus on London. Investigations involved in dividend-stripping trades in be agreed; depending on how corporate collecting the dividend. When used on a Hedge funds The record date is used to determine who against the employee's annual income tax. If most notable financial crime cases and his Her intelligent management of investigations in The Cum-Ex Trading Scandal rapidly-widening cross-border tax fraud reimburse €250,000 of dividend tax. • The right to share in the company's strategies deployed were market neutral. have already led to two former London traders Germany. The FCA has confirmed it is bodies are perceived by investigators and what security with low volatility (causing lower Privately-owned and privately-managed funds is on the share register and, therefore, too much money is withheld, an employee will robust, incisive defence of clients mean he various jurisdictions and her eye for detail in Cum-Ex is the name given to a huge volume probe affecting many financial institutions Rapid trading between the various parties Investors A, B & C share the tax • Brokers to execute the purchase and/or profitability, income, and assets. In many cases, companies relied on advice being convicted in March 2020 of tax fraud in currently investigating financial institutions investigations discover about those bodies’ options premiums) and a high dividend, that are generally formed by institutional entitled to the dividend. The company sets receive a tax refund; if not enough is withheld, is viewed by legal guides and the large, complex cases have led to her of dividend trading strategies (dividend and individuals across 11 EU jurisdictions; could confuse the tax authorities reimbursements. sale of the stock. • A degree of control and influence over from their lawyers and accountants, and Germany – in what was the first criminal trial and individuals implicated in the scandal. activities. Depending on the merits of the case, dividend arbitrage can result in an investor traders who have expertise working in the date of record after it has announced an employee will have an additional tax bill. profession itself as one of the elite impressing senior figures in both the legal and arbitrage stock trading transactions) that with investigators engaging in regulatory, civil regarding beneficial ownership of the • Custodians to hold the stock once company management selection. would argue that they did nothing more relating to Cum-Ex trades. With the passage of time, there are now a corporate body will need to carefully realising profits while assuming very low to investment banks, creating strategies that that it will pay a dividend. At the close of international solicitors handling business world. As a result, she has been took place largely prior to 2012. The and criminal proceedings against those shares, by creating an appearance that Risk vs Reward Strategies purchased / sold. • Pre-emptive rights to newly-issued shares. than see an opportunity due to the extensive numbers of Cum-Ex-related consider a robust defence and/or remediating no risk. would be funded by private capital. Private business on the record date, the registrar Meet our CUM-EX large-value, high-profile investigations. He heavily involved in some of the most significant controversial practice involved exploiting a involved. the shares were short sold (selling when While the above is a simple example, the • Equity finance agents to execute the • General meeting voting rights. ambiguity of the law surrounding this area. Authorities in EU member states may well criminal and civil investigations ongoing, as measures in order to limit reputational harm. investors invest in the fund for a return on takes a snapshot of who is physically Investigations Team is a solicitor who has set legal precedents. tax fraud cases of recent years. loophole on dividend payments to trade the seller does not yet hold them) prior to reality is that Cum-Ex involved a highly complex stock borrowing. • The Cologne tax court held that under Furthermore, it is a practice that had obtain evidence from the UK authorities to well as significant amounts of litigation. It is Ex-dividend date investment based on those strategies. holding the shares (the holders of record) Rahman Ravelli was one of the very first UK law shares in a way that concealed the identity How a Cum-Ex Trading the dividend record date (cum-dividend), network of entities providing liquidity and • Legal and tax professionals to provide German law, in the case of an arguably been accepted by legislatures in assist in criminal investigations. This process is highly likely there will be more in the near Glossary of Key Terms Ex-dividend is where a stock is trading and pays the real dividends to these firms to recognise the possible legal His expertise in criminal and regulatory of the owner and enabled several parties to Scheme Works when in fact they were sold after the services essential to its operation. advice and consultancy services. over-the-counter short sale, the share some EU states, as they had known about governed by the Criminal Justice (European future. without the value of the next dividend Institutional Trader holders. Recent changes in most markets implications of Cum-Ex and its potential impact matters and his skill in leading claim multiple tax refunds for the same Cum-Ex is an example of a dividend dividend record date (ex-dividend). Immediately prior to key dates, high purchaser would not become the beneficial Cum-Ex for many years and took no early Investigation Order) Regulations 2017 (the Cum dividend payment. The ex-dividend date is the day A trader who works for an investment bank, mean that the record date is timed to on all levels of the financial services industry. As cross-border legal teams ensure that the dividend pay-out. It has also been known as withholding tax (WHT) refund model. Hedge funds and their Chief Investment volumes of loans were taken out and owner of the shares to be delivered at a later action. 2017 regulation). It is essentially a request for The full extent of how the Cum-Ex scandal A share-quoted cum dividend carries the right the stock starts trading without the value brokerage firm, mutual fund or hedge fund. ensure that cum-dividend trades, i.e.: a firm that prides itself on a rapid response to organisations and individuals he dividend-stripping. Cum-Ex entitled overseas investors in Officers (CIO’s) would develop and create several parties obtained legal and tax stage at the settlement of the purchase sharing evidence in criminal investigations is affecting the UK is, therefore, still yet to of its next dividend payment. Typically, the those executed before ex-date, should the needs of existing or potential clients, we strategies for investments relating to Cum-Ex to receive the next dividend. This is the advice to seek to ensure the propriety of agreement. through mutual legal assistance. be seen. opposite of ex-dividend. ex-dividend date for a stock is one their activity.

A Briefing Guide to : The Cum-Ex Guide for Financial Institutions trades. This could involve incorporating Reclaim agents to submit the tax refund In the UK, the issue of beneficial Corporate bodies (and individual parties) The requests are generally made to the Custodians business day before the record date. This Interdealer broker have settled before the close of business on compiled a team of specialists in represents benefit from bespoke, intelligent domestic companies to obtain a refund Three or more entities are needed for a Considerations for UK Financial companies in various jurisdictions with the applications on behalf of offshore investors, ownership of shares was addressed in J embroiled in Cum-Ex will, no doubt, have their Home Office. But for investigations Custodians are those who hold and settle means traded positions at the start of This is an intermediary who helps with the the record date. The opportunity for Cum-Ex anticipation of a Cum-Ex caseload. That defence that challenges each and every aspect on shares under double taxation treaties. successful Cum-ex scheme. A simplified Institutions purpose of investing in certain listed obtain the refunds and then distribute them Sainsbury Plc v O’Connor [1990], in which own specific justifications for the practice. For relating to tax and fiscal customs matters trade equity. This is a service to hold and business on the ex-dividend date represent transactions between the financial existed where this was not the case, as caseload continues to grow – and our of the allegations made against his clients. It is worth noting that the UK does not use summary example is outlined here: Financial institutions involved with dividend securities. The hedge fund would create accordingly. Multiple offshore investors would Millett J said beneficial ownership was example, they may state they had no the requests are sent to HM Revenue and settle shares. the beneficial owner who is entitled to the institutions and the banks. described above. Share registers are kept experts are on hand to manage each and WHT, so the UK tax authorities are not arbitrage could be at risk of a number of relationships with prime brokers, apply for refunds based upon allegedly falsified “more than equitable ownership. It responsibility over - or limited knowledge of - Customs (HMRC). The issuing authority in dividend, whether that is paid as a real electronically. Settlement is the delivery of title every aspect of such cases. SYEDUR RAHMAN affected by Cum-Ex transactions, unlike 1. Three investors come together, Investors A, consequences of Cum-Ex investigations. These custodians and banks. The investments dividend credit advices from custodian banks requires more than the ownership of an the overall strategy and the counterparties a European country will make an Declaration date dividend (if they are also the holder of record) Leverage to shares against payment in accordance with Syed's great depth of experience and his many other states. B and C. include both civil and criminal sanctions and would be funded through private equity and refund applications from reclaim agents. empty shell bereft of those rights of involved, with the understanding that all application to HMRC, explaining that an The date that the dividend is announced or paid as a manufactured dividend (if the The margin your broker provides you with, the sale contract. NEIL WILLIAMS accomplishments in cross-border fraud and 2. Investor A owns shares in company X. The the reputational effect that either of these can and leverage provided by prime brokers. beneficial enjoyment which normally parties had applied their own robust legal and offence has been committed or that there by the company’s board of directors. On shares have not settled by close of business based on the capital in your account. The Neil’s achievements and his expertise in business crime cases and high-stakes Cum-Ex trading began when a tax shares are worth €20 million. have upon a firm. The global strategy was likely to involve Ownership of the shares was impossible to attach to equitable ownership.’’ tax advice. are reasonable grounds for suspecting this day, the company will give information on record date). It is this beneficial owner who leverage varies between brokers and may Short selling regulatory and criminal investigations have commercial and financial investigations have loophole was discovered in the 1990s. The 3. Investor B sells the same shares worth €20 obtaining a legal opinion approving such ascertain, given the speed of the transactions. that an offence has been committed. The about the size of the dividend, the date of is entitled to apply for a WHT reclaim. depend on what you are holding in the This occurs when you borrow shares from a led to him being viewed as a cross-border put him in high demand with corporates and loophole was utilised by a network of million to Investor C without owning them Firms will be subject to FCA requirements, the investment activities. The timing of the shorts and dividend Cum-Ex Defence How it Affects the UK application will include the names of the record and the payment date. The account (cash and securities) and share broker and sell them with the expectation that financial crime specialist with a flair for their directors, financial institutions and high institutions and professionals, including himself (short selling) before the dividend Money Laundering Regulations 2017 and any compensation payments had the effect of It is imperative that a defence strategy Many UK-based financial institutions were subject of the request, the operation company usually has a legal responsibility Ex-dividend price. the price will go lower and can be bought back high-profile, international white-collar net worth individuals traders, investors, tax advisers, lawyers, pay-out day. legislation preceding this, depending on the Cum-Ex transactions commonly involved essentially muddying the true beneficial tailored to the needs of the situation is involved in dividend arbitrage at the time, name and the reasons why a European to pay the dividend once it has been A term used in share listings to denote that the at a lower price. You return the borrowed crime matters. His advice is sought brokerage firms and banks. It was a 4. Company X then distributes its pay-outs. period of alleged offending. In addition to this, four trade legs: ownership of the stock (shares). devised the moment it is anticipated that whether that be through equities trading, Investigation Order is sought. declared. share is sold without the right to receive the Payment date share to your broker and keep the profit. regularly by senior business and financial His caseload includes many of the most lucrative trading practice until legislative Investor A receives a dividend pay-out of firms may well be subject to EU Market Abuse the authorities may take an interest in brokerage or in ancillary roles. Participants in dividend payment, which is marked as due to The date dividends are actually paid. The figures, corporates and major complex, challenging cases involving national changes were introduced in 2012. €750,000 (75% of total dividend - €1 million). Regulations (MAR). Financial institutions will • purchase of the stocks (shares) Legal Issues Surrounding the investigating a corporate body and /or its the Cum-Ex trades, such as hedge funds, An order following such an application will Delivery vs Payment (DVP) those shareholders who are on the share length of time between the initial record T + 2 Settlement organisations and he is consistently and international agencies. He has expertise in After pay-out, Investor A's shares are worth need to have adequate and considered • sale of the stocks Cum-Ex Investigations officers. In our experience, any defence would purchase substantial amounts of shares only be made if it is necessary and systems and controls in place to satisfy AML This is a mode of settlement of securities. register at a pre-announced date. This is the date and payment date varies between This is a processing time. When an order is highlighted by national and international handling regulatory and compliance cases in a As a result of these trades, there are now Germany is the country at the heart of the Put simply, banks and stockbrokers rapidly €19 million. • collateralised stock loan agreements to Cum-Ex trading allowed two parties to appear will be dependent on the different trading in order to make a profit. Due to the borrowing proportionate to make it for the purposes requirements, including due diligence on In DVP, the transfer of securities and funds opposite of cum dividend. stock exchanges but is typically anywhere placed and executed on the stock exchange legal guides. wide variety of countries and regularly handles active investigations in various European scandal and the country whose traded shares with (cum) and without (ex) 5. Investor A receives a tax certificate to facilitate the short sale to be the beneficial owners of the same strategies that were executed by the facilities provided by UK prime brokers (who of the investigation or the proceedings in clients/transactions. Firms who are concerned happen simultaneously. DVP settlement between the ex-date and one or two between buyer and seller, this is known as the the most notable financial services cases. jurisdictions, including (but not limited to) investigations into Cum-Ex are most dividend rights, in a way that enabled reimburse €250,000 of dividend tax • over-the-counter (OTC) forward shares, creating the opportunity for multiple corporate bodies and the roles that were offered services such as financing, securities question. A designated public prosecutor about their exposure should consider ensures that funds are paid, and the Futures contracts months. trade day (T – day). The transaction is then With a reputation for mounting the UK, Germany, Denmark and Austria. advanced. The German authorities have them to hide the identity of the actual (representing the 25% tax reclaim). agreements. WHT refunds on the same dividend payment. undertaken by CIO’s and their teams. lending and overdraft facilities), CIO’s or in England and Wales will then validate an conducting an internal investigation and be securities are then delivered. Futures are a contract that requires the buyer entered into the company’s record books strongest possible legal challenges and an JOSIE WELLAND claimed that Cum-Ex has cost the country owner. This meant that they could agree 6. Investor A sells shares worth €19 million to • Several parties were essential to the Any examination of the beneficial ownership of portfolio managers of hedge funds would be order pursuant to s7 of the 2017 prepared to self-report anything untoward to to purchase an asset at a specific price on a Prime brokers (settled) “T + 2” days after the trade day (i.e.: 2 acknowledged skill for forensically Josie is highly-rated for her defence of As such, there were no perceived risks approximately €30 billion in lost revenue. to sell a company stock before the Investor B. transactions, including finance and stock shares is likely to focus on whether beneficial Generally, most dividend arbitrage able to negotiate and leverage substantial regulation once the above conditions are the FCA and, possibly, the German authorities. Dividend arbitrage future date. A seller of the futures contract is In short, prime brokers would hold and days after the settlement of the transaction). examining every aspect of a case, his track white-collar crime cases, having built a involved at the time - only profit. Cum-Ex However, various other EU treasuries have dividend was paid out, but then deliver it 7. Investor B delivers shares worth €19 million lending providers. Access to liquidity in ownership was actually transferred. transactions at the time were considered borrowing terms. As a result, the relationships satisfied. Dividend arbitrage is an options trading contracted to deliver that asset at a specific settle shares and offer additional services record in financial investigations is reputation for intelligent and forceful was one of the most lucrative models in also been affected, with some estimates of after the dividend had been paid. This to Investor C and pays her an additional both the cash and the forward market sensible and legal tax planning. Those and agreements between these parties could It is highly likely that European enforcement strategy that involves purchasing put date and price. This is a method that is often such as financing, stock lending, overdraft Withholding tax (“WHT”) enviable. representation of corporates and individuals in recent years. There were no provisions put €55.2 billion being lost in tax revenue as a tactic enabled both parties to claim tax €750,000 was essential. In the context of Cum-Ex transactions, involved in the Cum-Ex transactions are now face scrutiny by the authorities. In our In the UK itself, the Financial Conduct agencies will target financial institutions, in options and an equivalent amount of used by sophisticated traders and financial facilities and credit lines. A withholding tax takes a set amount of money investigations spanning countries and in place by European states to prevent result of such schemes. rebates of WHT on capital gains tax (a tax 8. Investor C sells shares worth €19 million beneficial ownership of the shares and the sure to raise the point that the practice view, this is one of the many reasons why Authority (FCA) has been conducting a particular those with substantial resources. underlying stock before its ex-dividend institutions as part of hedging strategies. out of an employee's payslip and pays it to the AZIZ RAHMAN continents. Cum-Ex until it came to a head in 2012. that had only been paid once, if at all) from back to Investor A. Each trade leg required a professional rights this carries includes: was not illegal or dishonest, and was European investigations may well now have a review into the practices of some firms This is so that significant financial penalties can date, and then exercising the put after Record date government. The money taken is a credit Aziz’s success in some of this century’s The Cum-Ex scandal is now a EU tax authorities. 9. Investor C receives a tax certificate to intermediary, including: actually typical market behaviour. The particular focus on London. Investigations involved in dividend-stripping trades in be agreed; depending on how corporate collecting the dividend. When used on a Hedge funds The record date is used to determine who against the employee's annual income tax. If most notable financial crime cases and his Her intelligent management of investigations in The Cum-Ex Trading Scandal rapidly-widening cross-border tax fraud reimburse €250,000 of dividend tax. • The right to share in the company's strategies deployed were market neutral. have already led to two former London traders Germany. The FCA has confirmed it is bodies are perceived by investigators and what security with low volatility (causing lower Privately-owned and privately-managed funds is on the share register and, therefore, too much money is withheld, an employee will robust, incisive defence of clients mean he various jurisdictions and her eye for detail in Cum-Ex is the name given to a huge volume probe affecting many financial institutions Rapid trading between the various parties Investors A, B & C share the tax • Brokers to execute the purchase and/or profitability, income, and assets. In many cases, companies relied on advice being convicted in March 2020 of tax fraud in currently investigating financial institutions investigations discover about those bodies’ options premiums) and a high dividend, that are generally formed by institutional entitled to the dividend. The company sets receive a tax refund; if not enough is withheld, is viewed by legal guides and the large, complex cases have led to her of dividend trading strategies (dividend and individuals across 11 EU jurisdictions; could confuse the tax authorities reimbursements. sale of the stock. • A degree of control and influence over from their lawyers and accountants, and Germany – in what was the first criminal trial and individuals implicated in the scandal. activities. Depending on the merits of the case, dividend arbitrage can result in an investor traders who have expertise working in the date of record after it has announced an employee will have an additional tax bill. profession itself as one of the elite impressing senior figures in both the legal and arbitrage stock trading transactions) that with investigators engaging in regulatory, civil regarding beneficial ownership of the • Custodians to hold the stock once company management selection. would argue that they did nothing more relating to Cum-Ex trades. With the passage of time, there are now a corporate body will need to carefully realising profits while assuming very low to investment banks, creating strategies that that it will pay a dividend. At the close of international solicitors handling business world. As a result, she has been took place largely prior to 2012. The and criminal proceedings against those shares, by creating an appearance that Risk vs Reward Strategies purchased / sold. • Pre-emptive rights to newly-issued shares. than see an opportunity due to the extensive numbers of Cum-Ex-related consider a robust defence and/or remediating no risk. would be funded by private capital. Private business on the record date, the registrar Meet our CUM-EX large-value, high-profile investigations. He heavily involved in some of the most significant controversial practice involved exploiting a involved. the shares were short sold (selling when While the above is a simple example, the • Equity finance agents to execute the • General meeting voting rights. ambiguity of the law surrounding this area. Authorities in EU member states may well criminal and civil investigations ongoing, as measures in order to limit reputational harm. investors invest in the fund for a return on takes a snapshot of who is physically Investigations Team is a solicitor who has set legal precedents. tax fraud cases of recent years. loophole on dividend payments to trade the seller does not yet hold them) prior to reality is that Cum-Ex involved a highly complex stock borrowing. • The Cologne tax court held that under Furthermore, it is a practice that had obtain evidence from the UK authorities to well as significant amounts of litigation. It is Ex-dividend date investment based on those strategies. holding the shares (the holders of record) Rahman Ravelli was one of the very first UK law shares in a way that concealed the identity How a Cum-Ex Trading the dividend record date (cum-dividend), network of entities providing liquidity and • Legal and tax professionals to provide German law, in the case of an arguably been accepted by legislatures in assist in criminal investigations. This process is highly likely there will be more in the near Glossary of Key Terms Ex-dividend is where a stock is trading and pays the real dividends to these firms to recognise the possible legal His expertise in criminal and regulatory of the owner and enabled several parties to Scheme Works when in fact they were sold after the services essential to its operation. advice and consultancy services. over-the-counter short sale, the share some EU states, as they had known about governed by the Criminal Justice (European future. without the value of the next dividend Institutional Trader holders. Recent changes in most markets implications of Cum-Ex and its potential impact matters and his skill in leading claim multiple tax refunds for the same Cum-Ex is an example of a dividend dividend record date (ex-dividend). Immediately prior to key dates, high purchaser would not become the beneficial Cum-Ex for many years and took no early Investigation Order) Regulations 2017 (the Cum dividend payment. The ex-dividend date is the day A trader who works for an investment bank, mean that the record date is timed to on all levels of the financial services industry. As cross-border legal teams ensure that the dividend pay-out. It has also been known as withholding tax (WHT) refund model. Hedge funds and their Chief Investment volumes of loans were taken out and owner of the shares to be delivered at a later action. 2017 regulation). It is essentially a request for The full extent of how the Cum-Ex scandal A share-quoted cum dividend carries the right the stock starts trading without the value brokerage firm, mutual fund or hedge fund. ensure that cum-dividend trades, i.e.: a firm that prides itself on a rapid response to organisations and individuals he dividend-stripping. Cum-Ex entitled overseas investors in Officers (CIO’s) would develop and create several parties obtained legal and tax stage at the settlement of the purchase sharing evidence in criminal investigations is affecting the UK is, therefore, still yet to of its next dividend payment. Typically, the those executed before ex-date, should the needs of existing or potential clients, we strategies for investments relating to Cum-Ex to receive the next dividend. This is the advice to seek to ensure the propriety of agreement. through mutual legal assistance. be seen. opposite of ex-dividend. ex-dividend date for a stock is one their activity.

A Briefing Guide to : The Cum-Ex Guide for Financial Institutions trades. This could involve incorporating Reclaim agents to submit the tax refund In the UK, the issue of beneficial Corporate bodies (and individual parties) The requests are generally made to the Custodians business day before the record date. This Interdealer broker have settled before the close of business on compiled a team of specialists in represents benefit from bespoke, intelligent domestic companies to obtain a refund Three or more entities are needed for a Considerations for UK Financial companies in various jurisdictions with the applications on behalf of offshore investors, ownership of shares was addressed in J embroiled in Cum-Ex will, no doubt, have their Home Office. But for investigations Custodians are those who hold and settle means traded positions at the start of This is an intermediary who helps with the the record date. The opportunity for Cum-Ex anticipation of a Cum-Ex caseload. That defence that challenges each and every aspect on shares under double taxation treaties. successful Cum-ex scheme. A simplified Institutions purpose of investing in certain listed obtain the refunds and then distribute them Sainsbury Plc v O’Connor [1990], in which own specific justifications for the practice. For relating to tax and fiscal customs matters trade equity. This is a service to hold and business on the ex-dividend date represent transactions between the financial existed where this was not the case, as caseload continues to grow – and our of the allegations made against his clients. It is worth noting that the UK does not use summary example is outlined here: Financial institutions involved with dividend securities. The hedge fund would create accordingly. Multiple offshore investors would Millett J said beneficial ownership was example, they may state they had no the requests are sent to HM Revenue and settle shares. the beneficial owner who is entitled to the institutions and the banks. described above. Share registers are kept experts are on hand to manage each and WHT, so the UK tax authorities are not arbitrage could be at risk of a number of relationships with prime brokers, apply for refunds based upon allegedly falsified “more than equitable ownership. It responsibility over - or limited knowledge of - Customs (HMRC). The issuing authority in dividend, whether that is paid as a real electronically. Settlement is the delivery of title every aspect of such cases. SYEDUR RAHMAN affected by Cum-Ex transactions, unlike 1. Three investors come together, Investors A, consequences of Cum-Ex investigations. These custodians and banks. The investments dividend credit advices from custodian banks requires more than the ownership of an the overall strategy and the counterparties a European country will make an Declaration date dividend (if they are also the holder of record) Leverage to shares against payment in accordance with Syed's great depth of experience and his many other states. B and C. include both civil and criminal sanctions and would be funded through private equity and refund applications from reclaim agents. empty shell bereft of those rights of involved, with the understanding that all application to HMRC, explaining that an The date that the dividend is announced or paid as a manufactured dividend (if the The margin your broker provides you with, the sale contract. NEIL WILLIAMS accomplishments in cross-border fraud and 2. Investor A owns shares in company X. The the reputational effect that either of these can and leverage provided by prime brokers. beneficial enjoyment which normally parties had applied their own robust legal and offence has been committed or that there by the company’s board of directors. On shares have not settled by close of business based on the capital in your account. The Neil’s achievements and his expertise in business crime cases and high-stakes Cum-Ex trading began when a tax shares are worth €20 million. have upon a firm. The global strategy was likely to involve Ownership of the shares was impossible to attach to equitable ownership.’’ tax advice. are reasonable grounds for suspecting this day, the company will give information on record date). It is this beneficial owner who leverage varies between brokers and may Short selling regulatory and criminal investigations have commercial and financial investigations have loophole was discovered in the 1990s. The 3. Investor B sells the same shares worth €20 obtaining a legal opinion approving such ascertain, given the speed of the transactions. that an offence has been committed. The about the size of the dividend, the date of is entitled to apply for a WHT reclaim. depend on what you are holding in the This occurs when you borrow shares from a led to him being viewed as a cross-border put him in high demand with corporates and loophole was utilised by a network of million to Investor C without owning them Firms will be subject to FCA requirements, the investment activities. The timing of the shorts and dividend Cum-Ex Defence How it Affects the UK application will include the names of the record and the payment date. The account (cash and securities) and share broker and sell them with the expectation that financial crime specialist with a flair for their directors, financial institutions and high institutions and professionals, including himself (short selling) before the dividend Money Laundering Regulations 2017 and any compensation payments had the effect of It is imperative that a defence strategy Many UK-based financial institutions were subject of the request, the operation company usually has a legal responsibility Ex-dividend price. the price will go lower and can be bought back high-profile, international white-collar net worth individuals traders, investors, tax advisers, lawyers, pay-out day. legislation preceding this, depending on the Cum-Ex transactions commonly involved essentially muddying the true beneficial tailored to the needs of the situation is involved in dividend arbitrage at the time, name and the reasons why a European to pay the dividend once it has been A term used in share listings to denote that the at a lower price. You return the borrowed crime matters. His advice is sought brokerage firms and banks. It was a 4. Company X then distributes its pay-outs. period of alleged offending. In addition to this, four trade legs: ownership of the stock (shares). devised the moment it is anticipated that whether that be through equities trading, Investigation Order is sought. declared. share is sold without the right to receive the Payment date share to your broker and keep the profit. regularly by senior business and financial His caseload includes many of the most lucrative trading practice until legislative Investor A receives a dividend pay-out of firms may well be subject to EU Market Abuse the authorities may take an interest in brokerage or in ancillary roles. Participants in dividend payment, which is marked as due to The date dividends are actually paid. The figures, corporates and major complex, challenging cases involving national changes were introduced in 2012. €750,000 (75% of total dividend - €1 million). Regulations (MAR). Financial institutions will • purchase of the stocks (shares) Legal Issues Surrounding the investigating a corporate body and /or its the Cum-Ex trades, such as hedge funds, An order following such an application will Delivery vs Payment (DVP) those shareholders who are on the share length of time between the initial record T + 2 Settlement organisations and he is consistently and international agencies. He has expertise in After pay-out, Investor A's shares are worth need to have adequate and considered • sale of the stocks Cum-Ex Investigations officers. In our experience, any defence would purchase substantial amounts of shares only be made if it is necessary and systems and controls in place to satisfy AML This is a mode of settlement of securities. register at a pre-announced date. This is the date and payment date varies between This is a processing time. When an order is highlighted by national and international handling regulatory and compliance cases in a As a result of these trades, there are now Germany is the country at the heart of the Put simply, banks and stockbrokers rapidly €19 million. • collateralised stock loan agreements to Cum-Ex trading allowed two parties to appear will be dependent on the different trading in order to make a profit. Due to the borrowing proportionate to make it for the purposes requirements, including due diligence on In DVP, the transfer of securities and funds opposite of cum dividend. stock exchanges but is typically anywhere placed and executed on the stock exchange legal guides. wide variety of countries and regularly handles active investigations in various European scandal and the country whose traded shares with (cum) and without (ex) 5. Investor A receives a tax certificate to facilitate the short sale to be the beneficial owners of the same strategies that were executed by the facilities provided by UK prime brokers (who of the investigation or the proceedings in clients/transactions. Firms who are concerned happen simultaneously. DVP settlement between the ex-date and one or two between buyer and seller, this is known as the the most notable financial services cases. jurisdictions, including (but not limited to) investigations into Cum-Ex are most dividend rights, in a way that enabled reimburse €250,000 of dividend tax • over-the-counter (OTC) forward shares, creating the opportunity for multiple corporate bodies and the roles that were offered services such as financing, securities question. A designated public prosecutor about their exposure should consider ensures that funds are paid, and the Futures contracts months. trade day (T – day). The transaction is then With a reputation for mounting the UK, Germany, Denmark and Austria. advanced. The German authorities have them to hide the identity of the actual (representing the 25% tax reclaim). agreements. WHT refunds on the same dividend payment. undertaken by CIO’s and their teams. lending and overdraft facilities), CIO’s or in England and Wales will then validate an conducting an internal investigation and be securities are then delivered. Futures are a contract that requires the buyer entered into the company’s record books strongest possible legal challenges and an JOSIE WELLAND claimed that Cum-Ex has cost the country owner. This meant that they could agree 6. Investor A sells shares worth €19 million to • Several parties were essential to the Any examination of the beneficial ownership of portfolio managers of hedge funds would be order pursuant to s7 of the 2017 prepared to self-report anything untoward to to purchase an asset at a specific price on a Prime brokers (settled) “T + 2” days after the trade day (i.e.: 2 acknowledged skill for forensically Josie is highly-rated for her defence of As such, there were no perceived risks approximately €30 billion in lost revenue. to sell a company stock before the Investor B. transactions, including finance and stock shares is likely to focus on whether beneficial Generally, most dividend arbitrage able to negotiate and leverage substantial regulation once the above conditions are the FCA and, possibly, the German authorities. Dividend arbitrage future date. A seller of the futures contract is In short, prime brokers would hold and days after the settlement of the transaction). examining every aspect of a case, his track white-collar crime cases, having built a involved at the time - only profit. Cum-Ex However, various other EU treasuries have dividend was paid out, but then deliver it 7. Investor B delivers shares worth €19 million lending providers. Access to liquidity in ownership was actually transferred. transactions at the time were considered borrowing terms. As a result, the relationships satisfied. Dividend arbitrage is an options trading contracted to deliver that asset at a specific settle shares and offer additional services record in financial investigations is reputation for intelligent and forceful was one of the most lucrative models in also been affected, with some estimates of after the dividend had been paid. This to Investor C and pays her an additional both the cash and the forward market sensible and legal tax planning. Those and agreements between these parties could It is highly likely that European enforcement strategy that involves purchasing put date and price. This is a method that is often such as financing, stock lending, overdraft Withholding tax (“WHT”) enviable. representation of corporates and individuals in recent years. There were no provisions put €55.2 billion being lost in tax revenue as a tactic enabled both parties to claim tax €750,000 was essential. In the context of Cum-Ex transactions, involved in the Cum-Ex transactions are now face scrutiny by the authorities. In our In the UK itself, the Financial Conduct agencies will target financial institutions, in options and an equivalent amount of used by sophisticated traders and financial facilities and credit lines. A withholding tax takes a set amount of money investigations spanning countries and in place by European states to prevent result of such schemes. rebates of WHT on capital gains tax (a tax 8. Investor C sells shares worth €19 million beneficial ownership of the shares and the sure to raise the point that the practice view, this is one of the many reasons why Authority (FCA) has been conducting a particular those with substantial resources. underlying stock before its ex-dividend institutions as part of hedging strategies. out of an employee's payslip and pays it to the AZIZ RAHMAN continents. Cum-Ex until it came to a head in 2012. that had only been paid once, if at all) from back to Investor A. Each trade leg required a professional rights this carries includes: was not illegal or dishonest, and was European investigations may well now have a review into the practices of some firms This is so that significant financial penalties can date, and then exercising the put after Record date government. The money taken is a credit Aziz’s success in some of this century’s The Cum-Ex scandal is now a EU tax authorities. 9. Investor C receives a tax certificate to intermediary, including: actually typical market behaviour. The particular focus on London. Investigations involved in dividend-stripping trades in be agreed; depending on how corporate collecting the dividend. When used on a Hedge funds The record date is used to determine who against the employee's annual income tax. If most notable financial crime cases and his Her intelligent management of investigations in The Cum-Ex Trading Scandal rapidly-widening cross-border tax fraud reimburse €250,000 of dividend tax. • The right to share in the company's strategies deployed were market neutral. have already led to two former London traders Germany. The FCA has confirmed it is bodies are perceived by investigators and what security with low volatility (causing lower Privately-owned and privately-managed funds is on the share register and, therefore, too much money is withheld, an employee will robust, incisive defence of clients mean he various jurisdictions and her eye for detail in Cum-Ex is the name given to a huge volume probe affecting many financial institutions Rapid trading between the various parties Investors A, B & C share the tax • Brokers to execute the purchase and/or profitability, income, and assets. In many cases, companies relied on advice being convicted in March 2020 of tax fraud in currently investigating financial institutions investigations discover about those bodies’ options premiums) and a high dividend, that are generally formed by institutional entitled to the dividend. The company sets receive a tax refund; if not enough is withheld, is viewed by legal guides and the large, complex cases have led to her of dividend trading strategies (dividend and individuals across 11 EU jurisdictions; could confuse the tax authorities reimbursements. sale of the stock. • A degree of control and influence over from their lawyers and accountants, and Germany – in what was the first criminal trial and individuals implicated in the scandal. activities. Depending on the merits of the case, dividend arbitrage can result in an investor traders who have expertise working in the date of record after it has announced an employee will have an additional tax bill. profession itself as one of the elite impressing senior figures in both the legal and arbitrage stock trading transactions) that with investigators engaging in regulatory, civil regarding beneficial ownership of the • Custodians to hold the stock once company management selection. would argue that they did nothing more relating to Cum-Ex trades. With the passage of time, there are now a corporate body will need to carefully realising profits while assuming very low to investment banks, creating strategies that that it will pay a dividend. At the close of international solicitors handling business world. As a result, she has been took place largely prior to 2012. The and criminal proceedings against those shares, by creating an appearance that Risk vs Reward Strategies purchased / sold. • Pre-emptive rights to newly-issued shares. than see an opportunity due to the extensive numbers of Cum-Ex-related consider a robust defence and/or remediating no risk. would be funded by private capital. Private business on the record date, the registrar Meet our CUM-EX large-value, high-profile investigations. He heavily involved in some of the most significant controversial practice involved exploiting a involved. the shares were short sold (selling when While the above is a simple example, the • Equity finance agents to execute the • General meeting voting rights. ambiguity of the law surrounding this area. Authorities in EU member states may well criminal and civil investigations ongoing, as measures in order to limit reputational harm. investors invest in the fund for a return on takes a snapshot of who is physically Investigations Team is a solicitor who has set legal precedents. tax fraud cases of recent years. loophole on dividend payments to trade the seller does not yet hold them) prior to reality is that Cum-Ex involved a highly complex stock borrowing. • The Cologne tax court held that under Furthermore, it is a practice that had obtain evidence from the UK authorities to well as significant amounts of litigation. It is Ex-dividend date investment based on those strategies. holding the shares (the holders of record) Rahman Ravelli was one of the very first UK law shares in a way that concealed the identity How a Cum-Ex Trading the dividend record date (cum-dividend), network of entities providing liquidity and • Legal and tax professionals to provide German law, in the case of an arguably been accepted by legislatures in assist in criminal investigations. This process is highly likely there will be more in the near Glossary of Key Terms Ex-dividend is where a stock is trading and pays the real dividends to these firms to recognise the possible legal His expertise in criminal and regulatory of the owner and enabled several parties to when in fact they were sold after the services essential to its operation. Scheme Works advice and consultancy services. over-the-counter short sale, the share some EU states, as they had known about governed by the Criminal Justice (European future. without the value of the next dividend Institutional Trader holders. Recent changes in most markets implications of Cum-Ex and its potential impact matters and his skill in leading claim multiple tax refunds for the same Cum-Ex is an example of a dividend dividend record date (ex-dividend). Immediately prior to key dates, high purchaser would not become the beneficial Cum-Ex for many years and took no early Investigation Order) Regulations 2017 (the Cum dividend payment. The ex-dividend date is the day A trader who works for an investment bank, mean that the record date is timed to on all levels of the financial services industry. As cross-border legal teams ensure that the dividend pay-out. It has also been known as withholding tax (WHT) refund model. Hedge funds and their Chief Investment volumes of loans were taken out and owner of the shares to be delivered at a later action. 2017 regulation). It is essentially a request for The full extent of how the Cum-Ex scandal A share-quoted cum dividend carries the right the stock starts trading without the value brokerage firm, mutual fund or hedge fund. ensure that cum-dividend trades, i.e.: a firm that prides itself on a rapid response to organisations and individuals he dividend-stripping. Cum-Ex entitled overseas investors in Officers (CIO’s) would develop and create several parties obtained legal and tax stage at the settlement of the purchase sharing evidence in criminal investigations is affecting the UK is, therefore, still yet to of its next dividend payment. Typically, the those executed before ex-date, should the needs of existing or potential clients, we strategies for investments relating to Cum-Ex to receive the next dividend. This is the advice to seek to ensure the propriety of agreement. through mutual legal assistance. be seen. opposite of ex-dividend. ex-dividend date for a stock is one their activity.

A Briefing Guide to : The Cum-Ex Guide for Financial Institutions trades. This could involve incorporating Reclaim agents to submit the tax refund In the UK, the issue of beneficial Corporate bodies (and individual parties) The requests are generally made to the Custodians business day before the record date. This Interdealer broker have settled before the close of business on compiled a team of specialists in represents benefit from bespoke, intelligent domestic companies to obtain a refund Three or more entities are needed for a Considerations for UK Financial companies in various jurisdictions with the applications on behalf of offshore investors, ownership of shares was addressed in J embroiled in Cum-Ex will, no doubt, have their Home Office. But for investigations Custodians are those who hold and settle means traded positions at the start of This is an intermediary who helps with the the record date. The opportunity for Cum-Ex anticipation of a Cum-Ex caseload. That defence that challenges each and every aspect on shares under double taxation treaties. successful Cum-ex scheme. A simplified Institutions purpose of investing in certain listed obtain the refunds and then distribute them Sainsbury Plc v O’Connor [1990], in which own specific justifications for the practice. For relating to tax and fiscal customs matters trade equity. This is a service to hold and business on the ex-dividend date represent transactions between the financial existed where this was not the case, as caseload continues to grow – and our of the allegations made against his clients. It is worth noting that the UK does not use summary example is outlined here: Financial institutions involved with dividend securities. The hedge fund would create accordingly. Multiple offshore investors would Millett J said beneficial ownership was example, they may state they had no the requests are sent to HM Revenue and settle shares. the beneficial owner who is entitled to the institutions and the banks. described above. Share registers are kept experts are on hand to manage each and WHT, so the UK tax authorities are not arbitrage could be at risk of a number of relationships with prime brokers, apply for refunds based upon allegedly falsified “more than equitable ownership. It responsibility over - or limited knowledge of - Customs (HMRC). The issuing authority in dividend, whether that is paid as a real electronically. Settlement is the delivery of title every aspect of such cases. SYEDUR RAHMAN affected by Cum-Ex transactions, unlike 1. Three investors come together, Investors A, consequences of Cum-Ex investigations. These custodians and banks. The investments dividend credit advices from custodian banks requires more than the ownership of an the overall strategy and the counterparties a European country will make an Declaration date dividend (if they are also the holder of record) Leverage to shares against payment in accordance with Syed's great depth of experience and his many other states. B and C. include both civil and criminal sanctions and would be funded through private equity and refund applications from reclaim agents. empty shell bereft of those rights of involved, with the understanding that all application to HMRC, explaining that an The date that the dividend is announced or paid as a manufactured dividend (if the The margin your broker provides you with, the sale contract. NEIL WILLIAMS accomplishments in cross-border fraud and 2. Investor A owns shares in company X. The the reputational effect that either of these can and leverage provided by prime brokers. beneficial enjoyment which normally parties had applied their own robust legal and offence has been committed or that there by the company’s board of directors. On shares have not settled by close of business based on the capital in your account. The Neil’s achievements and his expertise in business crime cases and high-stakes Cum-Ex trading began when a tax shares are worth €20 million. have upon a firm. The global strategy was likely to involve Ownership of the shares was impossible to attach to equitable ownership.’’ tax advice. are reasonable grounds for suspecting this day, the company will give information on record date). It is this beneficial owner who leverage varies between brokers and may Short selling regulatory and criminal investigations have commercial and financial investigations have loophole was discovered in the 1990s. The 3. Investor B sells the same shares worth €20 obtaining a legal opinion approving such ascertain, given the speed of the transactions. that an offence has been committed. The about the size of the dividend, the date of is entitled to apply for a WHT reclaim. depend on what you are holding in the This occurs when you borrow shares from a led to him being viewed as a cross-border put him in high demand with corporates and loophole was utilised by a network of million to Investor C without owning them Firms will be subject to FCA requirements, the investment activities. The timing of the shorts and dividend Cum-Ex Defence How it Affects the UK application will include the names of the record and the payment date. The account (cash and securities) and share broker and sell them with the expectation that financial crime specialist with a flair for their directors, financial institutions and high institutions and professionals, including himself (short selling) before the dividend Money Laundering Regulations 2017 and any compensation payments had the effect of It is imperative that a defence strategy Many UK-based financial institutions were subject of the request, the operation company usually has a legal responsibility Ex-dividend price. the price will go lower and can be bought back high-profile, international white-collar net worth individuals traders, investors, tax advisers, lawyers, pay-out day. legislation preceding this, depending on the Cum-Ex transactions commonly involved essentially muddying the true beneficial tailored to the needs of the situation is involved in dividend arbitrage at the time, name and the reasons why a European to pay the dividend once it has been A term used in share listings to denote that the at a lower price. You return the borrowed crime matters. His advice is sought brokerage firms and banks. It was a 4. Company X then distributes its pay-outs. period of alleged offending. In addition to this, four trade legs: ownership of the stock (shares). devised the moment it is anticipated that whether that be through equities trading, Investigation Order is sought. declared. share is sold without the right to receive the Payment date share to your broker and keep the profit. regularly by senior business and financial His caseload includes many of the most lucrative trading practice until legislative Investor A receives a dividend pay-out of firms may well be subject to EU Market Abuse the authorities may take an interest in brokerage or in ancillary roles. Participants in dividend payment, which is marked as due to The date dividends are actually paid. The figures, corporates and major complex, challenging cases involving national changes were introduced in 2012. €750,000 (75% of total dividend - €1 million). Regulations (MAR). Financial institutions will • purchase of the stocks (shares) Legal Issues Surrounding the investigating a corporate body and /or its the Cum-Ex trades, such as hedge funds, An order following such an application will Delivery vs Payment (DVP) those shareholders who are on the share length of time between the initial record T + 2 Settlement organisations and he is consistently and international agencies. He has expertise in After pay-out, Investor A's shares are worth need to have adequate and considered • sale of the stocks Cum-Ex Investigations officers. In our experience, any defence would purchase substantial amounts of shares only be made if it is necessary and systems and controls in place to satisfy AML This is a mode of settlement of securities. register at a pre-announced date. This is the date and payment date varies between This is a processing time. When an order is highlighted by national and international handling regulatory and compliance cases in a As a result of these trades, there are now Germany is the country at the heart of the Put simply, banks and stockbrokers rapidly €19 million. • collateralised stock loan agreements to Cum-Ex trading allowed two parties to appear will be dependent on the different trading in order to make a profit. Due to the borrowing proportionate to make it for the purposes requirements, including due diligence on In DVP, the transfer of securities and funds opposite of cum dividend. stock exchanges but is typically anywhere placed and executed on the stock exchange legal guides. wide variety of countries and regularly handles active investigations in various European scandal and the country whose traded shares with (cum) and without (ex) 5. Investor A receives a tax certificate to facilitate the short sale to be the beneficial owners of the same strategies that were executed by the facilities provided by UK prime brokers (who of the investigation or the proceedings in clients/transactions. Firms who are concerned happen simultaneously. DVP settlement between the ex-date and one or two between buyer and seller, this is known as the the most notable financial services cases. jurisdictions, including (but not limited to) investigations into Cum-Ex are most dividend rights, in a way that enabled reimburse €250,000 of dividend tax • over-the-counter (OTC) forward shares, creating the opportunity for multiple corporate bodies and the roles that were offered services such as financing, securities question. A designated public prosecutor about their exposure should consider ensures that funds are paid, and the Futures contracts months. trade day (T – day). The transaction is then With a reputation for mounting the UK, Germany, Denmark and Austria. advanced. The German authorities have them to hide the identity of the actual (representing the 25% tax reclaim). agreements. WHT refunds on the same dividend payment. undertaken by CIO’s and their teams. lending and overdraft facilities), CIO’s or in England and Wales will then validate an conducting an internal investigation and be securities are then delivered. Futures are a contract that requires the buyer entered into the company’s record books strongest possible legal challenges and an JOSIE WELLAND claimed that Cum-Ex has cost the country owner. This meant that they could agree 6. Investor A sells shares worth €19 million to • Several parties were essential to the Any examination of the beneficial ownership of portfolio managers of hedge funds would be order pursuant to s7 of the 2017 prepared to self-report anything untoward to to purchase an asset at a specific price on a Prime brokers (settled) “T + 2” days after the trade day (i.e.: 2 acknowledged skill for forensically Josie is highly-rated for her defence of As such, there were no perceived risks approximately €30 billion in lost revenue. to sell a company stock before the Investor B. transactions, including finance and stock shares is likely to focus on whether beneficial Generally, most dividend arbitrage able to negotiate and leverage substantial regulation once the above conditions are the FCA and, possibly, the German authorities. Dividend arbitrage future date. A seller of the futures contract is In short, prime brokers would hold and days after the settlement of the transaction). examining every aspect of a case, his track white-collar crime cases, having built a involved at the time - only profit. Cum-Ex However, various other EU treasuries have dividend was paid out, but then deliver it 7. Investor B delivers shares worth €19 million lending providers. Access to liquidity in ownership was actually transferred. transactions at the time were considered borrowing terms. As a result, the relationships satisfied. Dividend arbitrage is an options trading contracted to deliver that asset at a specific settle shares and offer additional services record in financial investigations is reputation for intelligent and forceful was one of the most lucrative models in also been affected, with some estimates of after the dividend had been paid. This to Investor C and pays her an additional both the cash and the forward market sensible and legal tax planning. Those and agreements between these parties could It is highly likely that European enforcement strategy that involves purchasing put date and price. This is a method that is often such as financing, stock lending, overdraft Withholding tax (“WHT”) enviable. representation of corporates and individuals in recent years. There were no provisions put €55.2 billion being lost in tax revenue as a tactic enabled both parties to claim tax €750,000 was essential. In the context of Cum-Ex transactions, involved in the Cum-Ex transactions are now face scrutiny by the authorities. In our In the UK itself, the Financial Conduct agencies will target financial institutions, in options and an equivalent amount of used by sophisticated traders and financial facilities and credit lines. A withholding tax takes a set amount of money investigations spanning countries and in place by European states to prevent result of such schemes. rebates of WHT on capital gains tax (a tax 8. Investor C sells shares worth €19 million beneficial ownership of the shares and the sure to raise the point that the practice view, this is one of the many reasons why Authority (FCA) has been conducting a particular those with substantial resources. underlying stock before its ex-dividend institutions as part of hedging strategies. out of an employee's payslip and pays it to the AZIZ RAHMAN continents. Cum-Ex until it came to a head in 2012. that had only been paid once, if at all) from back to Investor A. Each trade leg required a professional rights this carries includes: was not illegal or dishonest, and was European investigations may well now have a review into the practices of some firms This is so that significant financial penalties can date, and then exercising the put after Record date government. The money taken is a credit Aziz’s success in some of this century’s The Cum-Ex scandal is now a EU tax authorities. 9. Investor C receives a tax certificate to intermediary, including: actually typical market behaviour. The particular focus on London. Investigations involved in dividend-stripping trades in be agreed; depending on how corporate collecting the dividend. When used on a Hedge funds The record date is used to determine who against the employee's annual income tax. If most notable financial crime cases and his Her intelligent management of investigations in The Cum-Ex Trading Scandal rapidly-widening cross-border tax fraud reimburse €250,000 of dividend tax. • The right to share in the company's strategies deployed were market neutral. have already led to two former London traders Germany. The FCA has confirmed it is bodies are perceived by investigators and what security with low volatility (causing lower Privately-owned and privately-managed funds is on the share register and, therefore, too much money is withheld, an employee will robust, incisive defence of clients mean he various jurisdictions and her eye for detail in Cum-Ex is the name given to a huge volume probe affecting many financial institutions Rapid trading between the various parties Investors A, B & C share the tax • Brokers to execute the purchase and/or profitability, income, and assets. In many cases, companies relied on advice being convicted in March 2020 of tax fraud in currently investigating financial institutions investigations discover about those bodies’ options premiums) and a high dividend, that are generally formed by institutional entitled to the dividend. The company sets receive a tax refund; if not enough is withheld, is viewed by legal guides and the large, complex cases have led to her of dividend trading strategies (dividend and individuals across 11 EU jurisdictions; could confuse the tax authorities reimbursements. sale of the stock. • A degree of control and influence over from their lawyers and accountants, and Germany – in what was the first criminal trial and individuals implicated in the scandal. activities. Depending on the merits of the case, dividend arbitrage can result in an investor traders who have expertise working in the date of record after it has announced an employee will have an additional tax bill. profession itself as one of the elite impressing senior figures in both the legal and arbitrage stock trading transactions) that with investigators engaging in regulatory, civil regarding beneficial ownership of the • Custodians to hold the stock once company management selection. would argue that they did nothing more relating to Cum-Ex trades. With the passage of time, there are now a corporate body will need to carefully realising profits while assuming very low to investment banks, creating strategies that that it will pay a dividend. At the close of international solicitors handling business world. As a result, she has been took place largely prior to 2012. The and criminal proceedings against those shares, by creating an appearance that Risk vs Reward Strategies purchased / sold. • Pre-emptive rights to newly-issued shares. than see an opportunity due to the extensive numbers of Cum-Ex-related consider a robust defence and/or remediating no risk. would be funded by private capital. Private business on the record date, the registrar Meet our CUM-EX large-value, high-profile investigations. He heavily involved in some of the most significant controversial practice involved exploiting a involved. the shares were short sold (selling when While the above is a simple example, the • Equity finance agents to execute the • General meeting voting rights. ambiguity of the law surrounding this area. Authorities in EU member states may well criminal and civil investigations ongoing, as measures in order to limit reputational harm. investors invest in the fund for a return on takes a snapshot of who is physically Investigations Team is a solicitor who has set legal precedents. tax fraud cases of recent years. loophole on dividend payments to trade the seller does not yet hold them) prior to reality is that Cum-Ex involved a highly complex stock borrowing. • The Cologne tax court held that under Furthermore, it is a practice that had obtain evidence from the UK authorities to well as significant amounts of litigation. It is Ex-dividend date investment based on those strategies. holding the shares (the holders of record) Rahman Ravelli was one of the very first UK law shares in a way that concealed the identity How a Cum-Ex Trading the dividend record date (cum-dividend), network of entities providing liquidity and • Legal and tax professionals to provide German law, in the case of an arguably been accepted by legislatures in assist in criminal investigations. This process is highly likely there will be more in the near Glossary of Key Terms Ex-dividend is where a stock is trading and pays the real dividends to these firms to recognise the possible legal His expertise in criminal and regulatory of the owner and enabled several parties to Scheme Works when in fact they were sold after the services essential to its operation. advice and consultancy services. over-the-counter short sale, the share some EU states, as they had known about governed by the Criminal Justice (European future. without the value of the next dividend Institutional Trader holders. Recent changes in most markets implications of Cum-Ex and its potential impact matters and his skill in leading claim multiple tax refunds for the same Cum-Ex is an example of a dividend dividend record date (ex-dividend). Immediately prior to key dates, high purchaser would not become the beneficial Cum-Ex for many years and took no early Investigation Order) Regulations 2017 (the Cum dividend payment. The ex-dividend date is the day A trader who works for an investment bank, mean that the record date is timed to on all levels of the financial services industry. As cross-border legal teams ensure that the dividend pay-out. It has also been known as withholding tax (WHT) refund model. Hedge funds and their Chief Investment volumes of loans were taken out and owner of the shares to be delivered at a later action. 2017 regulation). It is essentially a request for The full extent of how the Cum-Ex scandal A share-quoted cum dividend carries the right the stock starts trading without the value brokerage firm, mutual fund or hedge fund. ensure that cum-dividend trades, i.e.: a firm that prides itself on a rapid response to organisations and individuals he dividend-stripping. Cum-Ex entitled overseas investors in Officers (CIO’s) would develop and create several parties obtained legal and tax stage at the settlement of the purchase sharing evidence in criminal investigations is affecting the UK is, therefore, still yet to of its next dividend payment. Typically, the those executed before ex-date, should the needs of existing or potential clients, we strategies for investments relating to Cum-Ex to receive the next dividend. This is the advice to seek to ensure the propriety of agreement. through mutual legal assistance. be seen. opposite of ex-dividend. ex-dividend date for a stock is one their activity.

A Briefing Guide to : The Cum-Ex Guide for Financial Institutions trades. This could involve incorporating Reclaim agents to submit the tax refund In the UK, the issue of beneficial Corporate bodies (and individual parties) The requests are generally made to the Custodians business day before the record date. This Interdealer broker have settled before the close of business on compiled a team of specialists in represents benefit from bespoke, intelligent domestic companies to obtain a refund Three or more entities are needed for a Considerations for UK Financial companies in various jurisdictions with the applications on behalf of offshore investors, ownership of shares was addressed in J embroiled in Cum-Ex will, no doubt, have their Home Office. But for investigations Custodians are those who hold and settle means traded positions at the start of This is an intermediary who helps with the the record date. The opportunity for Cum-Ex anticipation of a Cum-Ex caseload. That defence that challenges each and every aspect on shares under double taxation treaties. successful Cum-ex scheme. A simplified Institutions purpose of investing in certain listed obtain the refunds and then distribute them Sainsbury Plc v O’Connor [1990], in which own specific justifications for the practice. For relating to tax and fiscal customs matters trade equity. This is a service to hold and business on the ex-dividend date represent transactions between the financial existed where this was not the case, as caseload continues to grow – and our of the allegations made against his clients. It is worth noting that the UK does not use summary example is outlined here: Financial institutions involved with dividend securities. The hedge fund would create accordingly. Multiple offshore investors would Millett J said beneficial ownership was example, they may state they had no the requests are sent to HM Revenue and settle shares. the beneficial owner who is entitled to the institutions and the banks. described above. Share registers are kept experts are on hand to manage each and WHT, so the UK tax authorities are not arbitrage could be at risk of a number of relationships with prime brokers, apply for refunds based upon allegedly falsified “more than equitable ownership. It responsibility over - or limited knowledge of - Customs (HMRC). The issuing authority in dividend, whether that is paid as a real electronically. Settlement is the delivery of title every aspect of such cases. SYEDUR RAHMAN affected by Cum-Ex transactions, unlike 1. Three investors come together, Investors A, consequences of Cum-Ex investigations. These custodians and banks. The investments dividend credit advices from custodian banks requires more than the ownership of an the overall strategy and the counterparties a European country will make an Declaration date dividend (if they are also the holder of record) Leverage to shares against payment in accordance with Syed's great depth of experience and his many other states. B and C. include both civil and criminal sanctions and would be funded through private equity and refund applications from reclaim agents. empty shell bereft of those rights of involved, with the understanding that all application to HMRC, explaining that an The date that the dividend is announced or paid as a manufactured dividend (if the The margin your broker provides you with, the sale contract. NEIL WILLIAMS accomplishments in cross-border fraud and 2. Investor A owns shares in company X. The the reputational effect that either of these can and leverage provided by prime brokers. beneficial enjoyment which normally parties had applied their own robust legal and offence has been committed or that there by the company’s board of directors. On shares have not settled by close of business based on the capital in your account. The Neil’s achievements and his expertise in business crime cases and high-stakes Cum-Ex trading began when a tax shares are worth €20 million. have upon a firm. The global strategy was likely to involve Ownership of the shares was impossible to attach to equitable ownership.’’ tax advice. are reasonable grounds for suspecting this day, the company will give information on record date). It is this beneficial owner who leverage varies between brokers and may Short selling regulatory and criminal investigations have commercial and financial investigations have loophole was discovered in the 1990s. The 3. Investor B sells the same shares worth €20 obtaining a legal opinion approving such ascertain, given the speed of the transactions. that an offence has been committed. The about the size of the dividend, the date of is entitled to apply for a WHT reclaim. depend on what you are holding in the This occurs when you borrow shares from a led to him being viewed as a cross-border put him in high demand with corporates and loophole was utilised by a network of million to Investor C without owning them Firms will be subject to FCA requirements, the investment activities. The timing of the shorts and dividend Cum-Ex Defence How it Affects the UK application will include the names of the record and the payment date. The account (cash and securities) and share broker and sell them with the expectation that financial crime specialist with a flair for their directors, financial institutions and high institutions and professionals, including himself (short selling) before the dividend Money Laundering Regulations 2017 and any compensation payments had the effect of It is imperative that a defence strategy Many UK-based financial institutions were subject of the request, the operation company usually has a legal responsibility Ex-dividend price. the price will go lower and can be bought back high-profile, international white-collar net worth individuals traders, investors, tax advisers, lawyers, pay-out day. legislation preceding this, depending on the Cum-Ex transactions commonly involved essentially muddying the true beneficial tailored to the needs of the situation is involved in dividend arbitrage at the time, name and the reasons why a European to pay the dividend once it has been A term used in share listings to denote that the at a lower price. You return the borrowed crime matters. His advice is sought brokerage firms and banks. It was a 4. Company X then distributes its pay-outs. period of alleged offending. In addition to this, four trade legs: ownership of the stock (shares). devised the moment it is anticipated that whether that be through equities trading, Investigation Order is sought. declared. share is sold without the right to receive the Payment date share to your broker and keep the profit. regularly by senior business and financial His caseload includes many of the most lucrative trading practice until legislative Investor A receives a dividend pay-out of firms may well be subject to EU Market Abuse the authorities may take an interest in brokerage or in ancillary roles. Participants in dividend payment, which is marked as due to The date dividends are actually paid. The figures, corporates and major complex, challenging cases involving national changes were introduced in 2012. €750,000 (75% of total dividend - €1 million). Regulations (MAR). Financial institutions will • purchase of the stocks (shares) Legal Issues Surrounding the investigating a corporate body and /or its the Cum-Ex trades, such as hedge funds, An order following such an application will Delivery vs Payment (DVP) those shareholders who are on the share length of time between the initial record T + 2 Settlement organisations and he is consistently and international agencies. He has expertise in After pay-out, Investor A's shares are worth need to have adequate and considered • sale of the stocks Cum-Ex Investigations officers. In our experience, any defence would purchase substantial amounts of shares only be made if it is necessary and systems and controls in place to satisfy AML This is a mode of settlement of securities. register at a pre-announced date. This is the date and payment date varies between This is a processing time. When an order is highlighted by national and international handling regulatory and compliance cases in a As a result of these trades, there are now Germany is the country at the heart of the Put simply, banks and stockbrokers rapidly €19 million. • collateralised stock loan agreements to Cum-Ex trading allowed two parties to appear will be dependent on the different trading in order to make a profit. Due to the borrowing proportionate to make it for the purposes requirements, including due diligence on In DVP, the transfer of securities and funds opposite of cum dividend. stock exchanges but is typically anywhere placed and executed on the stock exchange legal guides. wide variety of countries and regularly handles active investigations in various European scandal and the country whose traded shares with (cum) and without (ex) 5. Investor A receives a tax certificate to facilitate the short sale to be the beneficial owners of the same strategies that were executed by the facilities provided by UK prime brokers (who of the investigation or the proceedings in clients/transactions. Firms who are concerned happen simultaneously. DVP settlement between the ex-date and one or two between buyer and seller, this is known as the the most notable financial services cases. jurisdictions, including (but not limited to) investigations into Cum-Ex are most dividend rights, in a way that enabled reimburse €250,000 of dividend tax • over-the-counter (OTC) forward shares, creating the opportunity for multiple corporate bodies and the roles that were offered services such as financing, securities question. A designated public prosecutor about their exposure should consider ensures that funds are paid, and the Futures contracts months. trade day (T – day). The transaction is then With a reputation for mounting the UK, Germany, Denmark and Austria. advanced. The German authorities have them to hide the identity of the actual (representing the 25% tax reclaim). agreements. WHT refunds on the same dividend payment. undertaken by CIO’s and their teams. lending and overdraft facilities), CIO’s or in England and Wales will then validate an conducting an internal investigation and be securities are then delivered. Futures are a contract that requires the buyer entered into the company’s record books strongest possible legal challenges and an JOSIE WELLAND claimed that Cum-Ex has cost the country owner. This meant that they could agree 6. Investor A sells shares worth €19 million to • Several parties were essential to the Any examination of the beneficial ownership of portfolio managers of hedge funds would be order pursuant to s7 of the 2017 prepared to self-report anything untoward to to purchase an asset at a specific price on a Prime brokers (settled) “T + 2” days after the trade day (i.e.: 2 acknowledged skill for forensically Josie is highly-rated for her defence of As such, there were no perceived risks approximately €30 billion in lost revenue. to sell a company stock before the Investor B. transactions, including finance and stock shares is likely to focus on whether beneficial Generally, most dividend arbitrage able to negotiate and leverage substantial regulation once the above conditions are the FCA and, possibly, the German authorities. Dividend arbitrage future date. A seller of the futures contract is In short, prime brokers would hold and days after the settlement of the transaction). examining every aspect of a case, his track white-collar crime cases, having built a However, various other EU treasuries have dividend was paid out, but then deliver it 7. Investor B delivers shares worth €19 million involved at the time - only profit. Cum-Ex lending providers. Access to liquidity in ownership was actually transferred. transactions at the time were considered borrowing terms. As a result, the relationships satisfied. Dividend arbitrage is an options trading contracted to deliver that asset at a specific settle shares and offer additional services record in financial investigations is reputation for intelligent and forceful was one of the most lucrative models in also been affected, with some estimates of after the dividend had been paid. This to Investor C and pays her an additional both the cash and the forward market sensible and legal tax planning. Those and agreements between these parties could It is highly likely that European enforcement strategy that involves purchasing put date and price. This is a method that is often such as financing, stock lending, overdraft Withholding tax (“WHT”) enviable. representation of corporates and individuals in recent years. There were no provisions put €55.2 billion being lost in tax revenue as a tactic enabled both parties to claim tax €750,000 was essential. In the context of Cum-Ex transactions, involved in the Cum-Ex transactions are now face scrutiny by the authorities. In our In the UK itself, the Financial Conduct agencies will target financial institutions, in options and an equivalent amount of used by sophisticated traders and financial facilities and credit lines. A withholding tax takes a set amount of money investigations spanning countries and in place by European states to prevent result of such schemes. rebates of WHT on capital gains tax (a tax 8. Investor C sells shares worth €19 million beneficial ownership of the shares and the sure to raise the point that the practice view, this is one of the many reasons why Authority (FCA) has been conducting a particular those with substantial resources. underlying stock before its ex-dividend institutions as part of hedging strategies. out of an employee's payslip and pays it to the AZIZ RAHMAN continents. Cum-Ex until it came to a head in 2012. that had only been paid once, if at all) from back to Investor A. Each trade leg required a professional rights this carries includes: was not illegal or dishonest, and was European investigations may well now have a review into the practices of some firms This is so that significant financial penalties can date, and then exercising the put after Record date government. The money taken is a credit Aziz’s success in some of this century’s The Cum-Ex scandal is now a EU tax authorities. 9. Investor C receives a tax certificate to intermediary, including: actually typical market behaviour. The particular focus on London. Investigations involved in dividend-stripping trades in be agreed; depending on how corporate collecting the dividend. When used on a Hedge funds The record date is used to determine who against the employee's annual income tax. If most notable financial crime cases and his Her intelligent management of investigations in The Cum-Ex Trading Scandal rapidly-widening cross-border tax fraud reimburse €250,000 of dividend tax. • The right to share in the company's strategies deployed were market neutral. have already led to two former London traders Germany. The FCA has confirmed it is bodies are perceived by investigators and what security with low volatility (causing lower Privately-owned and privately-managed funds is on the share register and, therefore, too much money is withheld, an employee will robust, incisive defence of clients mean he various jurisdictions and her eye for detail in Cum-Ex is the name given to a huge volume probe affecting many financial institutions Rapid trading between the various parties Investors A, B & C share the tax • Brokers to execute the purchase and/or profitability, income, and assets. In many cases, companies relied on advice being convicted in March 2020 of tax fraud in currently investigating financial institutions investigations discover about those bodies’ options premiums) and a high dividend, that are generally formed by institutional entitled to the dividend. The company sets receive a tax refund; if not enough is withheld, is viewed by legal guides and the large, complex cases have led to her of dividend trading strategies (dividend and individuals across 11 EU jurisdictions; could confuse the tax authorities reimbursements. sale of the stock. • A degree of control and influence over from their lawyers and accountants, and Germany – in what was the first criminal trial and individuals implicated in the scandal. activities. Depending on the merits of the case, dividend arbitrage can result in an investor traders who have expertise working in the date of record after it has announced an employee will have an additional tax bill. profession itself as one of the elite impressing senior figures in both the legal and arbitrage stock trading transactions) that with investigators engaging in regulatory, civil regarding beneficial ownership of the • Custodians to hold the stock once company management selection. would argue that they did nothing more relating to Cum-Ex trades. With the passage of time, there are now a corporate body will need to carefully realising profits while assuming very low to investment banks, creating strategies that that it will pay a dividend. At the close of international solicitors handling business world. As a result, she has been took place largely prior to 2012. The and criminal proceedings against those shares, by creating an appearance that Risk vs Reward Strategies purchased / sold. • Pre-emptive rights to newly-issued shares. than see an opportunity due to the extensive numbers of Cum-Ex-related consider a robust defence and/or remediating no risk. would be funded by private capital. Private business on the record date, the registrar Meet our CUM-EX large-value, high-profile investigations. He heavily involved in some of the most significant controversial practice involved exploiting a involved. the shares were short sold (selling when While the above is a simple example, the • Equity finance agents to execute the • General meeting voting rights. ambiguity of the law surrounding this area. Authorities in EU member states may well criminal and civil investigations ongoing, as measures in order to limit reputational harm. investors invest in the fund for a return on takes a snapshot of who is physically Investigations Team is a solicitor who has set legal precedents. tax fraud cases of recent years. loophole on dividend payments to trade the seller does not yet hold them) prior to reality is that Cum-Ex involved a highly complex stock borrowing. • The Cologne tax court held that under Furthermore, it is a practice that had obtain evidence from the UK authorities to well as significant amounts of litigation. It is Ex-dividend date investment based on those strategies. holding the shares (the holders of record) Rahman Ravelli was one of the very first UK law shares in a way that concealed the identity How a Cum-Ex Trading the dividend record date (cum-dividend), network of entities providing liquidity and • Legal and tax professionals to provide German law, in the case of an arguably been accepted by legislatures in assist in criminal investigations. This process is highly likely there will be more in the near Glossary of Key Terms Ex-dividend is where a stock is trading and pays the real dividends to these firms to recognise the possible legal His expertise in criminal and regulatory of the owner and enabled several parties to when in fact they were sold after the services essential to its operation. Scheme Works advice and consultancy services. over-the-counter short sale, the share some EU states, as they had known about governed by the Criminal Justice (European future. without the value of the next dividend Institutional Trader holders. Recent changes in most markets implications of Cum-Ex and its potential impact matters and his skill in leading claim multiple tax refunds for the same Cum-Ex is an example of a dividend dividend record date (ex-dividend). Immediately prior to key dates, high purchaser would not become the beneficial Cum-Ex for many years and took no early Investigation Order) Regulations 2017 (the Cum dividend payment. The ex-dividend date is the day A trader who works for an investment bank, mean that the record date is timed to on all levels of the financial services industry. As cross-border legal teams ensure that the dividend pay-out. It has also been known as withholding tax (WHT) refund model. Hedge funds and their Chief Investment volumes of loans were taken out and owner of the shares to be delivered at a later action. 2017 regulation). It is essentially a request for The full extent of how the Cum-Ex scandal A share-quoted cum dividend carries the right the stock starts trading without the value brokerage firm, mutual fund or hedge fund. ensure that cum-dividend trades, i.e.: a firm that prides itself on a rapid response to organisations and individuals he dividend-stripping. Cum-Ex entitled overseas investors in Officers (CIO’s) would develop and create several parties obtained legal and tax stage at the settlement of the purchase sharing evidence in criminal investigations is affecting the UK is, therefore, still yet to of its next dividend payment. Typically, the those executed before ex-date, should the needs of existing or potential clients, we strategies for investments relating to Cum-Ex to receive the next dividend. This is the advice to seek to ensure the propriety of agreement. through mutual legal assistance. be seen. opposite of ex-dividend. ex-dividend date for a stock is one their activity.

A Briefing Guide to : The Cum-Ex Guide for Financial Institutions trades. This could involve incorporating Reclaim agents to submit the tax refund In the UK, the issue of beneficial Corporate bodies (and individual parties) The requests are generally made to the Custodians business day before the record date. This Interdealer broker have settled before the close of business on compiled a team of specialists in represents benefit from bespoke, intelligent domestic companies to obtain a refund Three or more entities are needed for a Considerations for UK Financial companies in various jurisdictions with the applications on behalf of offshore investors, ownership of shares was addressed in J embroiled in Cum-Ex will, no doubt, have their Home Office. But for investigations Custodians are those who hold and settle means traded positions at the start of This is an intermediary who helps with the the record date. The opportunity for Cum-Ex anticipation of a Cum-Ex caseload. That defence that challenges each and every aspect on shares under double taxation treaties. successful Cum-ex scheme. A simplified Institutions purpose of investing in certain listed obtain the refunds and then distribute them Sainsbury Plc v O’Connor [1990], in which own specific justifications for the practice. For relating to tax and fiscal customs matters trade equity. This is a service to hold and business on the ex-dividend date represent transactions between the financial existed where this was not the case, as caseload continues to grow – and our of the allegations made against his clients. It is worth noting that the UK does not use summary example is outlined here: Financial institutions involved with dividend securities. The hedge fund would create accordingly. Multiple offshore investors would Millett J said beneficial ownership was example, they may state they had no the requests are sent to HM Revenue and settle shares. the beneficial owner who is entitled to the institutions and the banks. described above. Share registers are kept experts are on hand to manage each and WHT, so the UK tax authorities are not arbitrage could be at risk of a number of relationships with prime brokers, apply for refunds based upon allegedly falsified “more than equitable ownership. It responsibility over - or limited knowledge of - Customs (HMRC). The issuing authority in dividend, whether that is paid as a real electronically. Settlement is the delivery of title every aspect of such cases. SYEDUR RAHMAN affected by Cum-Ex transactions, unlike 1. Three investors come together, Investors A, consequences of Cum-Ex investigations. These custodians and banks. The investments dividend credit advices from custodian banks requires more than the ownership of an the overall strategy and the counterparties a European country will make an Declaration date dividend (if they are also the holder of record) Leverage to shares against payment in accordance with Syed's great depth of experience and his many other states. B and C. include both civil and criminal sanctions and would be funded through private equity and refund applications from reclaim agents. empty shell bereft of those rights of involved, with the understanding that all application to HMRC, explaining that an The date that the dividend is announced or paid as a manufactured dividend (if the The margin your broker provides you with, the sale contract. NEIL WILLIAMS accomplishments in cross-border fraud and 2. Investor A owns shares in company X. The the reputational effect that either of these can and leverage provided by prime brokers. beneficial enjoyment which normally parties had applied their own robust legal and offence has been committed or that there by the company’s board of directors. On shares have not settled by close of business based on the capital in your account. The Neil’s achievements and his expertise in business crime cases and high-stakes Cum-Ex trading began when a tax shares are worth €20 million. have upon a firm. The global strategy was likely to involve Ownership of the shares was impossible to attach to equitable ownership.’’ tax advice. are reasonable grounds for suspecting this day, the company will give information on record date). It is this beneficial owner who leverage varies between brokers and may Short selling regulatory and criminal investigations have commercial and financial investigations have loophole was discovered in the 1990s. The 3. Investor B sells the same shares worth €20 obtaining a legal opinion approving such ascertain, given the speed of the transactions. that an offence has been committed. The about the size of the dividend, the date of is entitled to apply for a WHT reclaim. depend on what you are holding in the This occurs when you borrow shares from a led to him being viewed as a cross-border put him in high demand with corporates and loophole was utilised by a network of million to Investor C without owning them Firms will be subject to FCA requirements, the investment activities. The timing of the shorts and dividend Cum-Ex Defence How it Affects the UK application will include the names of the record and the payment date. The account (cash and securities) and share broker and sell them with the expectation that financial crime specialist with a flair for their directors, financial institutions and high institutions and professionals, including himself (short selling) before the dividend Money Laundering Regulations 2017 and any compensation payments had the effect of It is imperative that a defence strategy Many UK-based financial institutions were subject of the request, the operation company usually has a legal responsibility Ex-dividend price. the price will go lower and can be bought back high-profile, international white-collar net worth individuals traders, investors, tax advisers, lawyers, pay-out day. legislation preceding this, depending on the Cum-Ex transactions commonly involved essentially muddying the true beneficial tailored to the needs of the situation is involved in dividend arbitrage at the time, name and the reasons why a European to pay the dividend once it has been A term used in share listings to denote that the at a lower price. You return the borrowed crime matters. His advice is sought brokerage firms and banks. It was a 4. Company X then distributes its pay-outs. period of alleged offending. In addition to this, four trade legs: ownership of the stock (shares). devised the moment it is anticipated that whether that be through equities trading, Investigation Order is sought. declared. share is sold without the right to receive the Payment date share to your broker and keep the profit. regularly by senior business and financial His caseload includes many of the most lucrative trading practice until legislative Investor A receives a dividend pay-out of firms may well be subject to EU Market Abuse the authorities may take an interest in brokerage or in ancillary roles. Participants in dividend payment, which is marked as due to The date dividends are actually paid. The figures, corporates and major complex, challenging cases involving national changes were introduced in 2012. €750,000 (75% of total dividend - €1 million). Regulations (MAR). Financial institutions will • purchase of the stocks (shares) Legal Issues Surrounding the investigating a corporate body and /or its the Cum-Ex trades, such as hedge funds, An order following such an application will Delivery vs Payment (DVP) those shareholders who are on the share length of time between the initial record T + 2 Settlement organisations and he is consistently and international agencies. He has expertise in After pay-out, Investor A's shares are worth need to have adequate and considered • sale of the stocks Cum-Ex Investigations officers. In our experience, any defence would purchase substantial amounts of shares only be made if it is necessary and systems and controls in place to satisfy AML This is a mode of settlement of securities. register at a pre-announced date. This is the date and payment date varies between This is a processing time. When an order is highlighted by national and international handling regulatory and compliance cases in a As a result of these trades, there are now Germany is the country at the heart of the Put simply, banks and stockbrokers rapidly €19 million. • collateralised stock loan agreements to Cum-Ex trading allowed two parties to appear will be dependent on the different trading in order to make a profit. Due to the borrowing proportionate to make it for the purposes requirements, including due diligence on In DVP, the transfer of securities and funds opposite of cum dividend. stock exchanges but is typically anywhere placed and executed on the stock exchange legal guides. wide variety of countries and regularly handles active investigations in various European scandal and the country whose traded shares with (cum) and without (ex) 5. Investor A receives a tax certificate to facilitate the short sale to be the beneficial owners of the same strategies that were executed by the facilities provided by UK prime brokers (who of the investigation or the proceedings in clients/transactions. Firms who are concerned happen simultaneously. DVP settlement between the ex-date and one or two between buyer and seller, this is known as the the most notable financial services cases. jurisdictions, including (but not limited to) investigations into Cum-Ex are most dividend rights, in a way that enabled reimburse €250,000 of dividend tax • over-the-counter (OTC) forward shares, creating the opportunity for multiple corporate bodies and the roles that were offered services such as financing, securities question. A designated public prosecutor about their exposure should consider ensures that funds are paid, and the Futures contracts months. trade day (T – day). The transaction is then With a reputation for mounting the UK, Germany, Denmark and Austria. advanced. The German authorities have them to hide the identity of the actual (representing the 25% tax reclaim). agreements. WHT refunds on the same dividend payment. undertaken by CIO’s and their teams. lending and overdraft facilities), CIO’s or in England and Wales will then validate an conducting an internal investigation and be securities are then delivered. Futures are a contract that requires the buyer entered into the company’s record books strongest possible legal challenges and an JOSIE WELLAND claimed that Cum-Ex has cost the country owner. This meant that they could agree 6. Investor A sells shares worth €19 million to • Several parties were essential to the Any examination of the beneficial ownership of portfolio managers of hedge funds would be order pursuant to s7 of the 2017 prepared to self-report anything untoward to to purchase an asset at a specific price on a Prime brokers (settled) “T + 2” days after the trade day (i.e.: 2 acknowledged skill for forensically Josie is highly-rated for her defence of As such, there were no perceived risks approximately €30 billion in lost revenue. to sell a company stock before the Investor B. transactions, including finance and stock shares is likely to focus on whether beneficial Generally, most dividend arbitrage able to negotiate and leverage substantial regulation once the above conditions are the FCA and, possibly, the German authorities. Dividend arbitrage future date. A seller of the futures contract is In short, prime brokers would hold and days after the settlement of the transaction). examining every aspect of a case, his track white-collar crime cases, having built a involved at the time - only profit. Cum-Ex However, various other EU treasuries have dividend was paid out, but then deliver it 7. Investor B delivers shares worth €19 million lending providers. Access to liquidity in ownership was actually transferred. transactions at the time were considered borrowing terms. As a result, the relationships satisfied. Dividend arbitrage is an options trading contracted to deliver that asset at a specific settle shares and offer additional services record in financial investigations is reputation for intelligent and forceful was one of the most lucrative models in also been affected, with some estimates of after the dividend had been paid. This to Investor C and pays her an additional both the cash and the forward market sensible and legal tax planning. Those and agreements between these parties could It is highly likely that European enforcement strategy that involves purchasing put date and price. This is a method that is often such as financing, stock lending, overdraft Withholding tax (“WHT”) enviable. representation of corporates and individuals in recent years. There were no provisions put €55.2 billion being lost in tax revenue as a tactic enabled both parties to claim tax €750,000 was essential. In the context of Cum-Ex transactions, involved in the Cum-Ex transactions are now face scrutiny by the authorities. In our In the UK itself, the Financial Conduct agencies will target financial institutions, in options and an equivalent amount of used by sophisticated traders and financial facilities and credit lines. A withholding tax takes a set amount of money investigations spanning countries and in place by European states to prevent result of such schemes. rebates of WHT on capital gains tax (a tax 8. Investor C sells shares worth €19 million beneficial ownership of the shares and the sure to raise the point that the practice view, this is one of the many reasons why Authority (FCA) has been conducting a particular those with substantial resources. underlying stock before its ex-dividend institutions as part of hedging strategies. out of an employee's payslip and pays it to the AZIZ RAHMAN continents. Cum-Ex until it came to a head in 2012. that had only been paid once, if at all) from back to Investor A. Each trade leg required a professional rights this carries includes: was not illegal or dishonest, and was European investigations may well now have a review into the practices of some firms This is so that significant financial penalties can date, and then exercising the put after Record date government. The money taken is a credit Aziz’s success in some of this century’s The Cum-Ex scandal is now a EU tax authorities. 9. Investor C receives a tax certificate to intermediary, including: actually typical market behaviour. The particular focus on London. Investigations involved in dividend-stripping trades in be agreed; depending on how corporate collecting the dividend. When used on a Hedge funds The record date is used to determine who against the employee's annual income tax. If most notable financial crime cases and his Her intelligent management of investigations in The Cum-Ex Trading Scandal rapidly-widening cross-border tax fraud reimburse €250,000 of dividend tax. • The right to share in the company's strategies deployed were market neutral. have already led to two former London traders Germany. The FCA has confirmed it is bodies are perceived by investigators and what security with low volatility (causing lower Privately-owned and privately-managed funds is on the share register and, therefore, too much money is withheld, an employee will robust, incisive defence of clients mean he various jurisdictions and her eye for detail in Cum-Ex is the name given to a huge volume probe affecting many financial institutions Rapid trading between the various parties Investors A, B & C share the tax • Brokers to execute the purchase and/or profitability, income, and assets. In many cases, companies relied on advice being convicted in March 2020 of tax fraud in currently investigating financial institutions investigations discover about those bodies’ options premiums) and a high dividend, that are generally formed by institutional entitled to the dividend. The company sets receive a tax refund; if not enough is withheld, is viewed by legal guides and the large, complex cases have led to her of dividend trading strategies (dividend and individuals across 11 EU jurisdictions; could confuse the tax authorities reimbursements. sale of the stock. • A degree of control and influence over from their lawyers and accountants, and Germany – in what was the first criminal trial and individuals implicated in the scandal. activities. Depending on the merits of the case, dividend arbitrage can result in an investor traders who have expertise working in the date of record after it has announced an employee will have an additional tax bill. profession itself as one of the elite impressing senior figures in both the legal and arbitrage stock trading transactions) that with investigators engaging in regulatory, civil regarding beneficial ownership of the • Custodians to hold the stock once company management selection. would argue that they did nothing more relating to Cum-Ex trades. With the passage of time, there are now a corporate body will need to carefully realising profits while assuming very low to investment banks, creating strategies that that it will pay a dividend. At the close of international solicitors handling business world. As a result, she has been took place largely prior to 2012. The and criminal proceedings against those shares, by creating an appearance that Risk vs Reward Strategies purchased / sold. • Pre-emptive rights to newly-issued shares. than see an opportunity due to the extensive numbers of Cum-Ex-related consider a robust defence and/or remediating no risk. would be funded by private capital. Private business on the record date, the registrar Meet our CUM-EX large-value, high-profile investigations. He heavily involved in some of the most significant controversial practice involved exploiting a involved. the shares were short sold (selling when While the above is a simple example, the • Equity finance agents to execute the • General meeting voting rights. ambiguity of the law surrounding this area. Authorities in EU member states may well criminal and civil investigations ongoing, as measures in order to limit reputational harm. investors invest in the fund for a return on takes a snapshot of who is physically Investigations Team is a solicitor who has set legal precedents. tax fraud cases of recent years. loophole on dividend payments to trade the seller does not yet hold them) prior to reality is that Cum-Ex involved a highly complex stock borrowing. • The Cologne tax court held that under Furthermore, it is a practice that had obtain evidence from the UK authorities to well as significant amounts of litigation. It is Ex-dividend date investment based on those strategies. holding the shares (the holders of record) Rahman Ravelli was one of the very first UK law shares in a way that concealed the identity How a Cum-Ex Trading the dividend record date (cum-dividend), network of entities providing liquidity and • Legal and tax professionals to provide German law, in the case of an arguably been accepted by legislatures in assist in criminal investigations. This process is highly likely there will be more in the near Glossary of Key Terms Ex-dividend is where a stock is trading and pays the real dividends to these firms to recognise the possible legal His expertise in criminal and regulatory of the owner and enabled several parties to when in fact they were sold after the services essential to its operation. Scheme Works advice and consultancy services. over-the-counter short sale, the share some EU states, as they had known about governed by the Criminal Justice (European future. without the value of the next dividend Institutional Trader holders. Recent changes in most markets implications of Cum-Ex and its potential impact matters and his skill in leading claim multiple tax refunds for the same Cum-Ex is an example of a dividend dividend record date (ex-dividend). Immediately prior to key dates, high purchaser would not become the beneficial Cum-Ex for many years and took no early Investigation Order) Regulations 2017 (the Cum dividend payment. The ex-dividend date is the day A trader who works for an investment bank, mean that the record date is timed to on all levels of the financial services industry. As cross-border legal teams ensure that the dividend pay-out. It has also been known as withholding tax (WHT) refund model. Hedge funds and their Chief Investment volumes of loans were taken out and owner of the shares to be delivered at a later action. 2017 regulation). It is essentially a request for The full extent of how the Cum-Ex scandal A share-quoted cum dividend carries the right the stock starts trading without the value brokerage firm, mutual fund or hedge fund. ensure that cum-dividend trades, i.e.: a firm that prides itself on a rapid response to organisations and individuals he dividend-stripping. Cum-Ex entitled overseas investors in Officers (CIO’s) would develop and create several parties obtained legal and tax stage at the settlement of the purchase sharing evidence in criminal investigations is affecting the UK is, therefore, still yet to of its next dividend payment. Typically, the those executed before ex-date, should the needs of existing or potential clients, we strategies for investments relating to Cum-Ex to receive the next dividend. This is the advice to seek to ensure the propriety of agreement. through mutual legal assistance. be seen. opposite of ex-dividend. ex-dividend date for a stock is one their activity.

A Briefing Guide to : The Cum-Ex Guide for Financial Institutions trades. This could involve incorporating Reclaim agents to submit the tax refund In the UK, the issue of beneficial Corporate bodies (and individual parties) The requests are generally made to the Custodians business day before the record date. This Interdealer broker have settled before the close of business on compiled a team of specialists in represents benefit from bespoke, intelligent domestic companies to obtain a refund Three or more entities are needed for a Considerations for UK Financial companies in various jurisdictions with the applications on behalf of offshore investors, ownership of shares was addressed in J embroiled in Cum-Ex will, no doubt, have their Home Office. But for investigations Custodians are those who hold and settle means traded positions at the start of This is an intermediary who helps with the the record date. The opportunity for Cum-Ex anticipation of a Cum-Ex caseload. That defence that challenges each and every aspect on shares under double taxation treaties. successful Cum-ex scheme. A simplified Institutions purpose of investing in certain listed obtain the refunds and then distribute them Sainsbury Plc v O’Connor [1990], in which own specific justifications for the practice. For relating to tax and fiscal customs matters trade equity. This is a service to hold and business on the ex-dividend date represent transactions between the financial existed where this was not the case, as caseload continues to grow – and our of the allegations made against his clients. It is worth noting that the UK does not use summary example is outlined here: Financial institutions involved with dividend securities. The hedge fund would create accordingly. Multiple offshore investors would Millett J said beneficial ownership was example, they may state they had no the requests are sent to HM Revenue and settle shares. the beneficial owner who is entitled to the institutions and the banks. described above. Share registers are kept experts are on hand to manage each and WHT, so the UK tax authorities are not arbitrage could be at risk of a number of relationships with prime brokers, apply for refunds based upon allegedly falsified “more than equitable ownership. It responsibility over - or limited knowledge of - Customs (HMRC). The issuing authority in dividend, whether that is paid as a real electronically. Settlement is the delivery of title every aspect of such cases. SYEDUR RAHMAN affected by Cum-Ex transactions, unlike 1. Three investors come together, Investors A, consequences of Cum-Ex investigations. These custodians and banks. The investments dividend credit advices from custodian banks requires more than the ownership of an the overall strategy and the counterparties a European country will make an Declaration date dividend (if they are also the holder of record) Leverage to shares against payment in accordance with Syed's great depth of experience and his many other states. B and C. include both civil and criminal sanctions and would be funded through private equity and refund applications from reclaim agents. empty shell bereft of those rights of involved, with the understanding that all application to HMRC, explaining that an The date that the dividend is announced or paid as a manufactured dividend (if the The margin your broker provides you with, the sale contract. NEIL WILLIAMS accomplishments in cross-border fraud and 2. Investor A owns shares in company X. The the reputational effect that either of these can and leverage provided by prime brokers. beneficial enjoyment which normally parties had applied their own robust legal and offence has been committed or that there by the company’s board of directors. On shares have not settled by close of business based on the capital in your account. The Neil’s achievements and his expertise in business crime cases and high-stakes Cum-Ex trading began when a tax shares are worth €20 million. have upon a firm. The global strategy was likely to involve Ownership of the shares was impossible to attach to equitable ownership.’’ tax advice. are reasonable grounds for suspecting this day, the company will give information on record date). It is this beneficial owner who leverage varies between brokers and may Short selling regulatory and criminal investigations have commercial and financial investigations have loophole was discovered in the 1990s. The 3. Investor B sells the same shares worth €20 obtaining a legal opinion approving such ascertain, given the speed of the transactions. that an offence has been committed. The about the size of the dividend, the date of is entitled to apply for a WHT reclaim. depend on what you are holding in the This occurs when you borrow shares from a led to him being viewed as a cross-border put him in high demand with corporates and loophole was utilised by a network of million to Investor C without owning them Firms will be subject to FCA requirements, the investment activities. The timing of the shorts and dividend Cum-Ex Defence How it Affects the UK application will include the names of the record and the payment date. The account (cash and securities) and share broker and sell them with the expectation that financial crime specialist with a flair for their directors, financial institutions and high institutions and professionals, including himself (short selling) before the dividend Money Laundering Regulations 2017 and any compensation payments had the effect of It is imperative that a defence strategy Many UK-based financial institutions were subject of the request, the operation company usually has a legal responsibility Ex-dividend price. the price will go lower and can be bought back high-profile, international white-collar net worth individuals traders, investors, tax advisers, lawyers, pay-out day. legislation preceding this, depending on the Cum-Ex transactions commonly involved essentially muddying the true beneficial tailored to the needs of the situation is involved in dividend arbitrage at the time, name and the reasons why a European to pay the dividend once it has been A term used in share listings to denote that the at a lower price. You return the borrowed crime matters. His advice is sought brokerage firms and banks. It was a 4. Company X then distributes its pay-outs. period of alleged offending. In addition to this, four trade legs: ownership of the stock (shares). devised the moment it is anticipated that whether that be through equities trading, Investigation Order is sought. declared. share is sold without the right to receive the Payment date share to your broker and keep the profit. regularly by senior business and financial His caseload includes many of the most lucrative trading practice until legislative Investor A receives a dividend pay-out of firms may well be subject to EU Market Abuse the authorities may take an interest in brokerage or in ancillary roles. Participants in dividend payment, which is marked as due to The date dividends are actually paid. The figures, corporates and major complex, challenging cases involving national changes were introduced in 2012. €750,000 (75% of total dividend - €1 million). Regulations (MAR). Financial institutions will • purchase of the stocks (shares) Legal Issues Surrounding the investigating a corporate body and /or its the Cum-Ex trades, such as hedge funds, An order following such an application will Delivery vs Payment (DVP) those shareholders who are on the share length of time between the initial record T + 2 Settlement organisations and he is consistently and international agencies. He has expertise in After pay-out, Investor A's shares are worth need to have adequate and considered • sale of the stocks Cum-Ex Investigations officers. In our experience, any defence would purchase substantial amounts of shares only be made if it is necessary and systems and controls in place to satisfy AML This is a mode of settlement of securities. register at a pre-announced date. This is the date and payment date varies between This is a processing time. When an order is highlighted by national and international handling regulatory and compliance cases in a As a result of these trades, there are now Germany is the country at the heart of the Put simply, banks and stockbrokers rapidly €19 million. • collateralised stock loan agreements to Cum-Ex trading allowed two parties to appear will be dependent on the different trading in order to make a profit. Due to the borrowing proportionate to make it for the purposes requirements, including due diligence on In DVP, the transfer of securities and funds opposite of cum dividend. stock exchanges but is typically anywhere placed and executed on the stock exchange legal guides. wide variety of countries and regularly handles active investigations in various European scandal and the country whose traded shares with (cum) and without (ex) 5. Investor A receives a tax certificate to facilitate the short sale to be the beneficial owners of the same strategies that were executed by the facilities provided by UK prime brokers (who of the investigation or the proceedings in clients/transactions. Firms who are concerned happen simultaneously. DVP settlement between the ex-date and one or two between buyer and seller, this is known as the the most notable financial services cases. jurisdictions, including (but not limited to) investigations into Cum-Ex are most dividend rights, in a way that enabled reimburse €250,000 of dividend tax • over-the-counter (OTC) forward shares, creating the opportunity for multiple corporate bodies and the roles that were offered services such as financing, securities question. A designated public prosecutor about their exposure should consider ensures that funds are paid, and the Futures contracts months. trade day (T – day). The transaction is then With a reputation for mounting the UK, Germany, Denmark and Austria. advanced. The German authorities have them to hide the identity of the actual (representing the 25% tax reclaim). agreements. WHT refunds on the same dividend payment. undertaken by CIO’s and their teams. lending and overdraft facilities), CIO’s or in England and Wales will then validate an conducting an internal investigation and be securities are then delivered. Futures are a contract that requires the buyer entered into the company’s record books strongest possible legal challenges and an JOSIE WELLAND claimed that Cum-Ex has cost the country owner. This meant that they could agree 6. Investor A sells shares worth €19 million to • Several parties were essential to the Any examination of the beneficial ownership of portfolio managers of hedge funds would be order pursuant to s7 of the 2017 prepared to self-report anything untoward to to purchase an asset at a specific price on a Prime brokers (settled) “T + 2” days after the trade day (i.e.: 2 acknowledged skill for forensically Josie is highly-rated for her defence of As such, there were no perceived risks approximately €30 billion in lost revenue. to sell a company stock before the Investor B. transactions, including finance and stock shares is likely to focus on whether beneficial Generally, most dividend arbitrage able to negotiate and leverage substantial regulation once the above conditions are the FCA and, possibly, the German authorities. Dividend arbitrage future date. A seller of the futures contract is In short, prime brokers would hold and days after the settlement of the transaction). examining every aspect of a case, his track white-collar crime cases, having built a However, various other EU treasuries have dividend was paid out, but then deliver it 7. Investor B delivers shares worth €19 million involved at the time - only profit. Cum-Ex lending providers. Access to liquidity in ownership was actually transferred. transactions at the time were considered borrowing terms. As a result, the relationships satisfied. Dividend arbitrage is an options trading contracted to deliver that asset at a specific settle shares and offer additional services record in financial investigations is reputation for intelligent and forceful was one of the most lucrative models in also been affected, with some estimates of after the dividend had been paid. This to Investor C and pays her an additional both the cash and the forward market sensible and legal tax planning. Those and agreements between these parties could It is highly likely that European enforcement strategy that involves purchasing put date and price. This is a method that is often such as financing, stock lending, overdraft Withholding tax (“WHT”) enviable. representation of corporates and individuals in recent years. There were no provisions put €55.2 billion being lost in tax revenue as a tactic enabled both parties to claim tax €750,000 was essential. In the context of Cum-Ex transactions, involved in the Cum-Ex transactions are now face scrutiny by the authorities. In our In the UK itself, the Financial Conduct agencies will target financial institutions, in options and an equivalent amount of used by sophisticated traders and financial facilities and credit lines. A withholding tax takes a set amount of money investigations spanning countries and in place by European states to prevent result of such schemes. rebates of WHT on capital gains tax (a tax 8. Investor C sells shares worth €19 million beneficial ownership of the shares and the sure to raise the point that the practice view, this is one of the many reasons why Authority (FCA) has been conducting a particular those with substantial resources. underlying stock before its ex-dividend institutions as part of hedging strategies. out of an employee's payslip and pays it to the AZIZ RAHMAN continents. Cum-Ex until it came to a head in 2012. that had only been paid once, if at all) from back to Investor A. Each trade leg required a professional rights this carries includes: was not illegal or dishonest, and was European investigations may well now have a review into the practices of some firms This is so that significant financial penalties can date, and then exercising the put after Record date government. The money taken is a credit Aziz’s success in some of this century’s The Cum-Ex scandal is now a EU tax authorities. 9. Investor C receives a tax certificate to intermediary, including: actually typical market behaviour. The particular focus on London. Investigations involved in dividend-stripping trades in be agreed; depending on how corporate collecting the dividend. When used on a Hedge funds The record date is used to determine who against the employee's annual income tax. If most notable financial crime cases and his Her intelligent management of investigations in The Cum-Ex Trading Scandal rapidly-widening cross-border tax fraud reimburse €250,000 of dividend tax. • The right to share in the company's strategies deployed were market neutral. have already led to two former London traders Germany. The FCA has confirmed it is bodies are perceived by investigators and what security with low volatility (causing lower Privately-owned and privately-managed funds is on the share register and, therefore, too much money is withheld, an employee will robust, incisive defence of clients mean he various jurisdictions and her eye for detail in Cum-Ex is the name given to a huge volume probe affecting many financial institutions Rapid trading between the various parties Investors A, B & C share the tax • Brokers to execute the purchase and/or profitability, income, and assets. In many cases, companies relied on advice being convicted in March 2020 of tax fraud in currently investigating financial institutions investigations discover about those bodies’ options premiums) and a high dividend, that are generally formed by institutional entitled to the dividend. The company sets receive a tax refund; if not enough is withheld, is viewed by legal guides and the large, complex cases have led to her of dividend trading strategies (dividend and individuals across 11 EU jurisdictions; could confuse the tax authorities reimbursements. sale of the stock. • A degree of control and influence over from their lawyers and accountants, and Germany – in what was the first criminal trial and individuals implicated in the scandal. activities. Depending on the merits of the case, dividend arbitrage can result in an investor traders who have expertise working in the date of record after it has announced an employee will have an additional tax bill. profession itself as one of the elite impressing senior figures in both the legal and arbitrage stock trading transactions) that with investigators engaging in regulatory, civil regarding beneficial ownership of the • Custodians to hold the stock once company management selection. would argue that they did nothing more relating to Cum-Ex trades. With the passage of time, there are now a corporate body will need to carefully realising profits while assuming very low to investment banks, creating strategies that that it will pay a dividend. At the close of international solicitors handling business world. As a result, she has been took place largely prior to 2012. The and criminal proceedings against those shares, by creating an appearance that Risk vs Reward Strategies purchased / sold. • Pre-emptive rights to newly-issued shares. than see an opportunity due to the extensive numbers of Cum-Ex-related consider a robust defence and/or remediating no risk. would be funded by private capital. Private business on the record date, the registrar Meet our CUM-EX large-value, high-profile investigations. He heavily involved in some of the most significant controversial practice involved exploiting a involved. the shares were short sold (selling when While the above is a simple example, the • Equity finance agents to execute the • General meeting voting rights. ambiguity of the law surrounding this area. Authorities in EU member states may well criminal and civil investigations ongoing, as measures in order to limit reputational harm. investors invest in the fund for a return on takes a snapshot of who is physically Investigations Team is a solicitor who has set legal precedents. tax fraud cases of recent years. loophole on dividend payments to trade the seller does not yet hold them) prior to reality is that Cum-Ex involved a highly complex stock borrowing. • The Cologne tax court held that under Furthermore, it is a practice that had obtain evidence from the UK authorities to well as significant amounts of litigation. It is Ex-dividend date investment based on those strategies. holding the shares (the holders of record) Rahman Ravelli was one of the very first UK law shares in a way that concealed the identity How a Cum-Ex Trading the dividend record date (cum-dividend), network of entities providing liquidity and • Legal and tax professionals to provide German law, in the case of an arguably been accepted by legislatures in assist in criminal investigations. This process is highly likely there will be more in the near Glossary of Key Terms Ex-dividend is where a stock is trading and pays the real dividends to these firms to recognise the possible legal His expertise in criminal and regulatory of the owner and enabled several parties to Scheme Works when in fact they were sold after the services essential to its operation. advice and consultancy services. over-the-counter short sale, the share some EU states, as they had known about governed by the Criminal Justice (European future. without the value of the next dividend Institutional Trader holders. Recent changes in most markets implications of Cum-Ex and its potential impact matters and his skill in leading claim multiple tax refunds for the same Cum-Ex is an example of a dividend dividend record date (ex-dividend). Immediately prior to key dates, high purchaser would not become the beneficial Cum-Ex for many years and took no early Investigation Order) Regulations 2017 (the Cum dividend payment. The ex-dividend date is the day A trader who works for an investment bank, mean that the record date is timed to on all levels of the financial services industry. As cross-border legal teams ensure that the dividend pay-out. It has also been known as withholding tax (WHT) refund model. Hedge funds and their Chief Investment volumes of loans were taken out and owner of the shares to be delivered at a later action. 2017 regulation). It is essentially a request for The full extent of how the Cum-Ex scandal A share-quoted cum dividend carries the right the stock starts trading without the value brokerage firm, mutual fund or hedge fund. ensure that cum-dividend trades, i.e.: a firm that prides itself on a rapid response to organisations and individuals he dividend-stripping. Cum-Ex entitled overseas investors in Officers (CIO’s) would develop and create several parties obtained legal and tax stage at the settlement of the purchase sharing evidence in criminal investigations is affecting the UK is, therefore, still yet to of its next dividend payment. Typically, the those executed before ex-date, should the needs of existing or potential clients, we strategies for investments relating to Cum-Ex to receive the next dividend. This is the advice to seek to ensure the propriety of agreement. through mutual legal assistance. be seen. opposite of ex-dividend. ex-dividend date for a stock is one their activity.

A Briefing Guide to : The Cum-Ex Guide for Financial Institutions London Office Northern Office Midlands Office 36 Whitefriars Street Roma House, 59 Pellon Lane 3 Brindley Place London Halifax, West Yorkshire Birmingham, West Midlands EC4Y 8BQ HX1 5BE B1 2JB +44 (0)203 947 1539 +44 (0)1422 346 666 +44 (0)121 231 7025 www.rahmanravelli.co.uk