Macquarie Group did business with a British hedge fund investor who has been accused by the Danish government of orchestrating a large-scale alleged tax fraud, as banks face growing pressure over a European share-trading scandal.
After Macquarie in September said top executives were among 30 staff likely to be classified as “suspects” as part of a German tax investigation over a 2011 deal, a hand-written note reveals the bank in 2012 did business with Sanjay Shah, a key figure in a similar Danish tax scandal.
The bank on Thursday confirmed it had lent money to a hedge fund founded by Mr Shah, Solo Capital, for a trading strategy centred on Luxembourg shares in 2012.
But it said the deal had the approval of Luxembourg’s tax authorities, the bank had “no appetite” for transactions that were motivated by tax avoidance, and added it was not under investigation in Denmark or Luxembourg.
Dozens of banks have been embroiled in investigations across several countries into the controversial strategy - known as "cum-ex" trading - used by hedge funds and investment banks to exploit a quirk in tax laws that allowed multiple investors to simultaneously claim multiple tax credits tied to a single dividend.
Mr Shah is facing a civil case from the Danish government’s tax office which alleges he was the main person behind what it alleges was a “fraudulent scheme” involving dividend withholding tax that saw 6.7 billion krone ($A1.42 billion) paid out by the government.
At the beginning of 2012, we approached Macquarie Bank in London with our idea of being able to facilitate cum-ex trading.
Mr Shah, based in Dubai, has previously denied wrong-doing and has not been charged over the affair.
In a hand-written note by Mr Shah dated May 2018, which was provided to German newspaper Handelsblatt and shared with Fairfax Media, Mr Shah reveals doing business with Macquarie in 2012.
“At the beginning of 2012, we approached Macquarie Bank in London with our idea of being able to facilitate cum-ex trading with no funding requirement (as all trades netted to zero on settlement date)," the note said.
"They agreed to test this idea by on-boarding a number of clients introduced by Solo. We then successfully traded on Luxembourg equities which resulted in the trades being properly settled and resulted in the expected profit made.
“We were satisfied that our idea worked and then planned to implement the idea at Solo. Later in 2012, we onboarded a number of US pension plans who traded in Danish and Belgian equities, and via third party tax agents, were able to obtain WHT refunds as expected.”
In response to questions about the extent of Macquarie's involvement with Mr Shah, a London-based media adviser to Mr Shah said he could not comment due to legal restrictions.
It is not suggested the transaction Macquarie financed was illegal, and it is understood the Luxembourg trade may have used a different dividend-trading strategy that was closer to one known known as “cum-cum.” This involves exploiting tax treaties between countries to avoid double taxation, rather than two investors claiming the same tax credit, as with "cum-ex".
“Macquarie’s tax policy states that the group has no appetite for any transaction that is motivated by the avoidance of tax and that in the event of tax uncertainty, Macquarie engages with revenue authorities and seeks comprehensive advice from external tax advisors,” a Macquarie spokesman said.
“In the case of a 2012 lending transaction in Luxembourg, Macquarie’s client had advance confirmation from the Luxembourg Tax Inspector that the proposed structure was legitimate, as well as legal advice confirming that position. Macquarie also received its own confirmatory legal advice in relation to its role before proceeding.”
Macquarie, which is set to report its profit result on Friday, also said no employees had been contacted by German prosecutors since its announcement of September.
Mr Shah's note says that Solo had “all the legal opinions in place,” but that in mid-2015, a compliance officer made a whistleblower report to Her Majesty's Revenue and Customs in the UK, alleging the defrauding of Denmark and Belgian. Denmark subsequently launched a criminal investigation, which also involved the UK and Germany, the note says.
The Danish Customs and Tax Administration has also made a civil claim in the UK courts against Solo and a wide range of other parties, which says Mr Shah was the “primary individual responsible for the fraudulent scheme.” Macqaurie says it did not finance cum-ex trading in Denmark and did not lend money to funds trading Danish shares.
German authorities have for several years been investigation the cum-ex scandal, embroiling dozens of banks including Macquarie, but the issue has gained greater prominence in Europe over the last month following a investigative journalism collaboration.
European politicians have also spoken out about the issue over the last month, demanding closer co-operation between governments to tackle the issue.This article was first published by https://www.smh.com.au/
Author: Clancy Yeates, Sönke Iwersen & Volker Votsmeier