The recent announcement that a former banker at M.M. Warburg & Co. was sentenced to 5.5 years in prison by a German court for participating in a nine-figure “cum-ex” scheme marks the latest development in regulators’ efforts to crack down on those who employed the controversial dividend arbitrage trading strategy. Karin Matussek, “A Banker’s Long Prison Sentence Puts Industry on Alert,” Bloomberg Law News (June 2, 2021). Allegedly responsible for at least $60 billion in lost tax revenue for treasuries in Germany, France, Denmark and elsewhere, the Cum-Ex Scandal—also called the German Dividend Tax Scandal—has been labelled a massive tax fraud and the “robbery of the century.” Alex Simpson, “The robbery of the century: the cum-ex trading scandal and why it matters,” The Conversation (Nov. 13, 2019). Since 2017, investigations have been launched against nearly 800 individuals—traders, bankers, lawyers—along with their employers. Hundreds of millions of dollars in fines have been levied against financial institutions who engaged in the strategy and several criminal trials are currently pending.

Until recently, the center of the action so far has been Germany. However, the geographical scope of litigation, including enforcement cases by various national authorities, continues to expand to Denmark, the U.K., and elsewhere. A series of recent developments may augur the opening of a new front in U.S. courts in this ongoing saga. As argued below, it is likely that we are going to see an even greater number of international prosecutions, as well as some significant jurisdictional battles over where these cases can be heard.

A Legal Loophole or Tax Fraud?