Freshfields Bruckhaus Deringer has been dragged into the spotlight yet again for its role in the cum-ex tax scandal, with Germany’s finance minister suggesting that the firm should no longer be handed government contracts for its involvement.
Finance minister Olaf Scholz of the Social Democrat Party made the remark on Wednesday (9 September) at the German Bundestag during questioning around what has widely been dubbed the biggest tax fraud in the country’s history.
The minister was quizzed by Stefan Liebich of the leftist Democrat Socialist Party as to whether firms like Freshfields implicated in the scandal should be excluded from future government contracts.
Scholz replied (in translation): ‘Of course, we have to draw conclusions for what we do when we work with companies. In relation to the law firm you mentioned, I said for myself: “I cannot imagine that new assignments will be placed there.”’
This is the latest twist in the long-running cum-ex scandal in which the City giant has been accused of having a pivotal role. It centres on transactions that took advantage of a loophole in German law that allowed investors to claim back dividend tax that was never paid. The practice is claimed to have started in the early 2000s and carried on for several years, costing European taxpayers up to €55bn, according to European Parliament estimates.
In late November 2019, it emerged that Freshfields’ global head of tax, Frankfurt-based Ulf Johannemann, had resigned from the firm. A few days later, he was jailed as a flight risk. Released in December on a €4m bail, he is facing charges of fraud in connection with his advice to the defunct German arm of Maple Bank over the legality of a scheme to reclaim more than €380m in tax that was never paid.
This latest development will be an unwelcome one for Freshfields as it looks to mitigate the damage to the firm’s reputation. Freshfields declined to comment.
However, the cum-ex matter goes far beyond Freshfields’ involvement and is doubtless a political hot potato as Germany braces for its federal election next year.
Moreover, Scholz himself has been accused of intervening in a probe on Warburg Bank in his former role of mayor of Hamburg amid allegations that the tax authorities dropped a substantial claim surrounding the banks involvement in cum-ex transactions.
The minister denies intervening in investigations against the bank and its former boss, Christian Olearius, in relation to serious tax evasion.
For more on Freshfields’ involvement in the cum-ex saga, read Legal Business’ analysis of earlier this year.