LONDON (Reuters) - The European Union’s banking watchdog has proposed a crackdown on so-called cum ex trading schemes that could pose a threat to financial markets and national budgets.
The schemes have been a focus in Germany, with the country estimating that they have cost the state more than 5 billion euros ($5.4 billion) in lost tax revenue.
Two British bankers were handed a suspended jail sentence in March in a German court for their part in a “cum ex” scheme that involved scores of banks and investors engineering multi-billion euro trades to make bogus tax reclaims from phantom dividends.
The European Banking Authority looked at how national authorities for banks, anti-money laundering and terrorist finance dealt with such schemes and found that not all of them regarded the schemes as tax crimes under their national laws.
“Responses to the EBA’s surveys suggest that ... authorities do not share the same understanding of dividend arbitrage trading schemes and the extent to which financial institutions’ handling of the proceeds from these schemes constitutes money laundering,” EBA said in a statement.
“This is because of differences in member states’ domestic tax regimes; dividend arbitrage trading schemes are not possible in some cases and, where they are possible, they are not always treated as tax crimes,” EBA said.
The watchdog set out an action plan for 2020/21 to enhance the future framework of prudential and anti-money laundering requirements covering such schemes.
The aim is to tighten checks on whether banks faciliate or handle proceeds from such trading schemes.
The watchdog said it would carry out a second formal inquiry into the actions taken by financial institutions and national authorities to supervise compliance with their legal requirements.
The EBA has already been given a wider role to prevent use of the financial system for money laundering, but it has faced scepticism from EU lawmakers over its ability to do so.
The European Commission said last week it was considering creating a new authority to police financial crime and monitor banks more strictly, saying this could be done out of the EBA or by a new, dedicated body.
Reporting by Huw Jones; Editing by David Goodman and Jane Merriman