Deutsche Bank investment banking boss targeted in tax probe
Garth Ritchie investigated by Cologne prosecutors over link to illicit tax transactions
Cologne prosecutors have launched a criminal investigation into Deutsche Bank’s investment banking boss Garth Ritchie and other current and former employees over their potential involvement in allegedly illicit tax transactions.
In a statement on Thursday night, Deutsche Bank said that “former and current employees and management board members” are now in the investigators’ crosshairs for their potential links to so called cum-ex transactions.
The probe of the Deutsche employees relates to their potential involvement in trades handled by Germany’s biggest bank that were used by clients to trick tax authorities into refunding dividend tax that was never paid.
People familiar with the matter said one current executive board member was targeted by the investigation — Mr Ritchie, who is also a deputy of chief executive Christian Sewing. The news was first reported by the German daily Süddeutsche Zeitung and the public broadcaster ARD.
The people said that several senior former Deutsche Bank executives were among those targeted by the investigation.
The Cologne prosecutor and Deutsche declined to comment and Mr Ritchie did not respond to requests for comment.
An internal investigation by Deutsche Bank revealed that Mr Ritchie in 2007 received an email discussing a design flaw in Germany’s tax code which allowed clients to illicitly claim refunds of dividend tax that was never actually paid.
The investigation also found that one cum-ex related meeting happened in Mr Ritchie’s office. Karl von Rohr, chief administrative officer, told shareholders at the bank’s annual meeting that back then Mr Ritchie did not have direct product responsibility.
Deutsche Bank says that it never actively participated in such transactions “neither as short seller nor as cum-ex purchaser”. However, the lender acknowledges that “as a big market participant, [it] was involved into cum-ex deals of customers”.
Two of its former employees have been under investigation since 2017.
Deutsche Bank said that the widening of the criminal investigation “was purely for reasons of interruption of the limitation period”, adding that this was common practice among prosecutors and that other lenders were treated similarly.
“The bank does not assume that this procedural measure is based on a changed assessment of the facts by the public prosecutor,” it said.
The cum-ex deal involved a trader borrowing a block of shares to bet against them using a technique called short selling in the run-up to dividend day and then selling them on to another investor.
A loophole in the German tax code meant parties on both sides of the trade could successfully claim a refund of withholding taxes paid on the dividend — even though authorities contend only a single rebate was due.
So called cum-ex deals allegedly cost the German taxpayer at least €5.7bn in fraudulent tax refunds between 2001 and 2011.
In December Deutsche Bank paid €4m to settle a cum-ex investigation by the Frankfurt general prosecutor’s office that had looked into the bank’s help to clients in doing controversial tax deals.