Sven Giegold

Crooked dealings: Market abuse in connection with Cum-Ex and co. must be rigorously prosecuted

Dear friends, dear interested,

Billions of euros have been looted from public coffers through Cum-Ex and co. These tax fraud schemes all involve crooked dealings on the financial markets. To obtain refunds for unpaid dividend taxes, the fraudsters have to trade in shares and derivatives on a grand scale. All these transactions have no other purpose but the fraud and therefore lack legitimate economic background. Arguably, this is a clear abuse of financial markets. In spite of this, the European Securities and Markets Authority (ESMA) in its report on Cum-Ex and co. from September last year came to the remarkable conclusion that typically the European rules on market abuse are not violated. ESMA failed to provide a conclusive explanation. Moreover, the authority had practically ignored the particularly critical transactions in derivatives. I pointed this out to ESMA in a hearing of the Subcommittee on Tax Matters of the European Parliament on 24 February 2021, which we Greens had initiated. I also wrote a letter to ESMA asking the authority to take a closer look at the issue of market abuse.

Not everything that objectively damages the integrity of financial markets is necessarily a violation of the European Market Abuse Regulation (MAR). ESMA rightly points this out. The offences in MAR are defined in concrete terms, and so it is possible that some dubious practices fall through the cracks. However, in the case of Cum-Ex and co., there are clear signs that in many cases the rules of MAR are indeed being violated. Transactions are arranged between market participants, securities are traded in circles, trading volumes are massively inflated and trade prices rigged. In particular, the transactions likely often meet the criteria of so-called “wash trades”, in which the traders conclude transactions with themselves from an economic point of view, or pre-arranged transactions, both of which are prohibited under MAR. German criminal proceedings against Cum-Ex fraudsters also showed that the loot was often divided up via accompanying trades in stock futures and other derivatives, which were deliberately concluded at off-market prices (for example, see the judgment of the Bonn Regional Court of 18 March 2020). My assessment that Cum-Ex and similar models likely involve market abuse on a regular basis was confirmed by the Cum-Ex expert Prof. Dr. Christoph Spengel at the hearing before the tax committee. This is also the conclusion of a recently published report by law firm Heist Legal, which specialises in the complex financial constructs behind Cum-Ex and co.

In my letter, I therefore call on ESMA to review its assessments on market abuse and to fully disclose its analyses. In addition, I suggest conducting a dedicated analysis of the derivative transactions. For its report, ESMA had gathered information from all market supervisory authorities in Europe. The results show that so far none of the authorities has vigorously pursued market abuse in connection with Cum-Ex and co. ESMA’s previous assessment sends the fatal message that there is nothing to be done here.

One thing is clear: First and foremost, Cum-Ex and co. are tax crimes that cannot be tackled with market abuse rules alone. Nevertheless, it is important that the European authorities – especially the German BaFin – rigorously investigate and report the market abuse in connection with tax fraud schemes. To this end, the supervisors should also follow up on the strong indications from existing court rulings. For the future, it is important that we strengthen supervisory powers in MAR. So far, most European supervisory authorities can only properly investigate if they already have substantiated suspicion of market abuse. However, especially in the case of complex offences such as Cum-Ex, these often only arise when one looks at the big picture. Supervisory authorities should therefore already be allowed to investigate if they suspect a general threat to market integrity. In the upcoming revision of MAR, I will therefore push for an expansion of the mandate of the supervisory authorities.

With green European greetings,
Sven Giegold




Background: Cum-Ex – still relevant?
According to estimates, the tax authorities in Europe lost 55 billion euros through Cum-Ex and co. between 2002 and 2012. Yet, this might possibly constitute only a fraction of the systematic tax robbery in Europe. Moreover, the experts at the hearing before the tax committee emphasised that variants of the illegal practices are still possible and continue. More than two years after the European Parliament called for comprehensive investigations in a resolution, still shockingly little has happened.

My letter to the ESMA on market abuse aspects of Cum-Ex and co.:

My question to Prof. Spengel and the ESMA at the hearing before the tax committee:

Initial statement by Prof. Spengel at the hearing before the tax committee:

Full recording of the hearing before the tax committee:

Report by Heist Legal on Cum-Ex, Cum-Cum and similar schemes:

My take on the ESMA report on Cum-Ex and co. from September 2020:

My take on the EBA report on Cum-Ex and co. from May 2020:




Definition of “wash trades” from the MAR specifications by the EU Commission (Delegated Regulation 2016/522):

Entering into arrangements for the sale or purchase of a financial instrument, a related spot commodity contract, or an auctioned product based on emission allowances, where there is no change in beneficial interests or market risk or where beneficial interest or market risk is transferred between parties who are acting in concert or collusion — usually known as ‘wash trades’. This practice may also be illustrated by the following additional indicators of market manipulation:

(i) unusual repetition of a transaction among a small number of parties over a certain period of time;

(ii) transactions or orders to trade which modify, or are likely to modify, the valuation of a position while not decreasing/increasing the size of the position;

(iii) unusual concentration of transactions and/or orders to trade, whether generally, or by only one person using one or different accounts, or by a limited number of persons;



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Category: Economy & Finance, European Parliament

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