November 28, 2019 / 11:03 AM / in 3 months

Former Freshfields lawyer arrested over German tax scam -sources

    * First arrest in German probe of "cum-ex" trading fraud
    * Estimated cost of scheme to Germany more than 5 bln euros
    * Former Freshfields lawyer has been in custody since Friday

    By Tom Sims and John O'Donnell
    FRANKFURT, Nov 28 (Reuters) - German police have arrested a
former partner at global law firm Freshfields, escalating an
investigation into a multi-billion-euro tax scam, two people
with knowledge of the matter said.  
    The arrest of Ulf Johannemann marks the first time that
authorities have detained a suspect relating to a widespread
phantom trading fraud that Germany estimates cost it more than 5
billion euros ($5.5 billion).
    "The imprisonment is completely unfounded. We will of course
challenge it," Werner Leitner, a lawyer for Johannemann, said.
    Freshfields declined to comment on Thursday on the arrest,
which was first reported by Germany's Sueddeutsche Zeitung.
    Prosecutors have twice raided Freshfields' Frankfurt offices
over the past two years as they investigate the fraud, which
they allege misled the state into thinking a stock had multiple
owners who were each owed a dividend and a tax credit.
    Johannemann, who resigned from the international law firm
this month, has been in custody since Friday because he was
deemed a flight risk, the two sources told Reuters.
    Frankfurt prosecutors confirmed the arrest of a lawyer in
their investigation into the sham trades, but they did not name
the individual or the firm.
    Freshfields provided tax advice to bankers and other
participants in the scheme that was used to justify its
legality, documents seen by Reuters show.
    The arrest is an escalation in efforts to hold dozens of
people, and global banks, to account for "cum-ex" trading, a
strategy which was common between 2005 and 2012 and has been
described by German finance minister Olaf Scholz as a "scandal".
    Germany made attempts to stamp out the practice by changing
and clarifying the law in 2007, 2009 and 2012. 
    A top German official, who asked not to be named, said those
efforts made clear the trading was illegal. But some of those
involved have said it was common practice.
    Johannemann is one of 18 suspects, including another lawyer
and former bank employees, that prosecutors have identified in a
case that they say defrauded the state of 383 million euros.
    Authorities expect to file the criminal suit, which centres
around a now-defunct bank, in the coming days, a person with
direct knowledge of the matter said.
    Separately, a court in Bonn is currently conducting a trial
in a similar suit that prosecutors allege allowed for more than
450 million euros in illegitimate double tax reclaims. 
($1 = 0.9073 euros)  

 (Editing by Alexander Smith)
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