Several top investment banks ensnared in German tax fraud probe

Multiple tax and accounting firms, as well as hundreds of individuals, were reportedly also under scrutiny as part of the same probe.

Among some of the institutions whose action were under microscope as part of the probe were Barclays, Goldman Sachs Group, Bank of America, BNP Paribas and UniCredit.

According to the report, for roughly 15 years, many of the world's financial giants had helped clients exploit a so-called legal 'loop hole', known as 'cum-ex', which translated from latin means 'With-Without', allowing multiple parties to a transaction to claim a tax deduction on the same asset.

So, for example, using that loop-hole, both the owner of a share and a short-seller of the same stock, could both obtain a refund on withholding taxes paid on the dividends paid from the same share.

The strategy used certificates issued by banks to the parties involved in a transaction that allowed them to claim a tax refund. As underlined by prosecutors, often, several parties were involved in a transaction and all received tax certificates, compounidng the cost for taxpayers.

Among the domestic players involved were Deutsche bank, Commerzbank and Clearstream Banking, although all of them said they were not directly implicated in the probe.

Barclays, Goldman Sachs Group, Bank of America Corp., BNP Paribas and UniCredit were also among those whose activities were under scrutiny, although Goldman had already said it was not aware that either it nor its employees were under investigation.

Discovered in 2012, the government approved changes in the tax code soon afterwards, but the practice reportedly continued for some time.

But in 2014 the investigation deepened, after prosecutors analysed thousands of mail, voice mails and Bloomberg trading chat boxes, followed by a major breakthrough in 2017, when a few traders decided to cooperate with authorities, explaining how the fraudulent activities had been carried out.

That led to raids at various banks, fights in courts and one known bankruptcy, according to Bloomberg.

According to the parties allegedly involved in the fraud, they were relying on legal opinion provided by lawyers at the time, arguing that the transactions were not subject to legal enforcement.

Prosecutors disagreed, saying the relevant documents were "oversimplified" and that the so-called 'double dipping' of refunds was very clear.