This is the first arrest relating to a widespread phantom trading fraud that Germany estimates cost it more than $5.5bn.
German police have arrested a former partner at global law firm Freshfields, escalating an investigation into a multibillion-euro tax scam, two people with knowledge of the matter told Reuters News Agency.
The arrest of Ulf Johannemann marked the first time that authorities have detained a suspect relating to a widespread phantom trading fraud that Germany estimates cost it more than five billion euros ($5.5bn).
“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 investigated 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 showed.
The arrest was 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 said defrauded the state of 383 million euros ($422m). 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 ($495m) in illegitimate double tax reclaims.
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