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Freshfields Bruckhaus Deringer’s former international head of tax Ulf Johannemann was discovered responsible of aiding and abetting a multiyear dividend tax fraud and sentenced to a few years and 6 months in jail in a landmark ruling by a Frankfurt courtroom.
Johannemann, who till 2019 was the “magic circle” agency’s most senior tax associate, had been on trial since September over recommendation given to Maple Financial institution, a defunct German subsidiary of Canada’s Maple Monetary.
From 2006 to 2009, Maple reclaimed greater than €388mn in dividend taxes it by no means paid. Johannemann had issued authorized opinions stating that these so-called cum-ex offers, which exploited a design flaw within the German tax code, have been lawful.
The trial was the highest-profile but stemming from the long-running cum-ex scandal, which price German taxpayers €10bn based on an estimate by Finanzwende, a client safety foyer group.
Saying the decision and sentence on Tuesday, Werner Gröschel, the presiding choose, informed the courtroom it was “completely apparent” and “past doubt” that Johannemann’s authorized recommendation had been basically flawed.
The fraud centred on share offers executed earlier than and after a inventory’s dividend funds that duped governments to reimburse taxes that have been by no means paid within the first place.
Maple Financial institution’s cum-ex transactions have been equal to “organised [financial] crime”, Gröschel mentioned, including that they have been extremely organised, took half over a number of years and led to “ludicrous” monetary harm.
The intention of the transactions, mentioned Gröschel, was not simply to chop the quantity of tax paid however to steal from the federal government. Johannemann’s authorized recommendation was “a central contribution” to that crime, he added.
“Paying [a tax] as soon as however reclaiming [it] twice simply doesn’t work,” he mentioned, and that “a midway gifted elementary faculty pupil” was in a position to perceive that idea.
The sentence was under the five-and-a-half years in jail that prosecutors had hunted for Johannemann, who joined Freshfields as a junior lawyer in his thirties. His lawyer had referred to as for a suspended jail time period of fewer than two years.
In the course of the trial, Johannemann acknowledged he had “glossed over the truth that my authorized recommendation was used for unlawful means”, and mentioned he had “completely failed” as a lawyer. The choose took difficulty with that evaluation, saying that he was sure Johannemann had been conscious of all related particulars of the fraudulent transactions when giving his recommendation.
In his ruling Gröschel additionally took intention at Freshfields, accusing the tax follow of one of many world’s most prestigious regulation corporations of getting developed “its personal enterprise mannequin” that specialised in giving affirmative recommendation on cum-ex transactions. The charges the regulation agency generated from such enterprise have been “virtually ridiculously low”, he mentioned.
Johannemann’s conduct had severely broken the agency’s popularity, the choose mentioned. He pressured that “many colleagues” at Freshfields have been “doing a extremely good job” in different areas of regulation however have been “measured by the identical yardstick” as Johannemann within the courtroom of public opinion.
Freshfields was not a defendant within the trial, having struck a €10mn deal in 2021 to settle prison allegations, and paying €50mn to the administrator of Maple Financial institution to settle a civil lawsuit.
“We take our commitments to threat administration, compliance, and moral enterprise severely and we repeatedly search to enhance our techniques,” Freshfields mentioned in an announcement on Tuesday. “We’ll in fact think about at this time’s judgment rigorously to grasp what additional classes could also be drawn.”
Gröschel mentioned the broader message to be drawn from the decision was that legal professionals ought to change into much less obsessive about assembly each possible customer demand. “The shoppers’ needs should solely be taken into consideration if they’re actually legally tenable,” mentioned Gröschel.
A lawyer for Johannemann declined to touch upon the decision. Beneath German regulation, the courtroom’s verdict is just not but legally binding and could be appealed by the defendant.
