David Stern reviews a significant crackdown on CumEx schemes, impacting European financial systems and legal frameworks.

He writes for the Solicitors Journal, the article was published on 13 February 2024 and can be accessed here.

It is exceedingly rare that a single criminal case is valued as a percentage of Gross Domestic Product (GDP) of a European country. Yet that is precisely the case with Denmark’s recent extradition of Sanjay Shah. Shah is the founder of Solo Capital, a firm that specialised in the recovery of withholding taxes from the Danish treasury. These claims amounted to approximately £1.46bn.

This practice has been widespread among some of the largest European financial institutions. These institutions have allegedly made fraudulent claims for payment totalling around €50 billion from several European countries, including Germany. In that country, the practice was significantly prevalent until reforms were made to its tax system. The extradition and subsequent trial of Mr Shah, which is scheduled to start in 2024, is one of a series of cases against those that sought to benefit from a flaw in the tax systems.

The value of the alleged fraud is colossal and, while the victims are the state treasuries such as Denmark’s tax authority, SKAT, the real victims are arguably the ordinary taxpayers. Indeed, the loss to the public finances could have been put to significantly better use.


CumEx share trading (from the Latin with or without (dividend)) is a form of dividend arbitrage trading often involving the loan, sale and return of shares around the dividend payment date. It seeks to take advantage of the fact that share trading has a ‘window’ of a certain number of days between the sale of shares and their settlement (and accordingly any update to the share register).

It has the potential to work in any country (subject to its local laws) where the state is paid a dividend withholding tax (WHT) by the corporation whose shares are being traded, often around 25 per cent of the value of the dividends being paid annually to shareholders.

If a shareholder is registered as owning the shares on the dividend payment date, it would receive the net dividend with the WHT being paid to the treasury. If permitted to do so under the local laws where the corporation is situated, the shareholder can then reclaim the WHT.

The flaw in the tax system

Due to the delay between executing a sale to its settlement, which may span a few days, certain European states, including Denmark, could allow a shareholder to lend his shares to a third party who could then execute a short sale to a buyer on the day before the dividend payment date, while remaining on the share register for the dividend payment.

The buyer, having acquired the shares before the dividend payment date, could theoretically reclaim the WHT, while the original shareholder would remain on the share register as the owner of the shares.

The result is clear: two parties could claim refunds on a WHT that the treasury of the individual state had only received once.

If the trade was effectively cancelled and the original shareholder regained their shares shortly after the dividend payment date, the status quo would return to its original state. Many transactions of this nature have been carried out, no doubt under the auspices of legal and tax advice at the time.


The Danish authorities sought Mr Shah’s extradition from Dubai after having carried out a lengthy investigation over the reclaims of WHT which had been allegedly affected by Solo Capital. However, barring a specific extradition treaty with the UAE, Mr Shah was able to resist his extradition for some time.

In March 2022, Denmark signed a general extradition treaty with the UAE and specifically announced at the time that this was to expedite its requests to extradite foreign nationals who are residents in Dubai, including Mr Shah, in respect of his CumEx trading operations.

On 6 December 2023, Mr Shah was extradited to Denmark to face a criminal prosecution for his alleged involvement in CumEx trading.

The UAE may no longer be perceived as a safe haven for foreign nationals who have allegedly committed large-scale fraud in other jurisdictions, both in respect of extradition treaties being signed with the UAE and also in the local court’s interpretation of them.

Each case will be determined on its own merit; but the extradition system in Dubai appears open to significant legal argument. The recent case of the Gupta brothers’ extradition from Dubai to South Africa demonstrates this, in respect of allegations of corruption and bribery during former president Jacob Zuma’s administration.

Denmark’s criminal prosecutions

Following Denmark’s’ successful extradition of Shah, it is worth noting that he has repeatedly claimed his innocence and that he received legal advice that the trading carried out was lawful.

It is noted that another criminal trial started in November 2023 involving the first of several prosecutions of up to nine individuals in Denmark for CumEx trading. In early February 2024, a Danish court sentenced UK trader Guenther Klar to six years in prison for defrauding Denmark’s treasury of over $45 million for his involvement in CumEx trading.

While successful criminal prosecutions have been brought in Germany already for CumEx trading, the outcome of these prosecutions will be eagerly awaited, both by SKAT and other European treasuries. Most recently, a court in Frankfurt convicted Ulf Johannemann, Freshfields Bruckhaus Deringer’s former head of tax in Germany, for his role advising Maple Bank in a multi-year CumEx scheme.

Ancillary UK civil litigation and wider implications for the UK authorities

Also in November, SKAT was successful in its appeal to the Supreme Court in London, which will now permit it to continue its civil litigation in respect of the same losses sustained [see Skatteforvaltningen (the Danish Customs and Tax Administration) v Solo Capital Partners LLP (in special administration) and others [2023] UKSC 40 on appeal from [2022] EWCA Civ 234).

In essence, the Supreme Court ruled that SKAT was not seeking simply to recover taxes, which is usually a matter for domestic courts. Rather, it was alleging fraudulent claims which did not fall foul of Dicey’s revenue principle, which limits jurisdiction for tax claims to the state of country where the claim arose.

The civil trial is expected to start in April 2024 and last for a year.

There has been no English court decision yet on the validity of CumEx trading. And while many of the trading operations were carried out in London by financial institutions and their brokers, the Financial Conduct Authority’s (FCA) involvement has so far been limited to some minor interventions surrounding KYC and due diligence, rather than any determination on the lawfulness of CumEx trading. It is understood that other FCA investigations are ongoing.

Time will tell if the FCA and indeed the Serious Fraud Office will become more strategically involved.

Currently, it is known that over 100 financial institutions and over 450 individual bankers have received suspect letters from Germany. Meanwhile, other European treasuries are continuing to investigate allegations of fraud surrounding CumEx trading.

Following these developments, many financial institutions will likely carry out internal investigations to determine the extent of their trading. This will particularly focus on the dividend payment season and investigate whether there are matters which require reporting under the relevant compliance regimes.

These investigations will be lengthy and complex, involving analysis of substantial trading data and communications between the relevant parties, as well as any legal advice received at the time.

Employees and former employees will await with some trepidation to see whether they become the low-hanging fruit to be sanctioned criminally for their part in CumEx.

This has all the hallmarks of the Libor scandal which arose out of the financial crisis of 2008. It will run for some time and only after the dust has settled will the real impact of CumEx trading be felt, whether it be the crime of the century or merely some exploitation of the weaknesses of a nation’s tax system.

David Stern has a wealth of experience in business crime, commercial insurance and financial regulation.  He is ranked in Chambers & Partners as a leader in the field of Financial Crime (London) as well as the Legal 500 for Business and Regulatory Crime (including Global investigations) (London).