© JanJaap Rypkema

Already in 2005, the FIOD detected worldwide billion-dollar fraud with dividend tax

At the end of 2005, the FIOD - the Dutch Fiscal Information and Investigation Service - was well aware that a Fortis division was engaged in dividend stripping. This type of trade with dividend has seriously disadvantaged tax authorities in a number of countries; the damage amounts to billions of euros. However, the FIOD did not share this information with sister services abroad, which therefore remained ignorant of the fact that their systems were susceptible to this type of fraud as well. It was not until 2013 that the CumEx scandal broke out in Germany.

This article in 1 minute
  • In December 2005 and May 2006, a FIOD detective gave several presentations about a FIOD investigation into the Fortis Bank’s Global Securities Lending and Arbitrage (GSLA) department.

  • This showed that the GSLA was widely involved in dividend stripping, a form of stock trading that puts tax authorities at a disadvantage because dividend tax is being wrongfully reclaimed.

  • Already in 2005, the FIOD suspected that the disadvantage worldwide probably amounted to ‘several billion euros’. The affected countries were the Netherlands, Germany, Switzerland, the United States, plus two countries whose names have been removed from the documents.

  • The tax authorities already knew that financial institutions were involved in this form of fraud. A legislative amendment, an urgent letter to the Dutch Banking Association (NVB) and a warning from the NVB to its members helped somewhat: CumEx fraud with Dutch shares had been virtually eliminated since then. However, CumEx fraud with foreign shares was still committed from the Netherlands, as witnessed by the practices of (among others) GSLA.

  • Via the CumEx Files (documents in possession of an international collaborative project of which FTM is part), it does not appear that the FIOD has shared its knowledge with other European tax authorities. The picture arises of a government that was unable to understand the scale and scope of this fraud, and that hoped – after each measure – that the matter would finally be resolved.

  • Only in 2013 it was revealed, via Germany, that a number of European countries have been looted in recent years by groups of cooperating banks, traders and intermediaries that wrongfully reclaimed dividends once or several times.

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May 2006. About 20 civil servants enter a room at the Ministry of Finance on Korte Voorhout in The Hague; all of them are managers and specialists in the field of dividend tax. On the agenda: a presentation on a large-scale dividend fraud.

The presentation is given by an employee of the FIOD, the Fiscal Information and Investigation Service, a section of the tax office. Members of the team from Amsterdam and Utrecht have prepared a PowerPoint presentation entitled ‘Global Dividend Tax Fraud Investigation’.  The presentation consists of eight slides. The same presentation was already given on December 19, 2005 for detectives of the FIOD itself, in the presence of a few colleagues from the tax authorities. The latter found the presentation so interesting that they asked the FIOD detective to repeat it for the ministry.

The first slides provide little news for the specialists in the room. The FIOD employee explains how dividend tax works. A publicly-listed company pays dividends to its shareholders. This payment is made through a so-called custodian bank, which immediately deducts 25 percent of tax on the dividend and pays it to the tax authorities. The bank also draws up a dividend statement. With this statement, Dutch shareholders can reclaim the dividend tax from the tax authorities.

The situation is different for foreign shareholders: they can only reclaim this tax if their government has arranged, through a tax treaty with the Netherlands, that its citizens can fully or partially reclaim the dividend tax paid here. Shareholders from countries without such a tax treaty are ill-fated: they cannot reclaim a penny in the Netherlands.

The FIOD is investigating Fortis GSLA

So far little news. But then the FIOD employee tells the tax officials about the preliminary investigation the FIOD has done into the activities of Fortis Bank’s Global Securities Lending and Arbitrage (GSLA) department.

Fortis GSLA has come up with a trick for foreign shareholders who cannot reclaim dividend tax in the Netherlands

That Fortis department had been in the news extensively in the summer of 2005. On 2 July, the newspapers Het Financieele Dagblad and De Telegraaf had reported that two GSLA directors were suing a former colleague who blew the whistle about their behaviour and demanded ten million euros in damages from him. That man was banker Stefan Stanciu, a Frenchman with Romanian roots; he had internally accused the couple of international fraud in stock trading around the dividend date. According to Stanciu, this had put the tax authorities at a disadvantage for tens of millions of euros.

Following the lawsuit, De Telegraaf reported that the FIOD had started an investigation. The first results of this were shared on this spring day with colleagues from the tax authorities.

The FIOD detective reveals that Fortis GSLA has come up with a trick for foreign shareholders who cannot reclaim dividend tax in the Netherlands. The trick works as follows: Dutch shares held by a foreign bank or investor are temporarily placed with a Dutch legal entity just before the dividend is paid out. The Dutch legal entity, often a subsidiary of the foreign company, then reclaims dividend tax from the tax authorities. It subsequently returns the shares to their original owner, withholds a small amount as compensation and pays the rest as ‘dividend compensation’ to the foreign legal entity. A win-win situation – except for the Dutch treasury.

This method is generally referred to as dividend stripping. The trick had been known for decades, but on April 27, 2001, a special law retroactively went against it. However, stopping the actual practice turned out to be difficult.

‘Double dipping’

During its preliminary investigation, the FIOD discovered that reclaiming dividend tax in various countries is actually the business model of Fortis GSLA: the company gains the largest part of its profit from this particular type of trade. Securities lending is in itself a standard financial instrument; this way, a bank can hedge a short position in shares. In this case there would be a ‘real economic goal’, the FIOD says. But Fortis GSLA lends the shares it holds in deposit to other parties ‘to make them extra profitable’. This way, parties that are not allowed to reclaim dividend tax can still do so, using a detour.

Moreover, Fortis GSLA does not only trade with Dutch shares, but also with shares of American, German and Swiss companies. Germany has a dividend tax of 21.1 percent, Switzerland of 35 percent. In 2005, the United States has a dividend tax of 30 percent, which can only be reclaimed by US residents. So, what does Fortis GSLA do? It borrows shares from non-US parties that are subject to that 30 percent tax, and lends them to an American pension fund, which can reclaim the full withheld amount from the US tax authorities. Subsequently, this pension fund pays 99 percent gross dividend as dividend compensation to Fortis GSLA. Fortis GSLA withholds a fee and pays the remaining amount to the original owner of the shares.

When dealing with large quantities of shares, this type of trade can be very lucrative: it is a multi-million dollar business for all parties involved. And the American tax authorities is the big loser.

The presentation shows that the United States, Germany and Switzerland are among the affected countries

The same applies to the German and Swiss tax authorities, the FIOD discovered. They suffer from a phenomenon called double dipping, in which dividend tax is reclaimed twice; rightly once but wrongfully the second time. The trick: two dividend statements are issued in rapid succession. By not withdrawing the first statement, dividend tax can be reclaimed twice. The German and Swiss tax authorities are not aware of this: their systems do not see that they actually return tax twice that has only been withheld once.

The FIOD detective tells his colleagues from the Dutch tax authorities that the investigative service has encountered types of dividend stripping in six countries. Except for the Netherlands, the names of these countries have been erased on the slides. But the presentation shows that the United States, Germany and Switzerland are among the affected countries. More information will have to come from a ‘full-scale criminal investigation’, the FIOD official tells his colleagues from the tax authorities. The last slide of the presentation states that the FIOD suspects that worldwide – the fraud is apparently so extensive – the ‘disadvantage’ of dividend stripping amounts to ‘several billion euros’.

Rumblings at Fortis

After this May 2006 presentation, it becomes quiet. There is no large-scale criminal investigation into Fortis GSLA. Sources familiar with FIOD investigations say that this may indicate that the FIOD has uncovered fiscal tricks that might be morally debatable, but where the ‘perpetrator’ cannot be criminally charged. And in as far as criminal offenses can be pinpointed, they have mostly  taken place in the US, Germany and Switzerland – countries where the FIOD and the Dutch Public Prosecution have no voice.

But halting the investigation may also have to do with the fact that the managing directors of Fortis GSLA, Frank Vogel and Olaf Ephraim, were now discharged, although this had nothing to do with the FIOD investigation, according to a spokesperson. In De Telegraaf, Fortis reported that the two were dismissed because they did not want to participate in a reorganisation.

Early in 2005, Stanciu tells the investigators in colourful detail how Fortis GSLA made millions by stripping mainly German and Swiss shares

FTM previously wrote about the role of the highly profitable Fortis subsidiary, which was led by Frank Vogel in 2005. That year, Vogel earned 4.5 million euros in salary and bonuses; his co-director Olaf Ephraim 2.4 million euros. That put them amongst the best-earning employees of Fortis. Vogels’ income was even significantly higher than that of Fortis CEO Jean-Paul Votron.

After the first internal presentation at the FIOD office at the Bernadottelaan in Utrecht, the FIOD received new, incriminating information about Fortis GSLA. Stefan Stanciu, who internally blew the whistle on dividend stripping at Fortis GSLA, had been fired by the bank. At the invitation of the FIOD, in early 2006, Stanciu tells the investigators in all colourful details how Fortis GSLA made millions by stripping mainly German and Swiss shares.

Time line

March 31, 2005: The two directors of Fortis GSLA, Frank Vogel and Olaf Ephraim, have to leave Fortis. According to a spokesperson, their exit has nothing to do with the fact that an internal whistleblower has reported that Fortis GSLA is dealing with dividend stripping – stock trading with dividends with which tax authorities at home and abroad are disadvantaged. The departure of the directors is said to be due to a conflict about the position of GSLA within the bank. This is also the explanation that Vogel gives in an interview on the website of the Global Investor Group.

July 2, 2005:Het Financieele Dagblad and De Telegraaf write that Vogel and Ephraim are demanding 10 million euros from their former colleague Stefan Stanciu in a civil lawsuit. He is the internal whistleblower who raised the issue of dividend stripping within Fortis GSLA.

December 19, 2005: At the office on the Bernadottelaan in Utrecht, a FIOD employee gives a presentation about the results of a preliminary investigation carried out by the fiscal investigative service into the wheeling and dealing within Fortis GSLA.

February 2006: After his dismissal from Fortis, whistleblower Stefan Stanciu goes to the FIOD. He explains the investigators in detail how dividend stripping within Fortis GSLA worked.

May 2006: At the request of the Dutch tax authorities, a FIOD employee at the Ministry of Finance repeats the December 2005 presentation of the preliminary investigation into Fortis GSLA. It will not come to a criminal investigation into Fortis GSLA. As far as is known, the information that the FIOD and the tax authorities have collected about dividend stripping is not shared with sister services abroad.

End of 2011: An employee of the German tax authorities discovers that for many years its services has been defrauded for enormous amounts by groups of cooperating banks and traders who wrongly reclaim dividend tax. In the autumn of 2013, the German press gets wind of the case and the so-called CumEx affair breaks loose. Tax authorities across Europe appear to be disadvantaged for tens of billions of euros.

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The whistleblower

Stanciu joined Fortis GSLA in 2002 as a Senior Equity Derivatives Trader. Through his international network, Stanciu heard worrisome stories. Friends who worked at large banks in London asked him about the huge positions his relatively small department built up with securities lending. They wanted to know why Fortis was willing to pay prices above the market level.

What Stanciu discovered, was a perfect example of the types of dividend stripping that the FIOD had described

Stanciu noticed that his boss, Frank Vogel, managed to make millions of profits for the bank within a few days and started his own investigation. He quickly discovers that when the traders set up the ‘risk-free’ transactions, they avoid using the fixed telephone lines of the bank. Those conversations were standardly recorded, and apparently the traders would rather do without that: they preferred to use mobile phones. The transactions involved were invariably huge, taking billions of positions in shares such as Deutsche Bank and the Swiss pharmaceutical company Novartis.

What Stanciu discovered, was a perfect example of the types of dividend stripping that the FIOD described in a presentation in December 2005 and in May 2006.

Earlier signals

While the ministry initially believed that the new Act against dividend stripping of April 2001 had made this type of fraud impossible, by now people knew better – even before the FIOD raised the alarm. On February 18, 2004 Unit 8/Financial Institutions of the Dutch tax authorities wrote an urgent letter to the Dutch Banking Association (NVB). As early as 2003, that team had started an investigation into dividend stripping, which led to a number of parties being ‘denied the right to offset dividend tax’. To put it bluntly: the fraudsters did not get a cent back. Despite this fierce approach, the inspector ‘recently’ found that ‘once again such affairs have been offered and executed’. He asked if the NVB would be so kind to distribute this letter to its members. A copy of the letter went to the Market Maker Association, the Authority for the Financial Markets and Euronext.

The NVB took the warning from the tax authorities to heart. On March 4, 2004, it sent a letter with an English summary to its members. The NVB stated that a tax investigation into dividend stripping would not only imply a ‘significant additional administrative burden’ for a bank but rejection of the refund claim would result in ‘a commercial expense on the bank's profit & loss account’. Finally, the NVB warned: ‘Apart from this financial risk, the risk of loss of reputation is not only for the financial institution but also for all financial service providers.’ It is therefore of ‘great importance’ to prevent ‘participating in the disapproving transactions because of short-term gain'. At the end of the letter, NVB actively called on its members to use their expertise in avoiding dividend stripping with shares.

This misery will ‘soon’ be over

The appeal by the tax authorities, the pressing letter from the NVB and the criminal investigation did not make much of an impression on Fortis GSLA. After its own internal investigation, GSLA finds that ‘no irregularities’ have occurred within the division. Ergo, the bank will continue with types of dividend stripping. What is more: the compliance officer, who monitors whether the bank complies with all laws and regulations, would come along when GSLA employees visit customers, to explain that the transactions are legitimate.

‘The majority of the cum/ex transactions will soon be a thing of the past’

On March 8, 2007, a tax official from the Dutch tax authorities prepared a confidential memo entitled ‘Processing cum/ex and loan transactions, unsettled short positions and dividend tax loan transactions’. The memo reveals that dividend stripping is still possible but that there is light at the end of the tunnel. As of March 26, 2007, a so-called ‘record date’ will be introduced. The measure boils down to this: from now on, dividend will only be paid to the party who, on the ‘record date’, is the owner of the shares and therefore the person entitled to the dividend. Its conclusion: ‘The majority of the cum/ex transactions will soon be a thing of the past.’

This would only apply to cum/ex transactions in the Netherlands. Trading with foreign shares continues unabated. Dutch traders such as Frank Vogel, banks such as ABN Amro and Rabobank, and advisers such as Clifford Chance and Mazars play an important role in this, as FTM wrote earlier. The publicly-listed trading house Van der Moolen, which went bankrupt in September 2009, even had a partner who engaged fulltime in dividend stripping. The director of this partnering company: Frank Vogel.


In the fall of 2013, the CumEx scandal breaks out in Germany. Reports appear in the media of an employee of the German tax authorities who discovered at the end of 2011 that dividend was wrongfully reclaimed on a large scale. In 2017, at the request of the German weekly Die Zeit, German professor Christoph Spengel of the University of Mannheim calculated the damage to the German treasury through all kinds of dividend fraud; he came to a total of at least 31.8 billion euros. Additionally, Denmark, Austria, Switzerland and Norway have also been disadvantaged by meticulously designed international alliances that have wrongfully reclaimed dividends from tax authorities.

It is noteworthy that not one European tax authorities has informed its sisters agencies abroad about the dividend tax fraud, while at the background it was often the same groups and alliances perpetrating the fraud. In the Netherlands, the FIOD and the tax authorities already in 2005 had detailed information about the fiscal tricks with which dividends could wrongfully be reclaimed through complex share transactions. The FIOD even concluded that the fraud occurred in at least six countries: the Netherlands, the US, Germany, Switzerland and two unnamed countries.

When asked by FTM, the Dutch tax authorities stated that due to its fiscal confidentiality obligations, it cannot disclose whether information from 2005 has been shared with other countries. ‘In general it can be said that the Dutch tax authorities cooperate very well internationally. One of the components of this is exchanging information,’ a spokesperson said.

Not one European tax authorities has informed its sisters agencies abroad about the dividend tax fraud

But we have found no information provided by the Dutch tax authorities in the German Cum/Ex files, which is largely in the hands of the international journalistic collaboration project, of which FTM is part. The Germans, in turn, did not share any information with the Danes since 2011, although they were robbed by almost the same groups that also disadvantaged the German tax authorities. The Danes were the first to inform their colleagues in Belgium that suspicious financial parties were also active in their country. Thanks to this tip, the Belgian tax authorities were able to prevent that over 788 million euros of wrongfully reclaimed dividend tax was paid out.

The FIOD and the Dutch tax authorities certainly could not have prevented the European CumEx affair, but if both services had shared the detailed information they already had in 2006, foreign services would have been sonner able to discern how susceptible their dividend tax systems were. Now the Germans only discovered this in the autumn of 2011; the Swiss, Danes and Belgians even at a later stage.

At the end of November 2018, shortly after the first reports of the international cooperation project The Cumex Files, the European Parliament demanded a thorough investigation to find out exactly how this fraud could have taken place. The European Parliament also wants the failure of cooperation between European tax authorities to be examined.