Top Lawyer Who Mocked ‘Scared’ Lehman Faces Trial Over Tax Scandal

A court in Germany’s financial hub Frankfurt is about to shed more light on how one of the world’s most prestigious law firms and a top attorney became instrumental to Europe’s biggest tax scandal.

(Bloomberg) — A court in Germany’s financial hub Frankfurt is about to shed more light on how one of the world’s most prestigious law firms and a top attorney became instrumental to Europe’s biggest tax scandal.

Ulf Johannemann, Freshfields Bruckhaus Deringer’s former global head of tax, was a key legal adviser on “Cum-Ex” — a ploy that gamed the system to pass vast sums from Germany’s treasury into the hands of scores of investors and banks.

On Thursday, he stood before the court charged with helping now-defunct lender Maple Bank GmbH set up a series of transactions that alone cost Germany €374 million ($401 million.) 

Tried alongside him is a former Maple banker, while a few doors away in the same tribunal, an ex-Fortis banker also faces charges in a separate case linked to Cum-Ex over tax losses of €51.5 million.

For the London ranks of global investment banks, Freshfields was the go-to for advice on Cum-Ex. For the firm, the trial of its former tax boss is a reminder of an ugly chapter that has threatened to dent its prestige. 

The list of clients ranged from JPMorgan, Merrill Lynch, Barclays Plc, Lehman Brothers and Fortis to Macquarie Group Ltd. and ICAP Plc. Without clearance from a top-notch law firm, none of them would have done the controversial trades.

Guardian Angel

The fallout for Freshfields has been heavy. The firm’s Frankfurt offices were raided four times and Cologne prosecutors are probing at least five attorneys who signed opinions under the blue guardian angel, Freshfields’ logo. 

When Johannemann, 52, was briefly arrested in 2019, shortly after he left the firm, it sent tremors through the corporate legal world. Clients started to ask questions, as did top law-school graduates. 

Maple’s administrator sued the firm for €95 million, eventually settling for €50 million. Freshfields paid €10 million to end a probe by Frankfurt prosecutors over its work for the bank. The firm may face more claims from other Cum-Ex clients.

Freshfields said in a statement that the detailed legal review of the “very complex” Cum-Ex issue is still ongoing and the firm stopped this area of work several years ago.

As far as legal limits allow, the firm is cooperating with the authorities in an effort to learn from the past and draw a line under these matters, it added.

Johannemann’s judges will have to decide whether he crossed the line between providing legal advice and aiding a crime. Freshfields’ opinions on Cum-Ex from 2006 to 2011 argued that peculiarities in Germany’s rules allowed dividend taxes to be reclaimed twice via the trades — even if it was paid only once. 

The ‘Cum-Ex’ and ‘Cum-Cum’ Tax Dodges Haunting Banks: QuickTake

Germany’ top criminal court a decade later rejected that view as “fallacious.” The indictment claims Johannemann not only used “flimsy” arguments to reach an “unjustifiable” result, but bent the facts to whitewash the deals. 

In his opening statement Johannemann’s defense lawyer, told the judges that 15 years have passed since the action under review here, making it difficult to properly judge them.

“What looks so simple today and seems to be apparent to everyone, was highly complicated at the time,” Werner Leitner said in court. This “isn’t a case for simplifications, even if that appears tempting to politics and the media.”

Johannemann himself won’t make a statement to the court “for now,” he said. 

The case will be heard by the same panel of judges who convicted four Maple bankers in November. They were sentenced to as long as four years and four months. 

At the hearings, the judges thoroughly examined Freshfields’ role and interviewed about half a dozen of the firm’s attorneys. Their 426-page judgment cataloged how Freshfields’ lawyers navigated around red lines. 

An older tax partner in 2006 wrote to Maple’s then-chief executive saying that generating double refunds was “quite clearly contradicting the law” but that the tax authorities accepted the practice.

In an email read in court, Johannemann later told a colleague he personally thought it was wrong to claim refunds twice via Cum-Ex deals involving short sales, but that his job required him to tell clients what German case law allowed instead of stating his own view.

The Maple judgment also cites Johannemann’s attempts at humor in April 2007, the month before he became partner, in an email exchange with other tax partners at the firm. 

‘Something Dirty’

He said Lehman Brothers was “scared” because, as a short seller, the bank had contributed “a few percent” of the stock used in a WestLB Cum-Ex trade that was accidentally exposed in a filing. If that was ever to be probed, it might “come out that Lehman did something dirty,” he said.

In 2009, when German magazine Der Spiegel first published a critical article about the tax practice, Johannemann wrote to colleagues: “Keep your nerve. The Finance Minister has much more to lose if he pushed this up.”

The same year, Germany tried to crack down on double dipping via prearranged short sales. Maple reacted by asking Johannemann to rewrite some of the opinions issued earlier that year and in previous periods. 

The lawyer altered the language, cut a reference to short selling in a headline and argued trades weren’t “coordinated,” according to the judgment.

Maple is no exception: in almost every German Cum-Ex case so far, the name Freshfields has popped up and bankers and traders tried to defend themselves by saying the firm told them that what they did was all right.

That also happened two doors away, in the courtroom where the ex-Fortis banker on Thursday admitted he was involved in the deals and apologized for it. He explained that the bank’s leadership at the time asked for clearance by Freshfields and the law firm repeatedly granted it, telling them the double-dipping was legal.

At some point “it was clear even before Freshfields’ legal opinion was completed that they would come to the result we wanted,” he said.

(Updates with defense lawyer statement in 14th paragraph)

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