Top bank advisor admits turning ‘blind eye’ in Cum-Ex tax scandal

A former Freshfields Bruckhaus Deringer lawyer who advised top investment banks on the “Cum-Ex” trading strategy at the center of Europe’s biggest tax scandal confessed to turning a blind eye to his clients’ behavior.

In a dramatic admission, Ulf Johannemann, the firm’s ex-head of global tax, said he “totally failed” in his role as an attorney and wrongfully cleared Cum-Ex deals at Maple Bank GmbH. He said his approach was to make possible whatever clients wanted by pushing aside his own view of the law and not asking any questions.

“In reality, I didn’t want to know the whole truth,” Johannemann told the judges at his Frankfurt trial on Monday. “I shouldn’t have remained silent for so long, but should have been much more critical. That also belongs to the responsibilities of a lawyer.”

His dramatic U-turn came two weeks after he was told by judges to expect a conviction over advice he gave to now-defunct lender Maple Bank for transactions that allegedly cost Germany €374 million ($408 million). Johannemann is on trial over his legal work on transactions that took place from 2006 to 2009 to obtain illegal tax refunds.

For the London ranks of global investment banks, Freshfields was the go-to firm for advice 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. 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.

Johannemann, 52, who became a Freshfields partner in 2007, was influenced by the strategic approach of more experienced colleagues at Freshfields. From them, he said he learned to apply the law in a “mathematical” manner, ignoring any common sense concerns that could have been obstacles. 

While today Johannemann wants to take responsibility for his actions, he said he didn’t really see these problems at the time. What Germany’s top court two years ago called a “fallacious” approach to the law, wasn’t so obvious to him when he was entangled in Freshfields’ overly formal approach to the law, he said. 

“I’m facing the ruins of my professional life,” Johannemann told the judges.

The Frankfurt court a year ago sentenced former bankers at Maple to prison terms of up to four years and your months. The bankers had defended themselves by saying without the Freshfields advices, they wouldn’t have done the deals.  

“Freshfields is not a party to these proceedings and will not be commenting on statements of the parties involved,” the law firm said in an emailed statement. 

Johannemann’s change of heart somewhat mirrors Freshfields’ approach to its Cum-Ex legacy. The firm, which was raided four times as part of the Cum-Ex probes, long insisted that it was confident its advice was sound. But it later stopped using that wording. Freshfields paid €50 million to Maple’s administrator and €10 million to end a probe by Frankfurt prosecutors over its work for the bank. 

This may not be the last prosecution faced by Johannemann. He and other former Freshfields attorney are also being probed by Cologne prosecutors. 

A verdict in Johannemann’s Frankfurt case is expected early next year.