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Deutsche Bank's investment banking boss said to be among staff in tax refund probe


THE headaches are mounting for Deutsche Bank AG's Garth Ritchie.

The chief of the investment banking arm, already contending with the lowest shareholder backing among top management and the prospect of massive cuts to his division, is among a growing number of employees and officials facing scrutiny in a German probe of a widely used tax scam, according to a person with knowledge of the matter.

The lender confirmed on Thursday that prosecutors in Cologne, who have been examining two former employees, widened the investigation to include a list of current and former staff and some members of the management board.

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The decision to expand the inquiry was prompted "purely" by a statute of limitations, and Deutsche Bank does not assume the prosecutor's assessment of the facts has changed, it said in a statement that didn't name Mr Ritchie.

A call to Mr Ritchie's office was referred to the company's press office, where a spokesman declined to comment. The person with knowledge of his inclusion in the inquiry spoke on condition of anonymity.

Prosecutors have been conducting a criminal probe into some of the biggest names in European and US finance, looking at the roles that banks, law firms and others played in so-called cum-ex trades. The Latin phrase, meaning "with-without," refers to a strategy that made dividend payments appear to vanish, potentially costing Germany's coffers billions of euros in taxes.

The widening investigation includes banks that did not initiate deals for clients themselves but may have provided services that helped to carry them out.

Mr Ritchie and former chief executive officer Josef Ackermann are among about 70 current and former employees at Deutsche Bank facing scrutiny, though it is yet to be seen whether investigators' suspicions will be borne out, the Sueddeutsche Zeitung said in a report on Thursday. At least two big US banks are also being examined.

Eberhard Kempf, a lawyer who has represented Mr Ackermann in the past, did not reply to a message from Bloomberg seeking comment.

The bank said at its annual shareholder meeting last month that an internal review found that Mr Ritchie was among recipients of an e-mail in 2007 that explained how trades could take advantage of German tax laws, and that a meeting to discuss cum-ex transactions was once held in Mr Ritchie's office.

Mr Ritchie heads Deutsche Bank's investment banking division, which has been at the centre of many of the lender's woes. He and fellow management board member Sylvie Matherat received the lowest approval votes at the AGM. That has fuelled speculation that the two might be among the management board members who may get replaced when chief executive officer Christian Sewing unveils a new restructuring plan, which is expected to happen by the end of next month, people familiar with the matter have said.

The widening of the years-long inquiry "is a common practice and the prosecutor has proceeded in the same way with other banks", Deutsche Bank said in its statement on Thursday. "The bank does not assume that this procedural measure is based on a changed assessment of the facts by the public prosecutor."

The company said it did not "participate in an organised cum/ex market, neither as short seller nor as cum/ex purchaser".

Cum-ex transactions took advantage of a now abandoned German practice for tax refunds on dividends. At the time, a corporation paying dividends automatically withheld the tax but the tax payment was certified by the shareholder's bank.

Cum-ex deals were set up around dividend day in a way that enabled a buyer in a short sale and the actual stock owner to both get a certificate stating that the dividend tax was paid. While the tax was paid only once, both could use the certificates to claim full refunds.

The practice ended in 2012 when Germany revised its rules, and lawmakers estimate the government may have lost out on at least 10 billion euros (S$15.4 billion) in tax revenues. BLOOMBERG