Bank of Ireland’s services were used by a company involved in a network of hedge funds at the centre of financial transactions, dubbed fraud by a German court, that have cost European tax authorities billions of euro.
The Irish bank's fund administration unit, Bank of Ireland Securities Services (BOISS), was the custodian bank of an investment fund involved in the scheme.
The scheme, known as cum-ex, involved a network of traders, hedge funds and asset managers claiming multiple refunds on dividend withholding tax that was only paid once, or not at all, through a series of transactions.
A custodian bank is required for the scheme to work, holding the funds’ assets and processing the large number of transactions.
BOISS was the custodian of EQI Irish Funds, a fund set up by hedge fund manager Salim Mohamed in late 2009, to carry out cum-ex trades.
German prosecutors are pursuing EQI over attempts to claim €119 million in dividend withholding tax refunds in 2011. The applications were submitted to Bonn’s tax office, “although they knew that the conditions for a tax refund were not met”, prosecutors claim.
Cum-ex, deemed illegal by Germany’s Federal Court of Justice, worked by buying and selling huge volumes of shares in a co-ordinated circuit, at key times around the date companies paid out dividends.
This created confusion over who was owed a refund on dividend withholding tax, allowing it to be claimed multiple times, costing European tax authorities billions over nearly two decades.
An investigation by The Irish Times, in partnership with German newsroom Correctiv and 15 other media organisations, examined a large leak of documents related to the scheme, the Cum-ex Files.
While Irish tax authorities were not defrauded, Ireland facilitated the scheme, with Irish investment funds used as vehicles to carry out trades targeting larger EU countries, such as Germany.
Internal BOISS documents show it was acting as EQI’s custodian bank up until the middle of 2011, when the unit was bought by Northern Trust, who continued the arrangement with EQI.
EQI used a credit line from BOISS to borrow capital to carry out its trades, according to documents drawn up by German prosecutors in Cologne.
BoI staff were allegedly working "until late into the night" settling transactions from EQI's trades, as part of an "aggressive" form of the scheme, Martin Shields, a cum-ex insider who co-operated told German prosecutors.
Two further hedge funds involved in cum-ex trades, Solo Capital and Duet, also had discussions with BOISS about acting as a custodian for their funds.
Funds registered in Ireland
A spokesman for BoI said it adhered “to the legislative and regulatory requirements in all countries in which it operates”. BOISS was a subsidiary which was sold in 2011, he said.
“We have not been notified that BOISS is subject to an investigation. Where contacted by relevant authorities we will always endeavour to provide assistance to any criminal investigation,” he said.
Both Duet and Mr Mohamed did not respond to requests for comment.
The number of investment funds registered in Ireland to carry out cum-ex trades increased from 2011.
ZFP, another hedge fund, sought assistance from Allied Irish Banks’ New York office, to set up two funds in Ireland during this period.
In a January 18th, 2011 email, ZFP told a then-senior AIB executive that it would like the bank “to provide us with an office address, at least two directors, a company secretary, and then provide all ongoing corporate administration and filing services”.
AIB International Financial Services Ltd was later proposed as the company secretary of the funds, emails show.
One former ZFP employee, who spoke on the condition he would not be named, said the planned Irish structures ultimately did not progress.
“I have no idea if AIB knew about the activity, but there’s a good chance that they wouldn’t have understood everything . . . They were probably relatively innocent bystanders,” he told The Irish Times.
A spokesman for AIB declined to comment.
