He’s a specialist for tax and white-collar crime defenses: Bernd Josef Fehn (of FEHN Legal) in conversation with The Silicon Review about Cum/Ex cases and deficiencies of the prosecution authorities

“During my law studies, I was a student trainee in a wholesale trading company. At an early stage, this familiarized me with economic processes.”

On the occasion of being honored for the "5 Best Defense Counsels to Watch 2023" the multiple-awarded attorney-at-law, defense counsel and tax advisor Bernd Josef Fehn, J.D., Ph.D., Ph.D. answered our questions to the incriminated overall contract constructs in Cum/Ex cases, on his economic background, and about deficiencies of the prosecution authorities. Here’s what he had to say.

Interview Highlights

Q. Dr. Fehn, how did the Cum/Ex tax evasion model work?

Cum/Ex transactions deprived the German state of billions in taxes. The issue was the unjustified refund of capital gains tax by shifting shares back and forth. Though the tax had only been paid once, there were two reimbursements. With common sense, one would be right to say this couldn’t be. Indeed, today this isn’t possible anymore. But at that time, expert opinions and scientific papers came exactly to that completely opposite conclusion. The regulatory regime changed in 2012. From then on, capital gains tax could no longer be paid by the stock corporation. The custodian bank was now in charge. As a result, tax certificates were issued only by those institutions that actually remitted taxes. This made Cum/Ex technically impossible. Thus, you can say Cum/Ex was made possible by technical state failure. But regrettably, the players in the world of finance, not the state officials have to pay the price. Criminal prosecution of charged acts takes place since 2018.

Before 2012, the stock corporation had withheld the tax and paid it off to the tax authorities. For this, the bank had issued a certificate and the shareholder had asserted it to the tax office. The shares had been sold shortly before the dividend date and returned shortly afterwards. Each change of ownership had resulted in issues of tax certificates working particularly well for short sellers who had sold shares which they hadn’t actually purchased until after the dividend date. In the typic case of an “ex-dividend” price lower than the selling price, they had pocketed a profit. In addition, the old shareholder and the purchaser had received the tax certificate.

Q. Which is your economic background profoundly needed as a defense counsel in Cum/Ex cases and generally in tax and white collar matters, Dr. Fehn?

During my law studies, I was a student trainee in a wholesale trading company. At an early stage, this familiarized me with economic processes.

Later, I worked for a long time in the foreign trade surveillance of the Customs Investigation Service and in the prevention and sanction of violations at the Financial Control of Illegal Employment.

Furthermore, I‘m a Certified Defense Counsel of the German Defense Lawyers Association for tax and white-collar crime defenses. Only those can be appointed who have special theoretical knowledge and practical experience in the respective fields.

Moreover, as a member of Tax & Legal Excellence where only top experts with profound knowledge and the best connections are appointed, I’m invited to contribute to better interdisciplinary exchange and a sustainable international understanding in the fields of law, tax, finance, and economics. In selected business metropolises, all members are given access to interdisciplinary theme evenings. Here, professional colleagues can learn from each other's experiences in dynamic, cross-industry conversations beyond their own discipline and apply the new insights to their field. Renowned specialists with different expertise and perspectives provide the framework for networking at the highest level.

The European Forum is the digital annual conference of Tax & Legal Excellence. The conference builds on exclusive networking meetings of members of the Excellence Forum, acts as a link between representatives from politics, administration, academia, and business to convey their different perspectives, and functions as an overarching, international platform for networking among top decision-makers.

Tax & Legal Excellence admits its exclusively selected members only on a recommendation. They’re expected to demonstrate outstanding professional performance, a willingness to share best practice experiences and, above all, personal integrity. The fulfillment of the admission criteria for membership by representatives from the private sector and the consulting community is monitored by a strictly acting review board.

Q. Dr. Fehn, as a senior customs officer you worked on the side of investigative authorities and the public prosecutor's office. Now, as a defense attorney, what do you criticize about investigative work today?

For a successful defense, it's an advantage to know how the other side works. It's fair to say that the public prosecutors' offices are overburdened. For example, on trial in Cologne, a retired senior public prosecutor is accused of perverting the course of justice, obstruction of justice and suppression of documents. His former superior testifies that his workload was 170%, especially since the white collar department headed by the accused was at times only 80% staffed.

A.o., the understaffing of the judiciary and investigative authorities is also the subject of a book by a senior public prosecutor from Berlin who’s still active.

I can report the same high workload from the Higher Tax Court where I worked in 2002. Even then, the file room was overflowing with ongoing proceedings, and this wasn’t, because the judges were lazy. So the same misery prevails everywhere and it's increasing more and more. How can you work properly there?

On the other side, the mindset and approach of the prosecutors and the police are too often one-sided. In my law studies, I’d learned that the public prosecutor's office must be absolutely objective according to the Code of Criminal Procedure, which states that both incriminating and exculpating facts must be established. In practice, however, this doesn’t always take place. To the detriment of the defendant in the preliminary proceedings or of the accused in the main trial, a preconceived opinion is frequently maintained, although exculpatory circumstances are obvious. In such a case, the prosecutor fails to recognize the material burden of proof. He must prove the crime, not the alleged perpetrator his innocence. In criminal proceedings, the defense counsel must enforce the presumption of innocence and, in particular, pay attention to the sources of error in investigative work.  That’s what I do, both in theory and in practice. In the chapter CSI of the Munich Lawyer's Manual on Criminal Defense, my brother and I, we point out how properly to do an investigation at the crime scene. This also and especially applies to economic crimes. Thus, my strategy in practice is aligned accordingly.

Bernd Josef Fehn | Managing Partner

The multiple-awarded attorney-at-law, defense counsel and tax accountant Bernd Josef Fehn, J.D., Ph.D., Ph.D. founded his economic background during his law studies when he was a student trainee in a wholesale trading company. At an early stage, this familiarized him with economic processes. Later, he worked for a long time in the foreign trade surveillance of the Customs Investigation Service and in the prevention and sanction of violations at the Financial Control of Illegal Employment. Furthermore, he's a Certified Defense Counsel of the German Defense Lawyers Association for tax and white-collar crime defenses. Only those can be appointed who have special theoretical knowledge and practical experience. Moreover, as a member of Tax & Legal Excellence, he's invited to contribute to the better interdisciplinary exchange and a sustainable international understanding in the fields of law, tax, finance, and economics. The fulfillment of the admission criteria for membership (personal integrity, outstanding professional performance, willingness to share best practice experiences) was monitored by a strictly acting review board. So you‘ll be in the best hands with Dr. Fehn, if you‘re in need of an excellent defense counsel in tax and white-collar matters. He’ll initiate the police, the prosecutor, and, at the latest, the court to investigate exculpatory traces, clues, and other approaches.

“As a member of Tax & Legal Excellence where only top experts with profound knowledge and the best connections are appointed, I’m invited to contribute to better interdisciplinary exchange and a sustainable international understanding in the fields of law, tax, finance, and economics.”

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