The Financial Conduct Authority (FCA) in the UK has imposed a fine of £ 17.2 million on ED&F Man Capital Markets for illegal tax refunds of £ 20 million obtained by its clients through cum-ex or dividend arbitrage transactions. The UK financial regulatory agency disclosed the fine on Monday and pointed out that the trade and investment services company earned approximately £ 5.06 million in fees from tax fraud.
The Cum-ex transaction is a financial fraud that exploits loopholes in dividend tax laws in multiple countries. Dividend arbitrage trading occurs when traders buy and sell stocks before and after declaring dividends. In this way, they can apply for multiple tax refunds from countries that have signed double taxation agreements.
According to the FCA, between February 2012 and March 2015, ED&F Man, due to its "serious mistake", allowed its clients to illegally claim withholding tax (WHT) from Danish tax authorities. Regulatory authorities claim that the company has failed to ensure that customers directly or indirectly own these shares. It also attributes the fraud to ED&F Man's' insufficient compliance checks'.
In addition, FCA claims that a Dubai subsidiary of ED&F Man is involved in the trading strategy. It added that the trading company did not deny its investigation results and has agreed to resolve the case.
The FCA explained in a statement that "these repossessions are illegal because under this strategy, WHT was repossessed despite not holding or borrowing any shares, receiving no dividends, or paying taxes
Meanwhile, UK regulatory authorities have stated that the case against ED&F Man is their fourth investigation into dividend arbitrage trading fraud. The punishment imposed on the company is also the largest fine imposed by the FCA in such cases to date.
Last July, financial market regulators imposed a fine of £ 2 million on TJM Partnership, a financial services company, for errors related to the CUM-EX transaction. Previously, it also fined Sunrise Brokers and Sapien Capital for similar failures in 2021.
Authorizing companies to make money from such transactions is completely unacceptable, "said Therese Chambers, Joint Executive Director of FCA Law Enforcement and Market Supervision. It is crucial that all companies have appropriate controls and professional knowledge to avoid the risk of being used to promote financial crime
