Every country in the European Union has regulatory authorities that monitor the financial markets on a day-to-day basis. For example, they look for illegal trades or possible cases of money laundering. To do this, they can request reports from banks, analyse transaction data and talk to bankers and traders. They can also impose heavy fines — as the US regulator did in response to cum-fake deals.

Every country also has an office that collects taxes, checks receipts and refunds other taxes. If someone defrauds the tax office, public prosecutors might start an investigation for tax evasion, like Brorhilker did.

The most obvious problem that emerges from the responses to inquiries is the lack of understanding in how to address tax-driven transactions like cum-ex deals. If it were tax evasion as ruled by the German Federal Court of Justice, then tax offices and public prosecutors should be the competent authorities.

But there is another problem. The tax offices of EU member states hardly cooperate with one another. They are often not even allowed to do so, as tax secrecy laws prohibit it. But for individual tax offices, it can be difficult to get a full understanding of the deals.

In order for financial regulators to address cum-ex deals, the trades have to be categorized as market abuse. For example, different players would have to collude, similar to how a cartel might fix prices. If you believe the investigations by Brorhilker and testimonies of insiders, cum-ex trades can only be possible if different players coordinate with one another. If everyone has a clear role.

However, the EU authorities who sent out the questionnaires came to a different conclusion. It was a tax matter, they wrote, and thus the national supervisory authorities declared themselves not responsible. A report from ESMA shows that they came to the same conclusion.

How can the authorities be shirking their responsibilities?

Attorney Alexander Heist has been dealing with cum-ex and other tax-driven deals for years. “I think the view [of ESMA] is grossly wrong,” he said. It is precisely the EU financial regulator that should be responsible because it is, among other things, about market abuse, he said.

The EU authority, however, does not share this view and insists that only national supervisors are responsible: “ESMA has no supervisory powers in relation to market abuse, so it will be for the competent national authorities to assess whether any scheme is market abuse,” a spokesperson wrote to CORRECTIV.

But it can also be difficult for national supervisors to convict fraudsters. The statement explains that while cum-ex deals could involve market abuse, that’s not usually the case: “Perpetrators tend to avoid manipulative behavior not to be detected.” In other words, they are smart enough to trick the system.

What the EU regulator reports only mention in passing is that there are some national authorities who see themselves as responsible and are investigating tax-driven deals: Luxembourg, the Netherlands, and the UK, for example. The British regulator even seems to have found an effective tool for identifying potential tax-driven deals, according to their response to the ESMA survey: A system that alerts officials to suspicious transactions around the dividend record date.

However, the ESMA report notes that British regulators have more powers than their EU counterparts. That is true. Still, it would be possible for the European regulator to promote the tool and for other governments to give their own supervisory bodies more power to stop the fraud. ESMA could vouch for the latter.

They send a simple message: This is not our responsibility.

When asked about this, their spokesperson wrote: “The UK Financial Conduct Authority experience was indeed taken into account and shared with the national competent authorities as part of ESMA’s governance.” That’s all. Have they considered introducing a system similar to the UK’s at the European level? No answer.

Sven Giegold, financial spokesman for the Greens–European Free Alliance in the European Parliament, said that he sees the problem in governing structures. “All member states are represented on ESMA’s Board of Supervisors and have no interest in inconvenient investigations into the work of their own supervisors.” Member states have so far lacked the political will to set aside their influence in favor of Europe’s interests, he wrote in an email to CORRECTIV.

BaFin in Germany also appears to have analysed transaction data in order to track down potential tax-driven trades, like in the UK. Only the result is very different. According to their response to the EU inquiry, the data is not suitable for finding cum-cum and cum-fake trades, only cum-ex.

How can the UK regulator see something in transaction data that BaFin does not?

Alexander Heist, a criminal tax lawyer, cannot explain BaFin’s findings. He and other experts believe the data is sufficient to identify all potential cum-deals. “I think the analysis of market data is possible and purposeful.”

And then there’s the lack of communication between agencies. In some cases, the authorities don’t even cooperate with each other within their respective countries. Tax offices don’t talk with financial market authorities. The public prosecutor’s office works alone. Yet it would be so much easier to detect tax-driven deals if information could be shared, or the market regulator could warn the tax office: Don’t refund the tax, it’s a cum-ex trade!

This problem is particularly evident in Austria. By law, their market regulators are not allowed to discuss open tax procedures with the tax officials.

However, there are other authorities that could take accountability for cum-ex trades. Consider anti-money laundering authorities. If cum-ex trades are criminal, then bankers and investors are laundering money when they invest the profits from the illegal transactions. Shah has been charged in Germany on precisely these grounds: He is alleged to have used Varengold Bank in Hamburg to pass on profits from cum-ex trades.

But three years after the world was alerted to cum-ex, anti-money laundering authorities seem to be asleep. Out of the 24 national authorities that responded to the EBA, only two believe there is an increased risk of money laundering due to tax-driven deals. The Dutch anti-money laundering authority has apparently already admitted defeat. Their response states that such transactions are “inevitable because of the differences in dividend tax schemes for certain groups of shareholders.”

The reports show how bureaucratic obstacles and inefficiency make a strategic fight against tax theft virtually impossible. Instead of exchanging ideas on an effective approach and developing tools, the authorities are bogged down with questions of responsibility and administrative nitty-gritty. This is precisely why dishonest businessmen in the financial market apparently continue to have access to tax coffers.

Spengel cannot understand this. “In light of the fact that numerous states have been hit by cum-ex and cum-cum transactions, which are often backed by global players, the lack of awareness is incomprehensible,” he said. Heist, the expert in criminal tax law, is also alarmed: “In this respect, you can see it like the fight against climate change. It affects everyone, but sustainable success will only come about if everyone pulls together.”

The financial market regulator in the US has already shown that authorities do have the power to intervene. The States were also faster to respond on a political level than the EU. In 2010, US politicians passed a law that made cum-ex and similar transactions illegal — two years before Germany.

The basis for the law was a report by Democratic Senator Carl Levin, in which he described cum-ex and cum-cum transactions and named a whole series of banks involved. Levin presented this report in September 2008, which should have set alarms off in Europe as well. But it is more likely that few European officials paid notice amidst other events: Just four days later, on September 15, the investment bank Lehman Brothers filed for bankruptcy, triggering a global financial crisis.