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Freshfields Bruckhaus Deringer’s former global tax head Ulf Johannemann has been found guilty of aiding and abetting a multi-year dividend tax fraud and sentenced to three years and six months in prison in a landmark ruling by a Frankfurt court.
Johannemann, who until 2019 was the senior tax partner of the “magic circle” firm, had been on trial since September for advising Maple Bank, a defunct German subsidiary of Canada’s Maple Financial.
From 2006 to 2009, Maple recovered more than €388 million in taxes on dividends it never paid. Johannemann had issued legal opinions saying the so-called cum-ex deals, which exploited a design flaw in the German tax code, were legitimate.
The trial was the most high-profile yet to arise from the cum-ex scandal, which has cost German taxpayers 10 billion euros by an estimate by Finanzwende, a consumer protection lobby group.
Announcing the verdict and sentence on Tuesday, Werner Gröschel, the court president, told the court that it was “perfectly obvious” and “beyond any doubt” that Johannemann’s legal advice had been fundamentally flawed.
The fraud centered on stock trades executed before and after the payment of stock dividends, which tricked governments into refunding taxes that were never paid.
Maple Bank’s cum-ex transactions were equivalent to “arranged.” [financial] crime,” Gröschel said, adding that they were highly organised, participated for several years and caused “ridiculous” financial damage.
The purpose of the transactions, Gröschel said, was not only to reduce the amount of taxes paid, but also to steal from the government. Johannemann’s legal advice was “a key contribution” to this crime, he added.
“Pay [a tax] once but complaining [it] twice it just doesn’t work,” he said, and that “an elementary school student with minimal talent” was able to understand that concept.
The sentence was less than the five and a half years in prison that prosecutors had sought for Johannemann, who joined Freshfields as a young lawyer in his 30s. His lawyer had asked for a suspended prison sentence of less than two years.
During the trial, Johannemann admitted that he had “ignored the fact that my legal advice was used for illegal purposes” and claimed that he had “totally failed” as a lawyer. The judge disputed this assessment, stating that he was certain that Johannemann was aware of all relevant details of the fraudulent transactions when he advised him.
Gröschel also took aim at Freshfields in his ruling, accusing the tax practice of one of the world’s most prestigious law firms of having developed “its own business model” specializing in providing affirmative advice on cum-ex transactions. The fees the law firm earned from such activities were “almost ridiculously low,” she said.
Johannemann’s behavior seriously damaged the company’s reputation, the judge said. He pointed out that “many colleagues” at Freshfields “are doing really good work” in other areas of law, but were “measured by the same yardstick” as Johannemann in the court of public opinion.
Freshfields was not a defendant in the trial, having struck a €10 million deal in 2021 to resolve criminal charges and paying €50 million to Maple Bank’s administrator to settle a civil case.
“We take our commitments to risk management, compliance and ethical business seriously and continually seek to improve our systems,” Freshfields said in a statement on Tuesday. “We will of course carefully consider today’s judgment to understand what further lessons can be learned.”
Gröschel said the broader message that can be taken from the verdict is that lawyers should become less obsessed with fulfilling every possible client request. “Customers’ wishes should only be taken into account if they are really legally tenable,” said Gröschel.
A lawyer for Johannemann declined to comment on the verdict. Under German law, the court’s verdict is not yet legally binding and can be appealed by the defendant.