Bank of New York Mellon's Frankfurt offices are being raided by Cologne prosecutors as part of their vast investigation into the controversial Cum-Ex scandal that has increasingly ensnared Wall Street's biggest banks.
The raid began on Tuesday, people familiar with the process said. A spokesman for Cologne prosecutors said searches at two unidentified banks started and included the homes of employees who are suspects in the case. More than 120 officers are involved, including tax investigators from three German states. The investigators are also looking for evidence of deals similar to Cum-Ex, he said.
Cum-Ex was a trading strategy that siphoned off at least €10 billion ($10 billion) in government revenue. Named for the Latin term for "With-Without," the deals took advantage of German tax laws that seemed to allow multiple investors to claim refunds of a tax on dividends that was paid only once. The nation moved to abolish the practice in 2012.
A BNY Mellon spokesperson didn't immediately comment on the raid.
The second bank raided is ODDO BHF, according to the people. Spokespeople for the lender didn't immediately reply to emails seeking comment.
While dating back more than a decade, the Cum-Ex scandal still roils the financial industry. Prosecutors in Cologne are investigating more than 1,500 people and are ramping up the pressure on international banks.
Bank of America Corp.'s Merrill Lynch premises have been targeted in recent months along with Morgan Stanley and JPMorgan Chase & Co. Barclays Plc's Frankfurt office was also hit by prosecutors.
German tax authorities told the Bank of New York Mellon that they're seeking about $150 million over controversial Cum-Ex deals, the bank said in February 2021. The order was related to trades that were part of the first German Cum-Ex trial in which BNY Mellon had to participate as a concerned party until shortly before it ended.
The dividend tax scandal has been called the biggest tax-dodging scheme in German history and has been officially declared an illegal practice by the country's highest court. At the height of the practice, investors rapidly traded shares to earn duplicate refunds on dividend tax.