Germany’s Chancellor Scholz testifies over tax fraud scandal

Scholz rejects accusations of impropriety in his handling of a multibillion-euro tax fraud when he was Hamburg mayor.

Germany's Chancellor Olaf Scholz attends a session to answer parliamentarians' questions on Cum-Ex affair, at the plenary hall in the town hall, in Hamburg
Scholz attends a session to answer parliamentarians' questions on Cum-Ex affair in the town hall in Hamburg [Fabian Bimmer/Reuters]

German Chancellor Olaf Scholz has rejected accusations of impropriety in his handling of a multibillion-euro tax fraud while Hamburg mayor at a hearing before lawmakers in a case that threatens to tarnish him even as he battles multiple crises.

In the scheme of “cum-ex” or dividend stripping, banks and investors would swiftly trade shares of companies around their dividend payout day, blurring stock ownership and allowing multiple parties to falsely reclaim tax rebates on dividends.

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The loophole, now closed, took on a political dimension in the northern port of Hamburg due to authorities’ sluggishness in 2016 under the mayorship of Scholz at demanding repayment of millions of euros gained under the scheme by local bank Warburg.

Warburg, which plays a big role in Germany’s second largest city, eventually paid its tax bill of around 50 million euros ($50.3m) after the federal finance ministry intervened.

“I did not exert any influence on the Warburg tax case,” Scholz said on Friday during his second appearance in front of a Hamburg parliamentary committee of inquiry into the cum-ex affair, one of Germany’s biggest post-war corporate scandals.

“There is nowhere even the tiniest suggestion that I agreed anything,” he said, referring to other testimonies before the committee.

However, Richard Seelmaecker, representative of the opposition conservatives on the committee, said that Scholz could be called to testify before lawmakers for a third time as new findings from the investigation were just emerging.

The case threatens to undermine the chancellor even as he is trying to hold his fractious coalition together in the face of public discontent over soaring energy costs.

His popularity is already lagging that of his economy and foreign ministers, while just 58 percent of Germans think he is doing a good job compared to an average of about 70 percent for his predecessor Angela Merkel during her 16 years in office.

Meanwhile, his Social Democrat Party (SPD) has slipped into third place in polls behind the opposition conservatives and junior coalition partners the Greens.

‘No reason to doubt’

Finance Minister Christian Lindner, from the junior coalition party, the pro-business Free Democrats, which is also lagging in polls, lent the chancellor his support.

“I have always understood Olaf Scholz to be a person of integrity, whether I was in the opposition or as now in government – and I have no reason to doubt that now,” Lindner told the Rheinische Post newspaper.

Prominent Greens have kept quiet on the affair after criticising Scholz about it while in opposition.

Recent headlines that prosecutors probing the scheme in Hamburg discovered 200,000 euros in the safe of a local politician from Scholz’s ruling Social Democrats reignited suspicions of political intervention on the bank’s behalf.

Scholz has denied any knowledge of this cash or its origin and said he no longer has contact with the lawmaker involved. The lawmaker did not respond to a request for comment.

“I harbour the hope that conjectures and insinuations may stop,” Scholz said. “They lack any foundation.”

The chancellor already faced Hamburg lawmakers last year and acknowledged then having a series of meetings with the then chairman of Warburg but said he could not recall details.

A sign reading, "Olaf Scholz Witness
A sign reading: ‘Olaf Scholz Witness’ [Fabian Bimmer/Reuters]

Gerhard Schick, director of watchdog Finance Watch Germany and a former Greens lawmaker in the federal Bundestag lower house of parliament, said he did not believe in Scholz’s forgetfulness.

“I think that is pretence and it hurts his credibility,” he said.

One of the prosecutors’ recent findings is a discrepancy between the many calendar entries of Hamburg authorities mentioning the Warburg bank and “cum-ex” and the few emails on the topic, Der Spiegel magazine wrote, citing the prosecutors report.

“This suggests a targeted deletion (of emails),” Spiegel cited the report as saying.

A representative for corruption watchdog Transparency International Stephan Ohme said it was simply implausible that Scholz could not remember his discussions with the Warburg chairman.

“Scholz should moreover show what he actively did to tackle Warburg’s involvement in Cum-Ex transactions” he said. “It is his political responsibility.”

Source: News Agencies