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A financier stole more than $ 2 billion from the Danish budget and now lives in Dubai. The authorities have nothing to show him

He took advantage of a loophole in the legislation, which was discovered too late.

For three years, starting in 2012, two billion dollars were withdrawn through one of the Danish tax authorities in the United States. Money transferred legally – using a tax deduction scheme. But the Danish government considers this incident to be one of the largest financial crimes in the history of the country.

Authorities accused London financier Sanjay Shah of fraud, who lives in Dubai. He denies blame and believes that he only took advantage of the shortcomings in the laws. The publication of The New York Times found out the details of the story.

How did the scheme appear

Denmark has been the victim of a clever financial scheme in which the capital market, the tax system and operations known as cum-ex-trading are involved. This type of trading is aimed at the most vulnerable part of any financial system – requests for reimbursement of taxes withheld from dividends.

According to Danish law, the government automatically collects taxes paid on dividends – part of the profits that companies distribute between shareholders and owners. If shareholders live in some other countries, for example, in the United States, they are entitled to receive a refund of some of these taxes or refund them in full.

The scheme with cum-ex-trade became possible due to tax arrangements between some countries. For example, Denmark and the United States signed a similar agreement to avoid double taxation. However, European regulators did not anticipate that a foreign tax refund could generate huge profits.

Something similar happened with Germany in 2008: after the financial crisis , the country’s banks needed new sources of income and willingly promoted cum-ex-transactions from around the world. This led traders to pay back taxes of 12 billion euros.

Only a few years later, the authorities realized what had happened, and in 2012 banned this practice. The situation has become one of the largest financial scandals in the history of Europe.

However, the German authorities did not warn other countries, so speculators began to use loopholes in other states. After Germany, in the same way they began to return taxes in Austria, Belgium and Switzerland. But the next major goal was Denmark.

How the Danish taxes were stolen

From 2012 to 2015, the tiny Danish tax service department, in which only one person worked, approved thousands of tax refund requests. Most of them were sent by Americans with special retirement plans that allow you to manage your savings yourself.

However, according to lawyers and experts, these people were only the “tip of the iceberg” of a complex cum-ex-bidding scheme. According to the documents, it looked as if the residents of the United States had invested their pensions in shares of Danish companies, paid a tax for dividends and wanted to refund it.

But in fact there was no investment. According to the US-Danish agreement, when using such retirement accounts, you can receive a full deduction of the 27% dividend tax. As suggested by the Danish authorities, this was used by the 48-year-old financier Sanjay Shah, who is considered the head of the whole scheme. With the help of his staff, he found the right Americans, helped them compile documents, and received most of the money.

Shah involved at least 17 US citizens. The names of Americans became public in the summer of 2018, when the Danish authorities filed a lawsuit against them in the hope of returning the money. 277 cases were brought to US citizens, as many of them issued dozens of retirement accounts — for example, 30-year-old Roger Lehman opened 44 different accounts in his own name.

All the defendants had several common features: most of them lived on the east coast of the United States, in cities such as New York, New Jersey and Florida. And at least five different retirement accounts had the same postal address in New York.

Almost all of the defendants worked in the field of finance, except for one – Michael Ben-Jacob, who was a partner in the prestigious law firm Arnold & Porter. NYT journalists were unable to contact any of the Americans involved in the scheme – they either refused to comment or moved.

According to the Danish authorities, all Americans were connected to Shah through his company Solo Capital. However, exactly how – is unclear. In a conversation with the NYT, Shah’s spokesman confirmed that the company had worked with about 200 of these retirement accounts, but did not disclose which ones.

Until mid-July 2018, American lawyers defended attorney John Hanamirian, but then he suddenly filed lawsuits against them. It turned out that the lawyer did not pay the customer, whom he described only with the words “law firm from Luxembourg”.

According to Hanamirian, the company also did not send him the necessary documents on the accused, without whom he could not work. After some time, he received an unusual e-mail message, which stated that the accused should be left without protection.

I needed documents about their participation [in the scheme], no matter what – bank statements, investors’ statements, correspondence. The company did not send them. They said “we will meet with you in advance, on the day of the hearing.” I said that it does not suit me.

John hanamirian
defended accused Americans

According to Hanamiriana, 17 US citizens only received a tax deduction of $ 2 billion on paper. In fact, they either earned a little money, or nothing at all.

The lawyer talked to the part of the accused before leaving the case. They said that after they had credited the money, they immediately transferred it further. About where the money went and how much the defendants paid, Hanamirian is unknown.

It is unclear whether Shah bribed a tax officer

The actions of the financier caused damage to Denmark more than two billion dollars. For the economy of such a small country, this is a significant amount, comparable to a loss of $ 110 billion for the United States, the NYT estimates.

This is difficult to do alone, and the key point of the whole scheme was the approval of tax refund applications – without this, the financier would have failed. Danish authorities believe that Shahn was probably helped by a tax officer Sven Nielsen, but it is not yet clear whether he was really bribed or he didn’t even realize that he was being used.

In 2013, Nielsen was the only obstacle that stood between Solo Capital and Danish money. After the dismissal of two colleagues, he remained the last employee of the department responsible for the return of taxes to foreign investors.

However, as noted at the NYT, at that time, the country’s tax administration was undergoing long-term reforms aimed at staff cuts and automation. The priority was set not to help foreign taxpayers, and Danish.

According to journalists, Nielsen was not even able to perform basic checks on tax refund applications. As the former boss of the man, Lisbeth Romer, said, he didn’t even have access to the database to see if the foreigner really invested in Danish companies.

Sven’s job was reduced to accounting, in fact, he just checked the correctness of filling out the form. Even a monkey could handle it.

Lisbet Romer
was the chief of Sven Nielsen in 2013

However, after a long investigation, Nielsen was arrested, but not for helping the Shah, but in another case. Police found evidence that in 2007 he helped an old friend to illegally receive $ 5.7 million from the Danish tax authorities. For this, he received a commission – 315 thousand dollars.

In December 2017, Nielsen was jailed for six years for “criminal fraud”. He declined to comment on the NYT through his representative.

During the hearings, Nielsen’s lawyer insisted that his client was a decent person who had made a “huge mistake” under the influence of a friend. However, Nielsen’s interaction with Shah looked very similar.

In 2014, Camilo Vargas, an employee of a small paying agent who helps fill out tax deduction papers, came in contact with a tax officer. At that time, Vargas only founded his own company Syntax GIS, almost immediately acquired by Shah.

Vargas met with Nielsen several times, ostensibly to get advice on how to properly fill out tax refund forms. The former tax official spoke about the content of these meetings in a single interview published on the DR channel – the Danish version of the BBC in 2016.

Apparently, Nielsen was “flattered” and gladly provided the necessary advice. He also agreed to dinner with Vargas: one evening they drank beer in a popular area of ​​Copenhagen. At the same time, Nielsen claims that he never even suspected that he could be manipulated.

I didn’t have the impression that he wanted to deceive me or use me. But this is exactly what it might look like now.

Sven Nielsen
tax officer who signed applications for the “return” of money

For Vargas, “friendship” was incredibly productive. Only in 2014, through tax with his participation returned $ 590 million for 1.5 thousand applications. According to the Danish authorities, most of the claims were related to Solo Capital’s customers.

The following year, the volume of operations grew even stronger: in the first 7 months of 2015 alone, Shah “returned” taxes by $ 1.2 billion in 2.5 thousand applications – 16 applications per day. The last surge in operations was the summer of 2015, when only in July, Denmark returned $ 500 million in taxes — $ 25 million per working day, or $ 3 million every hour.

What is known about the financier rogue

Sanjay Shah, photo by Stuart Williamson

Sanjay Shah became one of the most mysterious parts of history: he is known as a financier from London, but more recently he began to call himself a philanthropist. Shah sponsors autism research and promotes performers such as Flo Rida and Lenny Kravitz.

To tell his version of events, the financier handed the NYT a 14-page handwritten letter about his career. He also shared some of the details in a series of videos on his personal YouTube channel.

According to Shah, after the mid-life crisis, he began to promote concerts and founded the Autism Rocks foundation. In one of the commercials, the financier told how sports cars, parked outside the Merrill Lynch office, forced him to start a new career.

I asked the boss who drives these cars. And he said that these are traders on the fifth floor. Then I decided that I wanted to be one of these people.

Sanjay Shah
about how he became a financier

According to the NYT, Shah grew up in London with parents of Indian descent who migrated to England from Kenya. He dropped out of college in 1992, citing “lack of motivation” and worked in several large financial firms.

In 2007, Shah got a job in the Dutch company Rabobank. There he worked in the division of dividend arbitration, which is engaged in the purchase of the basic number of shares of companies shortly before the publication of the statements and payment of dividends.

According to NYT, Rabobank Shah found out about cum-ex-deals, which in Latin mean “with-without” and relate to the status of shares before and after the issue of dividends. Cum-ex-trade quickly became the main professional direction of the financier.

When Rabobank closed the department during the financial crisis, Shah called his former colleagues and opened his own company, Solo Capital, with eight employees. And while the economy of the whole world fell, the financier found a gold mine in cum-ex transactions and tax returns.

Immediately after the opening of the company, Shah did something unusual for an entrepreneur who is going to do business in London – he and his family moved to Dubai. In his commercials, he claims that he did it “because of the weather and lifestyle.”

Shah declined to comment for the NYT material, but sent a statement through his representative. In it, the financier stated that he only took advantage of a loophole in the laws and does not consider that he had done something illegal.

If they had blamed a large bank, such as Goldman Sachs, they would have been confronted by a huge team of lawyers. It’s just easier to attack one person.

Sanjay Shah in conversation with the Danish newspaper Danish

How it all ended

Probably, Shah had already guessed that the scheme for withdrawing money from the Danish budget would stop working. In May 2015, he met in London with Navin Khokhrai, the new head of the compliance department at Solo Capital, which deals with the legality and transparency of transactions.

As Shah noted in his letter, Hohrai doubted whether the company was doing business correctly, but the financier convinced him that he had received the necessary permissions. Apparently, Khokhrai did not believe this, because he wrote an expose letter to the Office of Her Majesty’s Taxes and Customs Duties (HMRC, Her Majesty’s Revenue and Customs).

It already has a former employee of Solo Capital said that the company created fictitious customer accounts and trade records in order to deceive the tax authorities of Denmark and Belgium. After that, the Danish tax authorities stopped returning taxes for dividends to foreigners, but not because they found out about fraud, but because the British authorities came with searches at Solo Capital and secured the closure of the company in July 2016. By this time, Shah had already stopped using the scheme.

In Denmark, the Shah was declared a fraud – but only in words

In Denmark, the financier has become a “national villain”. Now Shah lives in Dubai, owns a yacht for 1.3 million dollars and a villa of a thousand square meters with access to the beach.

For the Danish government, the situation with the withdrawal of money – not just the loss of budget money, but also undermining the reputation. Especially, against the backdrop of the money laundering scandal at Danske Bank, which already caused a distrust of politics and the national currency of the country.

Infuriates the fact of the existence of this guy who lives at the expense of fraud. The people of Denmark are waiting for us to get there no matter how much it costs.

Joachim B. Olsen
Member of the Danish Parliament and Chairman of the Finance Committee

Since May 2018, bills for filing 277 lawsuits against US citizens have been added to the amount of damage that already exceeded $ 2 billion. However, despite the rant and the fact that Shah considered the suspects as officials of the country, the financier cannot bring any charges.

For three years, the Danish authorities have not solved the whole scheme of the Shah. In 2017, they found a trace of only a small part of the funds in a small branch of the German North Channel Bank in the city of Main. A team of 60 investigators found out that the bank used to transfer from 27 retirement accounts and transferred about 168 million dollars through it.

The police did not find any traces of buying shares of Danish companies: mainly pension accounts transferred money to each other. First, at the expense of the funds on one account, a short-term order was placed on the shares of the Danish company – in fact, this is a promise to buy back shares when they fall below a certain price.

Then the paper was deducted for tax deduction: the Danish tax officer did not verify the fact of transactions, and immediately after receiving the money all open orders were canceled.

Such operations took place on all 27 accounts. According to Professor Christoph Spengel, who advised German investigators, this is considered fraud.

Spengel believes that after the North Bank, the money turned out to be in two banks in London and in Germany – in the accounts of Shah and his wife Ushi. However, the representative of the financier Jack Irvine (Jack Irvine) said the NYT, that all this is not true.

Neither Solo Capital nor Sanjay had anything to do with the North Channel Bank. In my opinion, this is some kind of confusion, but this is not unusual for such a thing.

Jack Irwin
representative of Sanjay Shah

Despite the fact that the current scandal has become one of the biggest in the history of the financial crimes of Denmark, not a single politician has lost his post. The tax service directors only fired in 2016, and the Shah’s machinations were only one of the reasons, but none of the high-ranking officials resigned.

In February 2018, the Minister of Justice of Denmark launched an investigation into cum-ex-transactions. It may take several years. As a member of the Danish Social Democratic Party, Jesper Petersen, a similar scandal could have led to the resignation of the country’s government, but now the investigators will only have to find a minister who “saw what was happening and did nothing.”

Effects

Nevertheless, the Danish authorities still complicated the life of the Shah. In mid-September 2018, the High Court of London ruled that Solo Capital and its main company, Elysium Global, must pay $ 1.3 billion in a Danish case. Shah did not respond to the allegations, saying that companies are in bankruptcy and controlled by the liquidators.

Also, according to the Shah representative, the authorities of Britain, Germany, Denmark and the United Arab Emirates froze, but did not confiscate the 660 million dollars that belong to him. For the financier, this allegedly became such a strong blow that he put his house up for sale and does not travel for security purposes.

According to Henning Sorensen, a law professor at the University of Southern Denmark, Shah is “rightly” afraid of extradition and arrest.

Shah is free while staying in Dubai. Now he is like a bird in a golden cage.

Henning Sorensen
Professor at the University of Southern Denmark
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