Where in the World Is Denmark’s $2 Billion?

As giant as it’s, the constructing could be straightforward to overlook. Plain, grey and close to a McDonald’s, it’s a part of a generic workplace complicated surrounded by an enormous car parking zone in a suburb of Copenhagen. “Danish Tax Company” is stenciled in each English and Danish on a glass entrance door.

This outpost of SKAT, because the I.R.S. in Denmark is thought, appears an unbelievable setting for what the authorities name one of many nice monetary crimes within the nation’s historical past. For 3 years, beginning in 2012, a lot cash gushed from an workplace right here that it was as if the state had sprung a huge leak.

Prosecutors in Copenhagen say it was an elaborate ruse, one which finally value taxpayers greater than $2 billion — a spectacular sum for Denmark, the equal of a $110 billion loss within the far bigger American financial system.

The nation had fallen sufferer to a doubtful monetary maneuver on the intersection of the tax system and capital markets, a dizzyingly complicated transaction often called a “cum-ex” commerce.

The commerce is targeted on one of many dullest, most missed acts in any monetary system — the request for refunds on taxes withheld on dividends. Beneath Danish regulation, the federal government mechanically collects taxes on dividends paid out by corporations to their shareholders. If the shareholders stay in the USA, they’re eligible for a refund on some or all of these taxes.

A tiny division in SKAT, run by one man, authorized 1000’s of purposes for refunds. Many of the purposes have been filed by self-directed pension plans in the USA, a sort of retirement account for people.

However specialists and attorneys aware of the scheme say these folks have been fronts for cum-ex trades. Deploying a type of monetary sleight of hand, the trades made it seem as if the pension plans had bought shares of Danish corporations and paid taxes on the dividends. Neither was true.

To the Danes, it was a fraud, one executed and conceived by Sanjay Shah, a 48-year-old, London-born financier. With an help from workers, he discovered the Individuals, helped facilitate the purposes and ended up with a lot of the cash.

Mr. Shah denies any wrongdoing and thru a publicist says he merely took benefit of a loophole. He now lives in Dubai, the place he owns a $1.three million yacht and a 10,000-square-foot villa with entry to the seaside. He has develop into Denmark’s nationwide villain.

“You’ve got this man, dwelling off fraud, it’s infuriating,” mentioned Joachim B. Olsen, a member of the Danish Parliament and chairman of its Finance Committee. “The expectation of the Danish folks is that we’ll go after him, regardless of the price.”

ImageSanjay Shah, a 48-year-old, London-born financier, who Danish authorities say conceived and executed the scheme in Denmark. He denies any wrongdoing and thru a publicist says he merely took benefit of a loophole.CreditStuart Williamson

Since Could, the price has included hiring an American regulation agency to sue 277 of the self-directed pension plans and their homeowners who utilized for all these tax refunds. However the true toll of this scandal can’t be measured in kroner. It has undermined belief in Danish politics and it has severely dented the nation’s self-image as a bastion of sincere, environment friendly authorities. An unfolding $230 billion money-laundering fiasco at Danske Financial institution, the nation’s largest lender, has solely deepened the gloom.

What has made the dividend debacle much more painful is that many right here imagine it was an inside job. The lone worker approving these tax refunds was a lifelong civil servant named Sven Nielsen. After a prolonged investigation, the police realized that Mr. Nielsen had spent a couple of boozy and convivial evenings with an worker of Mr. Shah’s, though they discovered no proof that he had colluded or profited in any method.

As an alternative, they found proof that years in the past, Mr. Nielsen had helped an outdated good friend bilk SKAT in a comparatively small rip-off. By his lawyer, Mr. Nielsen declined to remark — from jail, the place he’s now serving a six-year sentence for legal fraud in that case.

So, Danes are left with a thriller that belongs in a Nordic noir, one with components of farce and crammed with enraging twists. Is Mr. Nielsen a co-conspirator, or a dupe? Is he a legal or a person so flattered by consideration that his vital colleges deserted him?

The opposite thriller considerations Mr. Shah, who’s now rebranding himself as a philanthropist, elevating cash for autism analysis by selling concert events in Dubai with performers like Flo Rida and Lenny Kravitz. He has been formally termed a suspect by Danish authorities, however to the collective amazement of the Danes no legal expenses have been filed in opposition to him.

A spokesman for the State Prosecutor for Critical Financial and Worldwide Crime wouldn’t say why. As an alternative, with impeccable Scandinavian restraint he mentioned solely that the case includes folks “who appear to have used a really artful setup.”

Discovering His Calling

Mr. Shah declined to be interviewed for this text. To supply his model of occasions, he offered by means of his publicist a 14-page handwritten letter that outlined his profession. And for added private particulars, there’s a collection of autobiographical movies that he posted two years in the past on YouTube, titled “I Am Sanjay Shah.”

In every, he sits in a spacious lounge in a home in Dubai and muses about his life and enterprise philosophy, omitting any trace of controversy. He comes throughout as an upbeat, middle-aged expat with an abiding fondness for music. After a midlife disaster, he based Autism Rocks and have become a part-time live performance promoter, at one level reserving his private favourite, Prince. Mr. Shah additionally has a style for the extravagant. In a single video, he mentioned that sports activities vehicles parked exterior the workplace at Merrill Lynch, the place he labored early on, impressed him to think about a brand new profession.

“I mentioned to my boss, ‘Who drives these vehicles?’” he recalled within the video. “And he mentioned the merchants do on the fifth flooring. So then I made a decision that I needed to be a type of folks.”

Mr. Shah was raised in London by dad and mom of Indian ancestry who had immigrated from Kenya. He dropped out of faculty in 1992, citing an absence of motivation, and labored at a lot of giant monetary corporations. In 2007, he landed a job on the London workplace of Rabobank, a Dutch firm, on the dividend arbitrage desk.

ImageThis outpost of SKAT, because the I.R.S. in Denmark is thought, appears an unbelievable setting for what the authorities name one of many nice monetary crimes within the nation’s historical past.CreditCarsten Snejbjerg for The New York Instances

There he realized about cum-ex trades. The time period is Latin for “with-without” and refers back to the standing of shares earlier than and after a dividend is issued. Cum-ex trades would shortly develop into the main target of Mr. Shah’s skilled life.

Across the time of the worldwide monetary disaster, Rabobank closed its dividend arbitrage desk. Whereas former colleagues scrambled to search for careers in different fields, Mr. Shah boldly opened his personal agency, Solo Capital, with an workplace of eight workers. On the similar time, he did one thing uncommon for a person beginning a enterprise in London. He and his household moved to Dubai, “primarily for the climate and the approach to life,” he defined in a video.

As economies across the globe reeled, Mr. Shah discovered himself in one of many few progress segments in banking. Cum-ex trades are made potential by tax treaties between nations, agreements which are supposed to stop double taxation. Denmark has such a treaty with the USA.

What authorities regulators all through Europe did not foresee was that overseas dividend tax refunds may yield immense and doubtful earnings. After the monetary meltdown, dozens of German banks determined for a brand new supply of earnings eagerly facilitated cum-ex trades, fueled by capital from everywhere in the world.

Merchants made off with greater than $11 billion, in accordance with officers there. Cum-ex would reap fortunes from the governments in Austria, Belgium and Switzerland, too.

It took years for the German authorities, who banned the observe in 2012, to determine what had hit them. The primary cum-ex indictments within the nation have been filed in Could.

“It turned out to be one of many greatest monetary scandals that Europe has ever seen,” mentioned Bastian Finkel, a tax lawyer at BLD, a regulation agency in Cologne, “and all of the extra painful as a result of it’s public cash.”

Within the wake of their losses, the authorities in Germany didn’t hassle to alert different nations, and speculators moved elsewhere. The largest goal, it turned out, was Denmark.

Beneath the phrases of an American-Danish tax settlement, Individuals who personal shares in, for example, Carlsberg can get a full or partial refund on the 27 % withheld for tax on dividends. Retirement accounts get the very best deal of all. They get all 27 % of the tax again.

To scale up his cum-ex commerce, Mr. Shah wanted people in the USA with self-directed pension plans, a sort of retirement account that enables homeowners to spend money on a variety of economic devices. By 2012, he had discovered greater than a dozen of them — which turned out to be loads.

ImageSven Nielsen, a lifelong civil servant. Defenders of Mr. Nielsen preserve that he’s a basically respectable man who made a critical mistake below the suasion of a pal. True or not, Mr. Nielsen had a brand new pal in 2014, simply because the SKAT payouts soared.CreditDR Nyheder

A Man With 44 Pension Plans

The names of those Individuals who owned the self-directed pension plans grew to become public this summer season, when Danish authorities sued them, hoping to get better misplaced funds. Precisely how these folks linked up with Solo Capital is unknown. Mr. Shah’s publicist would say solely that they got here by way of wealth administration advisory corporations.

There are demographic patterns. Most stay on the East Coast, with clusters in New York, New Jersey and Florida. Not less than 5 totally different plans used the identical mailing deal with, 425 West 23rd Avenue, Residence 7B, New York, N.Y. The present tenant there had by no means heard of the Danish lawsuits, however mentioned he had obtained mail for one of many defendants, Gavin Crescenzo, a earlier occupant.

Almost all of the defendants have jobs in finance, although one, Michael Ben-Jacob, is a accomplice at a prestigious regulation agency, Arnold & Porter. He declined to debate the case and a spokeswoman on the agency mentioned it didn’t touch upon litigation in progress.

Many individuals have their names connected to dozens of pension plans, which is why there are 277 fits and roughly 17 defendants. A 30-year-old named Roger Lehman, for example, opened 44 plans in a handful of states, with names such because the Ludlow Holdings 401Okay Plan and the Resort Fromance Pension Plan.

Mr. Shah mentioned by means of his spokesman that Solo Capital labored with 200 of those pension plans. He declined to establish which of them.

Not one of the defendants responded to requests for remark. In July, although, an e mail response got here as a substitute, unbidden, from a regulation agency in Luxembourg referred to as Schaffelhuber Müller & Kollegen. A accomplice there named Helene Schwiering acknowledged that her shoppers, whom she didn’t identify, would admire it “in the event you henceforth chorus from making an attempt to contact them.”

On paper, the homeowners of the plans pocketed most of SKAT’s $2 billion. In actuality, these folks in all probability wound up with little or not one of the cash.

That, at the least, is the impression of John Hanamirian, a plaintiffs legal professional in New Jersey. Till mid-July, he represented defendants in additional than 50 instances, then he instantly filed authorized papers withdrawing from all however a couple of of them.

The withdrawal filings have been revealing. They acknowledged that Mr. Hanamirian was not paid by defendants named within the lawsuits. Fairly, his payments have been paid by what he described solely as a “Luxembourg regulation agency.” And that regulation agency wouldn’t present wanted recordsdata about his defendants, “regardless of repeated requests,” he wrote.

In an interview, Mr. Hanamirian elaborated. The agency was the one in Luxembourg that despatched that out-of-the-blue e mail asking that defendants within the instances be left alone.

ImageJohn Hanamirian, a plaintiffs legal professional in New Jersey. Till mid-July, he represented defendants in additional than 50 instances — then instantly filed authorized papers withdrawing from all however a couple of of them.CreditMichelle Gustafson for The New York Instances

“I wanted paperwork surrounding their involvement, no matter that’s — financial institution statements, funding statements, communications,” Mr. Hanamirian mentioned. “The agency wouldn’t do it. They mentioned, ‘We’ll meet you prematurely, the day of the proceedings.’ I mentioned that’s unacceptable.”

Earlier than exiting the instances, Mr. Hanamirian spoke to a handful of shoppers who instructed him that cash went in after which was instantly moved out of their accounts. Whether or not the defendants earned a payment of some form is unknown to Mr. Hanamirian, as is the final word vacation spot of the funds.

“I don’t need any of this to replicate on my former shoppers,” he mentioned. “However the entire thing was positively odd.”

$three Million, Each Hour

In 2013, all that stood between Solo Capital and Denmark’s treasury was the bespectacled, gray-haired veteran of SKAT, Sven Nielsen. After two colleagues retired, he was the final particular person within the Dividend Division. Complicating issues, he lacked the instruments to carry out essentially the most primary due diligence when reviewing refund purposes.

The company was within the midst of a yearslong and infrequently disastrous overhaul, meant to digitize the system and cut back head rely. The precedence was serving to Danish taxpayers, not overseas shareholders. Mr. Nielsen didn’t actually have a database to examine whether or not a person pension plan truly owned the shares it claimed, mentioned Lisbeth Romer, who was Mr. Nielsen’s boss till she retired in 2013.

“Sven’s job was lowered to bookkeeping, basically, checking if a kind was stuffed out correctly,” she mentioned. “A monkey may do it.”

There was one other drawback that no one knew about then: Mr. Nielsen could possibly be persuaded to interrupt the regulation. When the Danish police searched his residence after the Solo Capital revelations, they discovered a letter exhibiting that in 2007, he helped an outdated good friend illegally safe $5.7 million from SKAT. (The 2 males knew one another from the times when Mr. Nielsen moonlighted with a job delivering newspapers.) Final December, prosecutors convicted Mr. Nielsen of fraud for taking a kickback, the equal of $315,000, for his efforts.

Defenders of Mr. Nielsen preserve that he’s a basically respectable man who made a critical mistake below the suasion of a pal. True or not, Mr. Nielsen had a brand new pal in 2014, simply because the SKAT payouts soared.

His identify was Camilo Vargas. He labored in London at one among a small variety of “fee brokers,” area of interest corporations that deal with the array of paperwork submitted to overseas tax authorities for refunds. Mr. Vargas had simply based his personal fee agent agency, which he referred to as Syntax GIS. Quickly after Syntax started operations, it began working with Sanjay Shah, who ultimately purchased the corporate.

Through the first of a number of journeys to Copenhagen, Mr. Vargas sought out Mr. Nielsen, asking for steering on learn how to fill out Danish tax refund purposes. What is thought about these conferences comes from the one interview Mr. Nielsen has ever given, in a 2016 documentary that ran on DR, Denmark’s model of the BBC. Mr. Nielsen seemed to be flattered by the eye and glad to supply recommendation.

ImageA restaurant in downtown Copenhagen the place Mr. Nielsen was mentioned to have been taken.CreditCarsten Snejbjerg for The New York Instances

He simply as gladly accepted invites to dinner. Mr. Nielsen described within the interview a energetic night consuming beer with Mr. Vargas in a preferred downtown space in Copenhagen.

“We walked down Stroget,” he mentioned, referring to a well-known pedestrian avenue, “and made a number of pit stops.”

The friendship was fantastically profitable. In 2014, greater than $590 million was paid on 1,500 refund purposes. Danish authorities imagine most of them got here from Solo Capital shoppers. Within the first seven months of 2015, the figures soared to roughly $1.2 billion, paid to greater than 2,500 purposes — about 16 purposes each working day.

It apparently by no means occurred to Mr. Nielsen that Camilo Vargas was taking part in him.

“At no level did I get the impression that he needed to trick me or cheat in any method,” Mr. Nielsen mentioned within the documentary, sounding bereft. “However that’s what it may seem like at the moment.”

Mr. Vargas couldn’t be positioned for remark. The producers at DR employed a researcher to seek out him, to no avail.

In the summertime of 2015, the tempo of purposes made one remaining surge. In July alone, $500 million in refunds was disbursed — about $25 million per working day, $three million each hour.

Mr. Shah might have had a hunch that the Danish tax refund machine was about to cease working. In Could 2015, he met in London together with his then-new compliance officer at Solo Capital, Navin Khokhrai. As Mr. Shah put it within the handwritten letter offered by his publicist, Mr. Khokhrai expressed profound reservations about Solo Capital’s enterprise, telling his boss that he was not sure “whether or not the corporate was processing the trades accurately.” Mr. Shah assured him that he’d obtained all needed authorized clearances.

Mr. Khokhrai was apparently not satisfied. He resigned quickly after and Mr. Shah acknowledged in the identical handwritten letter that his former worker “submitted a whistle-blower letter to HMRC” — Her Majesty’s Income and Customs — “alleging that Solo had created fictitious shopper accounts and buying and selling information with a purpose to defraud the tax authorities in Denmark and Belgium.”

In August 2015, the dividends stopped flowing out of SKAT, although not due to sirens set off by anybody contained in the company. Fairly, it took a tip from the British authorities to finish the scheme, a number of Danish politicians mentioned. The London workplaces of Solo Capital have been later raided by Britain’s Nationwide Crime Company and by July 2016 Solo Capital closed.

On the time, Mr. Shah mentioned he had performed nothing improper. “Had they accused a big financial institution like Goldman Sachs the financial institution would have kicked again with a big crew of attorneys,” he instructed Borsen, a Danish newspaper. “It’s simpler to focus on a single particular person.”

ImageLisbeth Romer, who was Mr. Nielsen’s boss till she retired in 2013. “Sven’s job was lowered to bookkeeping, basically, checking if a kind was stuffed out correctly,” she mentioned. “A monkey may do it.”CreditCarsten Snejbjerg for The New York Instances

‘This Was Fraud’

Danish authorities have been making an attempt to unravel Mr. Shah’s handiwork for over three years. A lot of his modus operandi was revealed, specialists imagine, in 2017 when police in Germany, who have been performing on the behest of the Danes, used a search warrant to sift by means of the information of North Channel Financial institution, a small financial institution in Mainz, a metropolis exterior Frankfurt. A crew of 60 investigators discovered that the financial institution was utilized by 27 of the American pension plans, which have been finally paid a complete of about $168 million by SKAT.

What investigators discovered is that the accounts didn’t truly personal any shares of Danish corporations, mentioned Prof. Christoph Spengel, who served as an adviser to Germany’s Parliament throughout an inquiry into the questionable trades. He studied the outcomes of the North Channel investigation, issued in a report by a German district legal professional. He mentioned that the 27 plans primarily traded with each other. One would place an order to quick a piece of shares of Danish inventory — basically, a promise to purchase the shares as soon as they dipped under a sure worth.

Quickly after, an order was positioned by one other of the 27 plans to purchase the order for the shorted shares. That open purchase order — basically, a promise to buy shares that the opposite plan nonetheless didn’t personal — was proof sufficient for SKAT to approve a refund. As soon as the refund was issued, the purchase order was canceled.

“This wasn’t a transaction, this wasn’t tax planning,” Professor Spengel mentioned. “This was fraud.”

A spokeswoman for North Channel mentioned the financial institution was cooperating with the authorities and had no remark.

After funds have been wired to North Financial institution, Professor Spengel mentioned, they have been shunted to 2 banks, first in London, then one other in Germany. Lastly, he mentioned, they have been despatched to accounts managed by Mr. Shah and his spouse, Usha.

Jack Irvine, Mr. Shah’s spokesman, mentioned none of this was true.

“Neither Solo nor Sanjay have had something to do with North Channel Financial institution,” he wrote in an e mail, “so there seems to be confusion, which isn’t uncommon on this case.”

There was outrage in Denmark over the SKAT scandal however up to now the repercussions have been surprisingly restricted. No ministers have been fired. The director of SKAT was laid off in August 2016, although Mr. Shah’s machinations have been amongst a number of causes. A brand new investigation into the cum-ex catastrophe was ordered by the justice minister in February, which may final years. For now, politicians right here appear to emphasise pragmatism over finger-pointing.

“Previously, governments have fallen due to investigations like this,” mentioned Jesper Petersen, a member of the opposition Social Democratic Social gathering. “However we now have but to seek out any minister who noticed proof of this drawback and ignored it.”

Sanjay Shah is preoccupied together with his personal troubles. In mid-September, a Excessive Courtroom of Justice choose in London entered a $1.three billion default judgment in opposition to Solo Capital and an organization it owned, Elysium International, in a case filed by SKAT alleging fraud. Mr. Shah’s spokesman mentioned his shopper didn’t reply to the lawsuit as a result of each corporations are actually managed by liquidators.

He additionally mentioned that on the prodding of Danish officers, Britain, Germany and the United Arab Emirates have all frozen, although not confiscated, $660 million in property belonging to Mr. Shah. The monetary pinch is sufficient that Mr. Shah has been compelled to place his home up on the market, the publicist added. Out of warning, the publicist mentioned, Mr. Shah doesn’t journey.

Fears of arrest and extradition are justified, mentioned Henning Sorensen, an affiliate regulation professor on the College of Southern Denmark.

“Shah is free so long as he stays in Dubai,” he mentioned. “He is sort of a chook dwelling in a golden cage.”

Alain Delaquérière and Martin Selsoe Sorensen contributed reporting.

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