Cum-Ex Crown Witness Steck: Federal Court of Justice Finally Confirms Suspended Sentence

The judges in Karlsruhe justified their decision with Steck's special role as a crown witness for the prosecution authorities. Through his testimony, "die komplexen und arbeitsteiligen Strukturen der Cum-Ex-Leerverkäufe aufgeklärt" had been revealed, the BGH explained in its ruling on the Cum-Ex crown witness under case file number 1 StR 35/26.

The BGH established that Steck had exposed the roles of various actors such as banks, funds, investment companies, traders, and so-called short sellers. Tax damages had largely been repaid, according to the reasoning. In addition, he had convinced other participants to also cooperate with the investigating authorities.

According to the BGH's assessment, the suspended sentence stands "im Einklang einer gesetzlichen Kronzeugenregelung". According to the law, offenders willing to cooperate are intended to help break up insulated structures and to solve or prevent serious crimes. "Damit wird deutlich, dass Aufklärungshilfe entsprechend den gesetzlichen Möglichkeiten honoriert werden muss", said Steck's defense attorney Gerhard Strate.

Role of the Crown Witness

Steck "die Seiten gewechselt" in 2016 and "talked," dpa reported. He had been considered by Bonn prosecutors as one of the "treibenden Kräfte" of the Cum-Ex tax fraud and thus became a central witness in the investigation. The BGH elaborated that the reasoning of the Bonn Regional Court's verdict proved to withstand legal review.

At the same time, the BGH warned that rejecting a suspended sentence solely because of high tax damage would "dieses gesetzgeberische Ziel konterkarieren". "Dies wäre in letzter Konsequenz geeignet, künftig aussagegeneigte Täter im Einzelfall von der Offenbarung schwerer Steuerstraftaten abzuhalten", the Karlsruhe judges found.

Unlike Steck, his former mentor did not get off lightly. The architect of the deals—currently referred to as "Mr. Cum-Ex"—is Hanno Berger. His sentence: A total prison sentence of eight years, which he is currently serving. The Wiesbaden criminal trial ended for him with a total sentence of eight years and three months.

Steck was for years "die rechte Hand" of the Cum-Ex mastermind Hanno Berger, "der gut 20 Jahre älter war als er und lange Zeit eine Art Mentor war". Berger is considered a co-inventor of the Cum-Ex tricks and previously worked as a financial officer in Hesse before working as a tax attorney for banks and wealthy private individuals. Steck himself was a partner at Berger's law firm.

Unlike Steck: Berger in Prison

The Cologne Public Prosecutor's Office failed with an application in Karlsruhe to increase the sentence. They had previously demanded a prison sentence of three years and eight months for Steck. The Public Prosecutor's Office did not want to comment on the decision.

During the Steck trial last year, the Bonn judges had described the Cum-Ex complex as a "pervertiertes System". They attributed an "überragende strafmildernde Wirkung" to the convicted man for his contributions to the investigation. This verdict now also stands up to the BGH.

In the Cum-Ex model, financial actors traded shares with ("cum") and without ("ex") dividend entitlement around the record date to trick the treasury into reimbursing taxes that had not been paid. The heyday of this fraud was from 2006 to 2011. Estimates suggest the treasury lost a double-digit billion-euro amount; other estimates put it at at least ten billion euros. The tax loophole was closed in 2012.

In the summer of 2021, the Federal Court of Justice ruled in a landmark decision that Cum-Ex transactions constitute tax evasion and are therefore generally punishable. This put the judicial investigation of the complex on a new footing.

BGH Landmark Decision of 2021

Strate expressly welcomed the decision of the Karlsruhe judges. "Der Beschluss ist in dem klaren Bekenntnis zur Kronzeugenregelung ein großer Gewinn für die rechtsstaatliche Gestaltung unseres Strafverfahrens", the defense attorney said. He expressed relief over the Karlsruhe decision.

The Berger case continues in the meantime. After fleeing to Switzerland in the fall of 2012, following a search of his Frankfurt office, Berger went into hiding in Zuoz in the Engadin. In July 2021, he was arrested in the canton of Graubünden on the basis of a German extradition request and taken into extradition custody. At the end of February 2022, Swiss police handed Berger over to officers from the Federal Criminal Police Office (BKA) in Konstanz.

The time spent in extradition custody in Switzerland from July 2021 to February 2022 is being credited toward Berger's Wiesbaden sentence. In December 2022, the Bonn Regional Court convicted Berger in three cases of tax evasion in connection with Cum-Ex transactions at Warburg, sentencing him to a total prison term of eight years, which led to unjustified payments of over 275 million euros. The Federal Court of Justice confirmed Berger's Bonn conviction in October 2023.

Hamburg Warburg Complex

In the proceedings against Christian Olearius, co-owner and former patron of Warburg Bank, the Cologne Public Prosecutor's Office had previously charged him with 15 cases of particularly serious tax evasion between 2006 and the end of 2019, with a tax damage of nearly 280 million euros. The proceedings ended at the end of June 2024 with a so-called dismissal judgment, without the question of guilt being clarified due to his state of health.

The Hamburg private bank M. M. Warburg is accused of having conducted Cum-Ex transactions for years in cooperation with tax attorney Hanno Berger. In October 2023, the Cologne Regional Court had awarded the state of North Rhine-Westphalia 10,000 euros in compensation for the violation of its personal rights after diary contents were passed on to unauthorized persons. The diaries had been seized during a raid in March 2018 and contained, among other things, notes from meetings with Scholz.

In the investigations surrounding the Hamburg Cum-Ex cases, meetings of the then First Mayor of Hamburg, Olaf Scholz, with Olearius also play a role. These took place in 2016 and 2017, while Cum-Ex investigations against Warburg were already underway and potential repayments to the treasury were at stake, which the Hamburg tax office initially waived. Scholz confirms the meetings but denies any political influence. Olearius had rejected the statement as "abenteuerlich", saying it was absurd to accuse him of trying to persuade Scholz to violate his official duties.

In the Olearius proceedings, the Cologne Public Prosecutor's Office had accepted the indictment in 14 cases; one proceeding was not opened due to the principle of "ne bis in idem" (prohibition of double prosecution). According to the BGH ruling, the tax damages have largely been repaid. According to the organization Finanzwende, there are approximately 1,800 suspects in Cum-Ex proceedings nationwide.

Consequences for the Investigation

The BGH made clear that the suspended sentence is lawful and must be accepted. This makes the verdict final and binding—Steck, "Anwalt Kai-Uwe Steck," comes off "mit einer Bewährungsstrafe davon" and "das bleibt dessen einstigem Zögling Kai-Uwe Steck erspart"—the prison stay that his former mentor is not spared. In contrast to Steck, Berger alone personally profited around 13.6 million euros, which were confiscated in the Regional Court's verdict.

"Damit wird deutlich, dass Aufklärungshilfe entsprechend den gesetzlichen Möglichkeiten honoriert werden muss", Strate summarized the significance of the Karlsruhe decision. The ruling sends a signal beyond the individual case: Anyone who, as a defendant, actively contributes to the investigation of serious economic crimes can expect a milder sanction.

The Cum-Ex investigation in Germany continues in the meantime. With the final conclusion of the proceedings against Steck, the judicial investigation of the billion-euro scandal gains another mosaic piece.