Dividend Stripping

Through dividend stripping schemes (including cum-ex), criminals artificially claim multiple dividend tax refunds by obscuring share ownership around dividend dates, thereby generating direct illicit proceeds from government funds. This tactic is central, as the scheme’s primary objective is to acquire wrongful tax refunds as criminal profit.

Criminals exploit the complexities in share-lending, short-selling, and dividend record processes to generate multiple overlapping tax refund claims. By timing trades around dividend dates, they create the appearance that multiple parties are entitled to the same dividend tax credit. This is the primary vulnerability enabling the direct generation of illicit proceeds from government funds.

Criminal facilitators specifically target jurisdictions with weaker enforcement or favorable tax laws, reducing the likelihood of regulatory scrutiny or prosecution. This cross-border vulnerability complements the manipulation of share-lending and short-selling processes, expanding the scope and profitability of the dividend stripping scheme.

Collusion with brokers or other financial professionals circumvents normal oversight, facilitating multiple or layered claims on dividend tax refunds. This reliance on insiders or complicit professionals is a distinct operational vulnerability, though secondary to the product-level exploitation around dividend entitlements.

Provides insights into countries or regions with lax short-selling or share-lending regulations, or minimal enforcement. Firms can monitor dividend-related transactions originating from or flowing through high-risk jurisdictions to identify potential dividend stripping schemes.

Contains official tax filings and financial statements revealing multiple or duplicative reimbursement claims for the same dividend. Cross-referencing this information with trading data helps uncover fraudulent dividend stripping schemes.

Includes verified customer identities, beneficial ownership details, and account relationships. These records help detect sudden or repeated changes in declared beneficial owners around dividend dates, indicating potential collusion or attempts to obscure rightful ownership.

Provides records on short-selling and share-lending transactions, trade timestamps, counterparties, settlement instructions, and share ownership data around dividend record dates. This information enables the detection of suspicious trading patterns and multiple claims of dividend entitlements.

Provides official registration details, records of shareholders, beneficial owners, and historical ownership changes. Cross-referencing these registries with internal account data helps detect sudden or repeated share ownership shifts engineered to claim multiple dividend refunds in a short timeframe.

Apply heightened scrutiny to any customers or intermediaries frequently engaging in dividend arbitrage. Verify supporting tax documentation, confirm the legitimacy of share transfers, and cross-check declared beneficial owners to prevent bogus or duplicated rebate claims around dividend events.

Require thorough verification of beneficial ownership for trades involving dividend-bearing securities. Document share entitlements, confirm that multiple parties are not claiming the same dividend, and correlate ownership data with official registries or clearinghouses to identify contradictory filings.

Implement specialized monitoring scenarios that flag repeated short-selling and share-lending around dividend record dates. Track overlapping dividend tax credit claims from multiple accounts or sudden changes in share ownership near ex-dividend events to enable prompt detection of potential cum-ex or cum-cum schemes.

Conduct rigorous due diligence on brokers, custodians, and other financial intermediaries involved in share-lending or short-selling transactions. Evaluate their controls for tracking beneficial ownership through dividend dates, and restrict or terminate relationships if they allow or overlook multiple fraudulent tax reclaim filings.

Maintain comprehensive, time-stamped logs of securities ownership, share-lending agreements, and dividend disbursements. Preserve detailed records for all beneficial ownership changes around dividend dates to identify overlapping claims or contrived trading patterns aimed at generating multiple tax rebates.

Assign elevated AML risk ratings to accounts displaying patterns of last-minute ownership changes or extensive short-selling near dividend payment dates. Highlight such customers for enhanced monitoring and continuous reviews of trading behaviors indicative of dividend stripping activities.

Coordinate with other financial institutions, central securities depositories, and regulators to exchange real-time data on large or suspicious share-lending or short-selling near ex-dividend dates. Cross-check beneficial ownership records to uncover overlapping or duplicate tax reclaim filings indicative of cum-ex or cum-cum schemes.

Continuously monitor high-risk accounts that repeatedly execute short-selling or share-lending close to dividend record dates. Review beneficial ownership changes for each dividend cycle and escalate unexplained or repeated tax credit claims for immediate compliance investigation.

• Criminals exploit the short settlement windows and share-lending processes of publicly traded stocks to obscure actual ownership around dividend dates.
• By orchestrating rapid transfers and short-selling, multiple parties appear on record as share owners, each claiming the same dividend tax refund.
• Collusion with brokers or other facilitators conceals beneficial ownership, making it difficult for tax authorities and financial institutions to verify the rightful recipient, thereby enabling multiple overlapping refunds.

• Provide the primary channel for trading, lending, and short selling of shares around dividend record dates.
• Brokers can coordinate rapid ownership transfers so multiple entities appear entitled to the same dividend credits.
• Collusion with complicit brokers enables timing trades to blur beneficial ownership, directly supporting duplicate tax refund claims.

• Facilitate leveraged short selling crucial to dividend stripping, allowing rapid share borrowing and subsequent resale.
• Rapidly opened and closed margin positions create the appearance of multiple shareholders entitled to the same dividend credit.
• By using borrowed funds, criminals can expand trade volume to generate higher fraudulent tax refund claims.

• Complicit or negligent accounting professionals may prepare misleading financial records supporting bogus dividend entitlements.
• Falsified documentation and inflated trade confirmations obscure the rightful owner of shares at key dates.
• Coordinated filings enable multiple overlapping refund claims to appear legitimate to tax authorities.

Traders orchestrate short-selling and share-lending around dividend dates, timing transactions to create multiple claims on the same dividend tax credit. This strategy directly exploits government funds through inflated or duplicate refunds. For financial institutions, these frequent and rapid position changes complicate monitoring and ownership verification:

• Traders can knowingly manipulate trades so that multiple entities appear entitled to the same dividend.
• Complex layering of transactions increases the risk of processing fraudulent claims undetected by the institution’s compliance controls.

Brokers, whether knowingly or unknowingly, facilitate rapid share transfers and short-selling, which are crucial to dividend stripping. This creates opportunities for multiple, overlapping dividend tax credit claims. For financial institutions, these practices obscure transaction records and beneficial ownership:

• Collusion or failure to question manipulative trades enables multiple parties to appear entitled to the same dividend.
• Rapid and opaque share transfers make it difficult for financial institutions to verify rightful ownership at dividend record dates.

Accountants can be complicit or negligent when creating or endorsing misleading financial records that support inflated dividend entitlements, paving the way for multiple overlapping refund claims. For financial institutions, reliance on these records undermines efforts to detect and prevent fraud:

• Falsified or incomplete documentation obscures the rightful owner of securities at key dividend dates.
• Such documentation misleads financial institutions' due diligence processes, increasing the risk of inadvertently processing fraudulent transactions.

Offshore entities in low-tax jurisdictions temporarily hold shares around dividend record dates, reducing withholding obligations and enabling duplicate refund filings. For financial institutions, obscured cross-border ownership makes it difficult to identify the ultimate beneficial owner:

• Shifting shares into offshore entities right before dividend payouts can mask true ownership at critical times.
• Minimal disclosure requirements in certain jurisdictions hamper institutional due diligence and facilitate overlapping claims for the same dividend.