Two British former investment bankers are on trial in Germany for their role in orchestrating an equity trading scheme known as “cum-ex” between 2006 and 2011, which pocketed hundreds of millions of dollars from taxpayers.German papers have called it the most complicated tax fraud trial in modern German history, but the cum-ex scandal could have implications for the entire financial services industry. The two bankers, Martin Shields and Nicholas Diable, are serving as both defendants and star witnesses in the trial for 24 instances of serious tax fraud.In cum-ex trades, shares with and without dividend rights were quickly traded between various market participants just before the payout date for the dividend, allowing traders to reclaim double the taxes.Financial institutions in essence exploited a legal loophole which allowed two parties to simultaneously claim ownership of the same shares, therefore allowing both to claim tax rebates to which they were not entitled.Authorities have since deemed the reclaims illegitimate, but at the time of the trades, this was less black and white, and a vast network of traders, analysts and lawyers were thought to be involved in the practice throughout the continent.Picture taken on March 17, 2019 shows the headquarters of German banks Deutsche Bank (L) and Commerzbank in Frankfurt am Main, western Germany.FRANK RUMPENHORST | DPA | Getty ImagesJulian Dixon, CEO of trading compliance technology provider Napier, told CNBC that the ripple effect of the cum-ex case could be far reaching.”Tax arbitrage structuring is commonplace in many financial organizations and this is just another way of circumventing tax regulations,” he said.”Organizations will have taken a view on the products before they are approved, and this is done by committee — it’s too early to see which banks have been involved in this or similar schemes at this time.”Dixon, who previously worked in investment banking for over 20 years with Deutsche Bank, J.P. Morgan and Commerzbank, said financial institutions had always sought to mitigate tax liabilities for clients by finding legal loopholes, particularly in cross-border tax.”These schemes are dreamed up by individuals, but they have to pass muster of a new product committee (NPC) in any financial organization. Thus these individuals rarely work without the knowledge of their employer,” he explained.The cum-ex deals orchestrated by the two British bankers on trial in Bonn eventually led to a tax loss of 400 million euros ($443 million).However, the wider scheme carried out in the first decade of the 21st century, and unearthed in 2017, is thought to have cost state coffers across Europe, including at least 10 countries outside Germany, over $60 billion.Nearly 500 cum-ex deals worth around 5.5 billion euros are being investigated in Germany, according to the German Finance Ministry. Around 2.4 billion euros has already been recovered by the tax authorities.’Institutional scale’The U.K.’s Guardian newspaper reported from the courtroom last month that Shields characterized cum-ex trades as being practiced on an “industrial scale” and involving a vast network of banks, companies, brokers, lawyers and financial advisers.Dixon said further scandals are bound to be unearthed, but suggested that governments and regulators worldwide need to be clearer on the differences between legal and illegal arbitrage opportunities.”Regulators can easily up their game on this, they have the ability to fine organizations and censure individuals for bad behavior — the only surprise is how rarely they appear to use these powers,” he said.”If the cost of fines and regulatory censure, along with reputational damage, is forefront to the new product committee then they may consider the more ‘out there’ schemes with a little more scrutiny.”Shields worked at Unicredit SpA’s HVB unit until 2008, when he co-founded an asset management firm that advised on cum-ex deals, and told the court that he made 12 million euros ($13.21 million) from deals his company handled, which are being reviewed as part of the Bonn trial, Bloomberg reported.German newspaper Handelsblatt reported in June that former Deutsche Bank co-CEO Anshu Jain and 78 other current and former bankers were included in investigations by German prosecutors. Reuters reported in October 2018 that Cologne authorities were investigating financial institutions including Banco Santander, Deutsche Bank and Macquarie Bank in relation to cum-ex deals.Shields told the court in September that the “dividend compensation payments” which were a key component of the deals were transacted through Deutsche Boerse’s Clearstream unit, while also naming the likes of Barclays and Commerzbank among a range of major financial institutions involved in the process to some degree.CNBC has reached out to UniCredit and Barclays for comment. Commerzbank and Deutsche Boerse declined to comment.