Prosecutors raid big banks over cum-cum scheme
France’s financial prosecutor raided some of the country’s biggest banks, including Societe Generale and BNP Paribas, as part of a probe into tax fraud and money laundering related to dividend payments.
HSBC Holdings, Natixis and BNP’s Exane unit are also being searched as part of the investigation, according to the prosecutors office in Paris. Preliminary investigations related to the raids were opened in December 2021, the prosecutor said.
The raids relate to a dividend arbitrage strategy known as “cum-cum” where shareholders transferred stock for a short period to investors based abroad to avoid a dividend tax. Investors held the shares during the period when dividends were paid out and either were not taxed or the taxes were refunded. They then sold the securities back to the original owner and the amount that was saved was split between the parties.
BNP, HSBC, and Natixis representatives did not immediately respond to requests for comment. A spokesperson for Societe Generale confirmed that the bank was part of the probe.
Societe Generale fell as much as 2.4% e paring gains to trade down 1% as of 1.03pm in Paris. BNP was 0.5% lower and HSBC fell about 0.2% on the London Stock Exchange.
The French investigation, which the prosecutor said had been in preparation for months, involves 16 local magistrates, more than 150 investigators and six prosecutors from Cologne. The avoidance of tax payments on dividends in Germany has been a scandal in that country for the best part of a decade. A similar scheme, known as “cum-ex”, allowed short sellers and the actual holder of shares to all claim tax credits on a dividend paid only once.
A trader in a German CumEx trial in 2019 told the court that cum-ex was five to six times more profitable than cum-cum. However, cum-cum was far more widespread, especially in interbanking trading, as the legal risks were deemed to be much lower.
The French prosecutor also invited anyone wishing to provide further information related to the inquiry to come forward.