September 16, 2023
Banking International

French Authorities Search Paris Offices of Five Banks in Tax Fraud Probe

French Authorities

The Paris offices of five banks, including Societe Generale, BNP Paribas, and HSBC, were searched by French authorities on suspicion of fiscal fraud related to the dodging of dividend tax payments. This investigation is part of a broader European probe into dividend tax fraud. Similar investigations have already taken place in Germany and other European countries.

The National Financial Prosecutor’s Office (PNF) stated that the searches were linked to “cum-ex” dividend stripping, a trading scheme used by banks and investors to quickly trade shares of companies around their dividend payout day. This practice blurs stock ownership and allows multiple parties to illegally claim tax rebates on dividends. Global banks have been hit by investigations into this dividend tax fraud scheme.

Societe Generale and BNP Paribas confirmed the searches but declined to comment further. The PNF confirmed that Exane, which is part of BNP Paribas, and Natixis, the investment bank arm of French banking group BPCE, were also targeted in Tuesday’s searches. The scale of the fraud is unknown, but the banks may face an overall compensation request of more than $1bn, including fines and late interest payments.

The oldest case being investigated dates back to 2014, and it is unclear when the practice ended. In December, tax lawyer Hanno Berger was sentenced to eight years in prison by a German court after he was alleged to have masterminded a dividend-stripping scheme that cost German taxpayers around 10 billion euros ($10.7bn). This was the highest-profile prosecution and longest sentence to date, and several British bankers have also been convicted in trials related to this scheme.

The PNF stated that the searches were carried out by 16 investigating judges and over 150 investigation agents, with six German prosecutors also assisting in the investigations. The global banking sector is currently experiencing turmoil following the collapse of Silicon Valley Bank and Signature Bank in the United States and the government-orchestrated takeover of Credit Suisse by rival UBS.

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