Cum-cum scandal spreads to France: Raid on five banks

DThe French financial prosecutor’s office on Tuesday carried out house searches at five banks in Paris and the La Défense business district to the west of the capital. According to the authority, they came as part of preliminary investigations launched in December 2021 into allegations of money laundering and serious tax fraud in connection with the so-called “cum-cum” fraud.

According to the French newspaper “Le Monde”, the banks concerned are BNP Paribas, its subsidiary Exane, HSBC, Société Générale and Natixis, the investment bank of the French savings banks and cooperative banks. Only the Société Générale confirmed that raid on request, but without giving any further details.

As the public prosecutor’s office further announced, some of the investigations go back to a criminal complaint or a mandatory report by the tax authorities. The ongoing operations would have required several months of preparation.

In addition to 16 judges from the French public prosecutor’s office and more than 150 investigators from the department for judicial investigations of the French Ministry of Finance, six German public prosecutors from Cologne, who work within the framework of European judicial cooperation, are involved. The Cologne public prosecutor’s office did not want to comment on the request.

Established practice

“Cum-cum” trading differs from share group transactions (“cum-ex”), which have already been declared illegal in Germany by the Federal Fiscal Court and the Federal Court of Justice. However, tax savings are also the focus of “cum-cum” transactions.

In the current case, a foreign shareholder transferred an in France listed company temporarily transferred the securities it held to a French institution around the dividend record date in order to avoid paying the withholding tax. In Germany, the black-red federal government had retrospectively restricted business as of January 1, 2016. According to estimates by the Mannheim finance scientist Christoph Spengel, the tax damage in Germany should amount to up to 30 billion euros.

The results of several surveys by the financial supervisory authority Bafin and the Bundesbank in 2017 show that the practice was common among many financial institutions. According to this, 85 financial institutions participated in “cum-cum” transactions. While the tax processing is progressing through various judgments by the finance courts, there has only been one charge against former board members and employees of the former Depfa Bank.