Investigations into Dividend Stripping at Some French Banks
DBRS Morningstar has published a commentary focusing on Investigations into Dividend Stripping at Some French Banks.Key highlights include:
• The headquarters of five French banking institutions (BNP Paribas SA and its subsidiary Exane, Société Générale SA, Natixis SA - Groupe BPCE's investment bank and HSBC Continental Europe - part of HSBC Holdings plc) were raided on March 28, 2023 by French authorities as part of an investigation into a potential EU-wide tax fraud case.
• These French banks allegedly participated in dividend fraud practices known as “Cum-Cum” i.e. complex legal frameworks allowing clients to avoid paying the taxes due on dividends. These practices do not only concern French banks, but have been used by global financial institutions across Europe.
• The fraud is estimated to have cost several European countries around EUR 140 billion for the 2001-2021 period and similar civil and criminal cases have taken place in Germany, the UK and Denmark.
• Tax authorities in France are reportedly seeking to impose fines for a total of around EUR 1 billion on the several banks involved.
“We expect the investigation to last for a very long time due to the large amount of transactions that will have to be analysed by investigators,” said Arnaud Journois, Vice President, Global Financial Institutions at DBRS Morningstar. “Tax authorities in France are reportedly seeking to impose fines for a total of around EUR 1 billion on the several banks involved. Whilst this adds to the negative sentiment around banks in the wake of the collapse of Silicon Valley Bank and the rescue of Credit Suisse, we view the potential impact of the investigations as manageable at this point.”
BNP Paribas is engaged in the provision of banking and financial services. Co.'s business activities are divided into two segments: Retail Banking & Services and Corporate and Investment Banking. The Retail Banking and Services business includes domestic markets and international financial services. The Corporate and Institutional Banking comprises of corporate banking, global markets, and securities services. Other activities include principal investments, which related to Co.'s central treasury function, some costs related to crossbusiness projects, the residential mortgage lending business of personal finance, and certain investments.
HSBC Holdings is a financial services holding company. Through its subsidiaries, Co. operates four businesses: Retail Banking and Wealth Management, which serves customers through four businesses: Retail Banking, Wealth Management, Asset Management, and Insurance; Commercial Banking, which provides working capital, term loans, payment services, and international trade facilitation; Global Banking and Markets, which delivers a range of transaction banking, financing, advisory, capital markets, and risk management services; and Global Private Banking, which provides a range of private banking services. At Dec 31 2017, Co. had total assets of US$2.52 trillion and deposits of US$69.92 trillion.
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