HSBC set to pay about US$300 million to settle French criminal case

[PARIS] HSBC Holdings is poised to pay around US$300 million to settle a French criminal case into its alleged role in the “Cum-Cum” tax scandal that’s embroiled some of the biggest banks in the country, according to people familiar with the matter.

A proposed settlement with prosecutors from the Parquet National Financier (PNF) is expected to be reviewed by a Paris judge at a court hearing in the next few weeks, said the people, who spoke on condition of anonymity.

As part of the overall deal, London-based HSBC, which has a unit in France, has discussed a parallel arrangement to resolve a civil tax claim by local authorities.

The full agreement would cover the fine to end the PNF case as well as the tax bill, said one of the people. That corresponds to the amount HSBC announced in an October filing that it had booked in connection with the French investigation into trades allegedly engineered to escape taxes on dividend payments.

HSBC, the PNF and French tax officials all declined to comment.

The tentative deal comes after Crédit Agricole’s investment banking arm agreed in September to pay about 134 million euros (S$202 million) in fines and back taxes related to Cum-Cum trades.

The move would increase the pressure on a group of other banks – BNP Paribas and its Exane subsidiary, Société Générale and Natixis – whose premises were targeted by PNF raids in 2023 of unprecedented scale and scope. None of them has been accused of wrongdoing.

Cum-Cum transactions involving banks in France may have cost some 4.5 billion euros in lost tax revenue, authorities said earlier this year. Officials are trying to claw back those amounts.

The alleged logic behind the trades was to enable foreign owners of French stocks to avoid withholding tax by lending the securities during dividend season to an exempt entity such as a local bank.

In its handling of settlements, the PNF has made the payment of Cum-Cum tax bills a prerequisite to settle criminal cases. But HSBC would not make any admission of guilt. That is customary with such settlements – which require the approval of a judge – and was the case for Crédit Agricole.

While French financial prosecutors have described Cum-Cum trades as widespread, they said at the hearing to approve Crédit Agricole’s deal that the lender wasn’t a major player, suggesting other banks are more deeply entangled in the controversial practice.

A PNF prosecutor said at the time that while they consider the transactions are hardly in a gray zone, “some banks continue to claim” that dividend arbitrage, as Cum-Cum trades are sometimes referred to, “doesn’t exist.”

Crédit Agricole partly acknowledged that stance by saying that its internal investigation turned up certain transactions that “had no primary economic reality” and only served to “evade withholding tax for the benefit of French shareholders located abroad.”

As part of their parallel audits, French tax authorities began by examining local lenders. But Bloomberg reported in July that they had expanded their focus to also audit Wall Street banks with trading floors in Paris, including Goldman Sachs Group and Bank of America.

So far, foreign institutional investors such as asset managers or hedge funds on the other side of some of these transactions appear to have been spared by French authorities.

Bank of France data shows non-residents owned 49.5 per cent of all the stock of CAC 40 companies at the end of 2023. BLOOMBERG