HSBC to Pay €300 Million Fine in French Tax Fraud Probe

HSBC will appear in a Paris court this week to finalise a multimillion-euro fine over alleged dividend tax fraud, according to a judicial source who spoke to AFP. The British-based bank is set to pay approximately 300 million euros ($350 million) to close investigations into its role in a sophisticated tax avoidance scheme that exploited European dividend withholding systems.

The case forms part of broader investigations into massive fraud operations spanning multiple European countries, initially exposed by a consortium of European news outlets in 2018. The scandal has already led to raids on several banks, with some institutions agreeing to substantial fines to avoid further prosecution.

Background and Context

The fraud scheme, known as "CumCum," involves investors selling shares to another party immediately before dividend payment day to avoid withholding taxes, then repurchasing the shares shortly thereafter. Both parties typically share the illicit proceeds from this arrangement. The practice was exposed alongside a similar "Cum-ex" dividend tax fraud revealed by the media consortium in 2018 investigations.

According to the investigative journalists who uncovered the scheme, the amounts involved in the "Cum-ex" frauds alone are suspected to have reached 140 billion euros ($151 billion) over a 20-year period. The fundamental mechanism allows participants to "avoid paying the tax applicable to the payment of this dividend," as explained by the media consortium.

Key Figures and Entities

HSBC joins a growing list of major financial institutions implicated in the scandal. The Paris financial prosecutor's office launched investigations in December 2021 into six large banks: HSBC, Credit Agricole's investment banking unit Cacib, BNP Paribas and its Exane unit, Societe Generale, and Natixis. Banks are suspected of acting as intermediaries in the practice and even charging commissions to investors participating in the scheme.

In September, Credit Agricole's Cacib became the first to accept a deal with French prosecutors, agreeing to pay 88 million euros. Meanwhile, in Germany, lawyer Hanno Berger, believed to be the original mastermind of the related Cum-ex scheme, was sentenced to eight years in prison in December 2022 for his role in orchestrating the fraud.

Legal and Financial Mechanisms

HSBC has declined to comment on the specific fine but referred to its third-quarter earnings statement from October, which cited a 300 million euro provision for "an inquiry relating to dividend withholdings of certain legacy trading activities." The hearing to validate the deal concerning HSBC is scheduled for Thursday at 10:00 am, though the Paris financial prosecutor's office has not confirmed the fine amount, which was first reported by Bloomberg News in December.

The legal mechanism being employed in France—a public interest judicial agreement known as a convention judiciaire d'intérêt public (CJIP)—allows banks to pay fines while admitting guilt and avoiding criminal prosecution. This approach mirrors similar settlements reached in other European jurisdictions seeking to recover lost tax revenue while holding financial institutions accountable.

International Implications and Policy Response

The HSBC case highlights ongoing weaknesses in international tax coordination and the challenges of policing increasingly sophisticated cross-border financial schemes. The cumulative effect of these fraudulent activities represents a significant drain on European tax revenues at a time when many governments face fiscal pressures.

The investigations have prompted calls for strengthened regulatory frameworks and improved information sharing between tax authorities across jurisdictions. Financial regulators in several European countries have begun reviewing their oversight mechanisms, while lawmakers have debated reforms to dividend taxation systems to eliminate the technical loopholes exploited in these schemes.

Sources

This report draws on AFP reporting, Bloomberg News coverage, official HSBC financial statements, and investigations by the European media consortium published between 2018 and 2023. Additional information comes from German federal crime office records and French judicial announcements.