“CumCum” laundering tax fraud - Crédit Agricole pays $103 million criminal settlement

Crédit Agricole has agreed to pay $103 million (88.2 million euros) to settle a criminal investigation led by France’s National Financial Prosecutor’s Office (PNF) into its involvement in dividend-arbitrage schemes, commonly referred to as “CumCum” trades.

The “heist of the century” dividend version

• Revealed in 2018 by the consortium of journalists “Correctiv”, "CumCum" schemes involve temporarily transferring shares just before dividend payments, so that foreign investors can avoid paying tax in France. Even worse: in Germany, shareholders even obtained a refund of a tax... they had never paid.
• Between 2000 and 2020, this system cost European public finances nearly 150 billion euros, including 33 billion to France, according to the University of Mannheim, a figure disputed by the banks.
• The National Financial Prosecutor's Office opened an investigation in 2021 into aggravated money laundering of tax fraud.
• In March 2023, a Franco-German operation raided BNP Paribas, Société Générale, Natixis, and HSBC.
• Crédit Agricole, for its part, had escaped the raids, having already engaged in a cooperative process.

Key Details:

• Nature of the Scheme: The CumCum strategy involves temporarily transferring shares around dividend dates to foreign investors, allowing them to avoid paying withholding taxes in France. These schemes have reportedly cost European governments up to €150 billion, with €33 billion lost by France alone
• Legal Resolution: Crédit Agricole’s investment banking arm, CACIB, reached a public interest judicial agreement with the PNF. This allows the bank to avoid a criminal trial while paying the fine and committing to compliance measures
• Court Approval: The settlement was approved by Judge Peimane Ghaleh Marzban during a public hearing in Paris
• Previous Settlement: Crédit Agricole had earlier agreed to a €35 million tax adjustment, separate from this criminal resolution

This case is part of a broader crackdown on dividend tax fraud across Europe, with other major banks like BNP Paribas, Société Générale, and HSBC also under scrutiny.

🧩 What Are CumCum Schemes?

CumCum (Latin for "with-with") schemes are a type of dividend tax arbitrage strategy used by banks and investors to avoid paying withholding taxes on dividends in countries like France and Germany.

🔍 How It Works:

1. Foreign investor holds shares in a French company.
2. Just before the dividend is paid, the shares are temporarily transferred to a French bank or intermediary.
3. The bank receives the dividend without paying withholding tax (because it's a domestic entity).
4. After the dividend is paid, the shares are returned to the foreign investor, along with most of the dividend.
5. The foreign investor avoids the 30% withholding tax they would normally owe.

This is legal in form but often considered abusive in substance, especially when the transfer is purely for tax reasons.

Key Elements to Include:

• Timeline: Show the dividend date as a central point.
• Arrows: Indicate the flow of shares and dividends.
• Entities: Label the foreign investor, French bank, and tax authority.
• Tax Impact: Highlight the avoidance of the 30% withholding tax.

Why It’s a Problem

• Massive tax losses: France estimates it lost €33 billion due to these schemes.
• Regulatory scrutiny: Authorities now view these trades as fraudulent or abusive, leading to criminal investigations.
• Reputational risk: Banks involved face fines, reputational damage, and tighter oversight.

Implications for Jersey Financial Compliance

Jersey, as a financial centre with strong ties to European markets, could be impacted in several ways:

1. Increased Regulatory Pressure

• Jersey firms dealing with cross-border securities may face more scrutiny from EU regulators.
• Expect enhanced due diligence on dividend-related transactions.

2. AML & Tax Transparency

• These schemes often involve complex ownership structures, which could trigger AML red flags.
• Jersey’s commitment to OECD tax transparency standards means firms must ensure economic substance and real beneficial ownership.

3. Reputational Risk

• If Jersey entities are found facilitating such schemes, it could harm the jurisdiction’s global reputation.
• Firms may need to review historical trades and tighten internal controls.

4. Compliance Training & Audits

• Firms may need to train staff on identifying dividend arbitrage risks.
• Internal audits could be required to ensure compliance with EU tax laws.

References

[1] Crédit Agricole in court for laundering tax fraud - Interview https://entrevue.fr/en/societe/le-credit-agricole-devant-la-justice-pour-blanchiment-de-fraude-fiscale/

[2] https://www.businesshubme.com/index?go=topics&more=13069 https://www.businesshubme.com/index?go=topics&more=13069

[3] https://www.globalbankingandfinance.com/CREDIT-AGRICOLE-JUSTICE-fafda7e0-9661-46a9-b4...https://www.globalbankingandfinance.com/CREDIT-AGRICOLE-JUSTICE-fafda7e0-9661-46a9-b4db-be8f1d9c030a