Headquarters for five banks drew court attention on Tuesday as the National Financial Prosecutor’s Office (PNJ) announced Paris and its surrounding regions as the scene of an aggravated tax evasion probe.
The proceedings were led by a panel of 16 French judges, with more than 150 researchers present. Six German prosecutors joined the PNJ in a statement framed within a cross-border European judicial cooperation effort.
Le Monde reported that the banks under scrutiny include Société Générale, BNP Paribas and its subsidiaries Exane, Natixis, and HSBC. The investigation seeks to confirm allegations of tax evasion running into billions of euros annually, a scheme colloquially referred to as the “Friday Friday” method (Le Monde reports).
Research from December 2021
The scheme involves a shareholder in a listed French company temporarily establishing tax residency abroad while lending the securities to a French bank around the ex-dividend date. This arrangement appears to reduce or eliminate withholding tax that French tax authorities apply to residents of other countries for these dividends.
Because dividends on securities held by French banks are often treated as tax-efficient, the lending arrangement allows the entities to avoid the withholding tax during the period of the loan. Once the withholding adjustment is complete, the share lending concludes and ownership of the securities reverts to their rightful owners.
The operation presents a monitoring challenge: large volumes of securities are bought and sold daily by banks, and the activity can easily go unnoticed. The alleged fraud came to light in 2018, and the National Financial Prosecutor’s Office opened a formal investigation in December 2021 for aggravated tax evasion and aggravated money laundering.