The Thursday settlement deal was outlined and later approved in court by Paris Judge Peimane Ghaleh-Marzban.
The accord ends an investigation by the Parquet National Financier (PNF) against HSBC without the bank making any admission of guilt.
It includes a fine worth €268 million and a tax bill of approximately €30 million that HSBC paid.
Benjamin Rossan, a representative for HSBC, said in court today that the bank acknowledges the underlying facts, which involved transactions carried out by traders in Paris between 2014 and 2019.
He added that “not the correct amount of French tax was paid”.
HSBC said in a statement that the settlement “recognises the bank’s cooperation with the investigation, as well as the corrective measures it took to address the historic issues”.
The move puts pressure on a group of other banks – BNP Paribas SA and its Exane SA subsidiary, Société Générale SA and Natixis SA – whose premises were also targeted by PNF raids in 2023 of unprecedented scale and scope.
None of them has been accused of wrongdoing. In September, Crédit Agricole SA’s investment banking arm agreed to pay about €134 million in fines and back taxes to end the probe into it.
Pascal Prache, the lead prosecutor, said the HSBC settlement “aims to show the way forward for other actors involved in dividend arbitrage operations”.
He said the PNF is “fully determined” to bring to a conclusion the investigations into other banks, even if that requires a full-blown trial.
The trades examined in the HSBC case involved Paris traders intervening in transactions that were orchestrated from London to avoid French taxes, according to judge Ghaleh-Marzban.
Prosecutor Céline Guillet described the intervention of Paris traders as “artificial”.
Guillet added that the relevant HSBC transactions were “different” in nature to those under review in the other dividend arbitrage cases, widely referred to as “cum-cum” trades.
The alleged logic behind cum-cum 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 France, authorities have taken a two-track approach to clamp down on such trades.
In addition to the criminal prosecution, the finance ministry said that its tax officials are trying to claw back some €4.5 billion in lost revenue stemming from the transactions involving banks in the country.
Bloomberg reported in July that tax authorities are also conducting audits of Wall Street banks with trading floors in Paris, including Goldman Sachs Group Inc and Bank of America Corp.
In spite of the investigations, France’s banking lobby has long denied any foul play, saying the contentious transactions were driven by economic reasons – not tax purposes – such as covering shorts or hedging a trade.
Maya Atig, the chief of the French Banking Federation, said last year during a parliamentary hearing that “there is no systemic fraud”.
French prosecutors have taken a different view, describing cum-cum trades as widespread.
The PNF said last year that it found evidence that banks other than Crédit Agricole actively proposed to clients certain financial products in catalogs as “dividend enhancement”.
The Cum-Cum scandal has also taken a political twist with the French government trying to strike a balance between hunting down tax fraud and keeping Paris attractive to the financial sector.
The finance ministry last year opposed a strict interpretation of new tax rules to avoid an exodus of equity derivatives transactions to other hubs such as London.