What's the French Cum-Cum tax scam that has led to raids on 5 major banks?

Failure to reveal discrepancies and repeated scandals led to the collapse of lenders such as Silicon Valley Bank and Credit Suisse, followed by a banking crisis. Both SVB and its Swiss counterpart have been sued by investors in the US for defrauding them by concealing financial stress.

Now five banks in France are facing action from authorities, over a scheme for evading taxes on dividends.

What consequences are banks facing?

• The Cum-Cum scam has brought BNP Paribas, Societe Generale, Natixis, and HSBC, under the scanner as the banks were raided by 160 investigators of the French Financial Judicial Service.

• Six German magistrates also joined the operation, since the scandal bears resemblance to the country's Cum-Ex scam.

• But while both sound similar, the French Cum-Cum scam was more sophisticated, also Cum-Ex did more damage in Germany.

How does Cum-Cum trading work?

• Cum-Cum translates to with-with, indicating shares with dividends, which are sent overseas for a short amount of time, to avoid paying taxes on them in France.

• The practice has been under scrutiny since 2021, and now banks involved in facilitating it face a $1.1 billion fine.

• After facing flak over a fraudulent scheme, Germany's Commerzbank had outlawed the Cum-Cum trading practice in 2016.

How is it different from Cum-Ex?

• Cum-Cum's German predecessor Cum-Ex on the other hand, has been carried out on a far larger scale by the time that it was detected.

• Translating to with-without, Cum-Ex involves trading of two kinds of shares among different players, till the original owner is untraceable.

• The scam in Germany involved 100 banks, and went on to cost almost $57 billion to the country's taxpayers.

• While BNP Paribas had faced action for such schemes in January as well, HSBC has also been pulled up for major money laundering scams.