Silvio Berlusconi
Presidenza del Consiglio dei Ministri
Palazzo Chigi
370 Piazza Colonna
Rome 00187

July 30th 2003

Dear Mr Berlusconi,

I am writing to you to pose questions that I believe the public has a right to hear the answers to. As this can no longer occur through the Italian courts, such questions should be posed and answered in public.

On June 18th, the Italian parliament approved a bill to grant immunity from criminal trials to the holders of the five highest offices of state, including the president and prime minister. It is now a law. The law applies even if a trial started before the office-holder was elected. The new law’s most immediate effect is that the one remaining criminal trial in which you are involved —the SME case, in which you are accused of bribing judges—has been suspended until you are no longer prime minister. Even then, the trial will start again only if you were not elected to one of the other offices that benefits from the immunity. But the law is being challenged in the constitutional court.

On April 28th 2001, we published a cover story entitled “Why Silvio Berlusconi is unfit to lead Italy” and a four-page investigation “An Italian story”. We sent you a letter on April 11th 2001, containing 51 questions, that stated: “The Economist intends to publish shortly a feature on your business career and on the various investigations into you and your companies that have been carried out by the Italian magistracy during the last seven years”. You did not reply.

On May 2nd 2001, you filed a writ for defamation against The Economist in the Rome court. As you will know, this court has not yet ruled on your suit.

In light of the above, we are writing to you by way of open letter and challenge you to answer our further set of questions in a similar open, public fashion. Our letter comprises six sections as follows:

1. The SME affair

2. Your spontaneous declarations

3. The smearing of Romano Prodi

4. Your gold medal claim

5. Your other trials

6. Your early business career

We look forward to your reply
Yours sincerely

Bill Emmott
Editor
The Economist

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1. The SME affair

 

This opening section examines the trial from which Silvio Berlusconi, Italy's prime minister, has recently gained immunity while in office, thanks to a new law passed by his government. In section 2 we publish Mr Berlusconi's own account, made on May 5th 2003 in court but not under oath. Since the courts can no longer judge him, we invite readers to decide whether his version fits the facts.

The charges
In your one remaining trial, you are accused of bribing judges. One of your co-defendants is Cesare Previti, a close friend, a senator for your Forza Italia party, and defence minister in your first government in 1994. The judges who allegedly took bribes are Filippo Verde and Renato Squillante, both of whom formerly worked in the courts in Rome.

While investigating the aborted 1985 sale of SME, a state-owned food conglomerate, to Carlo De Benedetti, a wealthy Italian businessman, magistrates came across a payment made by All Iberian, a secret offshore part of Fininvest, the company at the apex of your corporate hierarchy.

In March 1991, All Iberian had paid $434,404 into Mr Previti’s Mercier bank account at Darier Henscht & Cie in Geneva, through two transit bank accounts called Polifemo and Ferrido. On the next day, the same amount was transferred from Mr Previti's account to an account held in the name of Rowena Finance, a Panamanian company, with bank accounts in Switzerland. The beneficial owner of Rowena Finance was Mr Squillante.

In late 1999, you and Mr Previti were charged with bribing Mr Squillante, and Mr Verde who, with two fellow judges in Rome’s court of first instance, gave a controversial ruling which stopped Mr De Benedetti buying SME.

On May 30th 2003, prosecutors requested 11 years in jail for each of Mr Previti and Attilio Pacifico, 11 years and four months for Mr Squillante, and four years and eight months for Mr Verde. No request was made for your sentencing, because on May 16th the court had ruled that your trial should continue separately, due to your heavy commitments as prime minister and prospective president of the European Union.

You are in a unique position in this trial. As prime minister, you are a civil co-plaintiff; as Silvio Berlusconi, you are a defendant. On June 6th the state’s advocate, Domenico Salvemini, representing you as prime minister, told the judges that €1m ($1.17m) of damages should be awarded against you (as Silvio Berlusconi) and other defendants. At the close of his speech, Mr Salvemini said that the SME affair had done huge damage to the credibility of justice. “Even so,” he added, “my requests, such as they are, are not enormous because they result from agreements and contact I have had with…the prime minister’s office.”

On June 18th, the Italian parliament approved a bill to grant immunity from criminal trials to the prime minister. As a result, the SME trial has been suspended until you are no longer prime minister. But the immunity law is being challenged in the constitutional court.

The 1984 TV decree
By 1985, when the SME sale to Mr De Benedetti was stopped, your main business was commercial television, in which you had secured a near monopoly.

Until the 1970s, only RAI, Italy’s state broadcaster, was permitted by law to transmit nationally; indeed it was the only national broadcaster. During the 1970s private TV channels sprang up. The constitutional court clarified the position in 1980 when it ruled that private television stations were allowed to broadcast, but only on a local basis.

You found a way round this ruling. You bought programmes, especially American films and soaps, and offered them at attractive prices to small, regional television stations. You collected the revenue from pre-recorded advertising slots that you inserted. Each station in the embryonic network agreed to broadcast the same programmes at the same time. In this way, you secured, in effect, a national audience.

To skirt round the law and broadcast nationwide, you needed help from Bettino Craxi, who became leader of the Socialist Party in 1976 and prime minister in 1983. On October 16th 1984, magistrates in three Italian cities shut down your television stations (and others) for allegedly broadcasting illegally.

Within four days, Mr Craxi signed a decree that allowed your stations (and others) to stay on air. After parliamentary tussles, this decree became law in early 1985.

In 1994 Mr Craxi fled to Tunisia and died there in 2000 as a disgraced fugitive from Italian justice. He had been sentenced in absentia to prison for corruption.

Background to SME
Until the mid-1980s, the state controlled much of the Italian economy through three holding companies, the largest of which was Istituto per la Ricostruzione Industriale (IRI). IRI’s sales were massive, but it made losses and was deep in debt.

Romano Prodi, at the time an ebullient and respected industrial economist from Bologna, became its chairman in November 1982. A lapsed Christian Democrat, he was ahead of his time: he believed in market forces and had a penchant for pragmatic privatisation. Politicians had run IRI to buy votes; Mr Prodi’s aim was to sell those parts of IRI that the private sector could operate better.

A prime candidate was a business that had become a national joke. This was Societa Meridionale di Elettricita (SME), in which IRI had a 64.4% stake. Originally a quoted utility, its assets were taken over directly by the state in 1962. SME used the proceeds to create a new core business: a food empire. Over the next 20 years, SME became a dustbin for companies that should have gone bust, a conglomerate without strategic rationale. It was involved in food production (tomatoes through Cirio, edible oils through Bertolli and milk through De Rica), food distribution (GS Supermarkets and motorway catering through Autogrill), and ice cream and frozen foods (through Italgel).

SME also had a management contract to run a sister group called Sidalm, which owned companies making biscuits, crackers and cakes. Sidalm was virtually a basket-case—it lost 47 billion lire (then around $27m) in 1984 and needed a capital injection of 30 billion lire to stop it going bust.

SME had capable managers, such as Giuseppe Rasero, recruited from Unilever, an Anglo-Dutch food giant, in the 1970s as chief executive of SME’s food-distribution business. He was appointed chief executive of SME itself in 1982. However, a combination of politicians, bureaucrats and joint ventures prevented the real streamlining that the conglomerate needed.

Even so, these managers made some impact on the group. SME reported attributable post-tax profits of 65 billion lire on sales of 2.5 trillion lire in 1984—its first such profit in years. Its audited consolidated accounts for 1984 showed net debts of 247 billion lire and net assets of 432 billion lire. The group had about 15,000 employees.

The Italian food industry was highly fragmented and sold mainly in its domestic market. Elsewhere in Europe, the industry was consolidating aggressively; pan-European groups were emerging, such as BSN Gervais-Danone (now Danone), a French group. Danone was nowhere near as big as Unilever but was far bigger and stronger than SME.

Privatising Prodi
From Mr Prodi’s perspective, greater involvement of the private sector was essential, perhaps through a partner. Terms could not be agreed with the most obvious candidate—the Fossati family, the joint-venture partner in three of SME’s businesses (including Alivar, a quoted company, which owned 60% of Autogrill). Through an asset swap with the Fossati family in early 1985, SME eliminated one of the obstacles to rationalising the group and increased its shareholding in Alivar from 50% to 92%.

After this, SME proposed to merge Alivar, 8% of which was still listed, into itself. SME therefore had to be valued. In early 1985, a leading valuation expert, Professor Roberto Poli, valued IRI’s 64.4% stake at 497 billion lire, and therefore the whole of SME at 772 billion lire (then $389m).

Mr Prodi’s preferred solution was a complete sale of SME, together with its near-bankrupt sister group, Sidalm. But there were three problems. First, for political reasons, the buyer would have to be Italian. Second, potential buyers would want only to cherrypick the good parts of the business, such as Italgel. Third, as of January 1985, no Italian food group was in a position to buy the conglomerate. Buitoni, a pasta and confectionery group, was almost bust; Barilla, a pasta and biscuit maker, was controlled by a Swiss family that owned an arms manufacturer; and Ferrero, a confectionery group then based in Belgium, had never made an acquisition in its near 40-year existence. Sounded out, none of these was interested in the challenge of the whole SME group.

You made known your interest in food companies as early as February 1985. On April 3rd 1985 you met Mr Rasero, who told you that IRI was only prepared to sell the whole of its stake in SME, and that the stake was worth about 500 billion lire. According to Mr Rasero, you replied that the price was beyond your companies.

Enter De Benedetti
Meanwhile, Mr De Benedetti, known as a maverick businessman, was looking to diversify. His group, Compagnie Industriali Riunite (CIR), controlled Olivetti, a computer business that CIR had gained control of in the late 1970s when it was in deep financial trouble. CIR had turned round Olivetti by ruthless cost-cutting and by spotting that the future of computing was in PCs not mainframes. Mr De Benedetti had also brought in AT&T, a huge American phone company, as a significant shareholder in Olivetti in 1983, to the chagrin of Mr Craxi’s Socialist Party.

You already had a large stake in il Giornale, a daily paper, and like you, Mr De Benedetti wanted a newspaper. In October 1984 he failed to win control of Corriere della Sera, one of two national newspapers, control of which went instead to the late Gianni Agnelli, with the support of Mr Craxi, by then prime minister. Not to be deterred, Mr De Benedetti soon had a small shareholding in Mondadori, the joint owner of La Repubblica, the other national newspaper, with L’Espresso, the publisher of a news magazine of that name.

As CIR was dependent on Olivetti, it needed a business that would counter-balance the risk of an increasingly competitive PC market. Such a business needed compensating characteristics: low risk, mature markets and strong cashflow. The food industry fitted the bill.

In a typically opportunistic move, Mr De Benedetti snatched Buitoni from under the nose of Danone. In February 1985, he offered the Buitoni family 10% more than the French group for its controlling stake, and clinched the deal in one evening. One thing soon became clear to CIR: Buitoni and SME would be good fits. SME sold mainly to the domestic market; Buitoni more internationally.

Mr De Benedetti seized the moment. In mid-April he contacted Mr Prodi to ask if CIR (through Buitoni) could buy SME. He was initially rebuffed, but eventually hammered out a deal with Mr Prodi (and both sides’ professional advisers) during two marathon meetings.

Mr Prodi for IRI and Mr De Benedetti for Buitoni signed an agreement on April 29th 1985. Buitoni agreed to pay 497 billion lire for IRI’s 64.4% stake in SME. This represented 1,107 lire per SME share, compared with the market price of 1,275 lire on April 30th. The market price was extremely frothy—it had risen by nearly 70% since January 1st. But Buitoni’s offer represented a 38% premium to the average price over the preceding 12 months.

In return for concessions made by Mr De Benedetti during negotiations, the price was payable by instalments. Buitoni also agreed to buy, for one lira, the deeply troubled Sidalm, into which it would inject 30 billion lire. The only undertaking given by Buitoni was to keep SME’s head office in Naples. (On May 26th 1985, Buitoni also promised to retain SME for 15 years.)

The agreement stipulated that the sale was subject to approval by IRI’s board—the details of the negotiations had hitherto been kept to a closed circle in an attempt to stop insider trading. (IRI’s board approved the deal unanimously on May 7th 1985.)

Food for thought
Mr Prodi and Mr De Benedetti announced the agreement in a blaze of publicity at a joint press conference on April 30th 1985. The next day, Il Sole-24 Ore, Italy’s financial paper of record, splashed the story on its front page and ran several stories inside. “20 hours round a table, then an agreement was concluded,” said one headline.

Clelio Darida, minister for state holdings, whom Mr Prodi had kept fully informed of IRI’s talks with Buitoni, told Il Sole-24 Ore that he was in favour of the deal. Renato Altissimo, minister for industry, stated that “the birth of the large Italian food group” gave him great satisfaction.

Mr Prodi soon submitted the agreement to Mr Darida. IRI appointed Professor Luigi Guatri, another eminent valuation expert, to value its stake in SME. When he reported on May 4th, he concurred with Mr Poli’s valuation. There was no such thing as a precise value, his report said, but the price of 497 billion lire offered by Mr De Benedetti was towards the upper end of the range.

At a cabinet meeting on May 2nd, Mr Craxi asked Mr Darida to check that the price was fair and report on the sale. On May 9th, he wrote to Mr Darida claiming that IRI had acted in a “unilateral and prejudicial way” by not seeking government approval before April 29th. Mr Craxi wanted to know if all possible offers had been looked at. On the same day, Mr Prodi asked Mr De Benedetti to put the conclusion of the deal back to May 28th from its original deadline of May 10th.

On May 23rd La Stampa, a daily, published an interview with you about SME. You were quoted as saying: “Now people are trying to promote the image of SME as a golden group that Mr De Benedetti would buy at an advantageous price. In reality, the turnaround of SME has scarcely started, and [Mr De Benedetti] will have to free [the group] from the weight of so many years of political management…”

The same day, out of the blue, a little-known lawyer in Rome, Italo Scalera—an old schoolfriend of Mr Previti—made IRI an offer of 550 billion lire for SME and Sidalm. It was on behalf of unnamed clients, whose identities, said Mr Scalera, would be revealed at the conclusion of the deal. Mr Darida asked Mr Prodi to look into the offer.

On May 28th yet another offer was received. This time it was from Industrie Alimentari Riunite (IAR), a consortium between your Fininvest, Barilla, run by Pietro Barilla, and the Ferrero group, run by Michele Ferrero. IAR offered 600 billion lire (with some payment by instalments) for IRI’s stake in SME and Sidalm. As you and the other two men had previously expressed no interest in the whole of SME, the bid was clearly a tactic to stymie Buitoni’s purchase of SME. A higher offer was also received from a company called Compagnia Finanziaria Mercato Alimentari (Co.Fi.Ma), run by Giovanni Fimiani, a businessman.

The privatisation of SME soon became a farce. On June 4th, a senior banker at Swiss Bank Corporation in London, where there were many SME shareholders, fired off an angry telex to the chairman of Consob, Italy’s stock exchange regulator. “It seems strange”, she wrote, “ …that a deal agreed, and signed, between those parties involved should subsequently be called into question in such a public fashion. The apparent chaos…is doing…immeasurable damage to the reputation of Italian financial markets…”

On June 9th, L’Espresso published an interview with you. You said that you had not phoned Mr Craxi to ask him to intervene: “On the contrary, the fact of being a friend of prime minister Craxi constituted an obstacle.”

The government said that all offers for SME should be considered, and, on June 15th 1985, Mr Darida issued a decree to stop the sale.

Details, details
In all this manoeuvring, one small, but highly significant, detail had been overlooked. For years, IRI, as requested in ministerial circulars, had been seeking government approval to sell companies. This was not necessary, however, under the law. “Ministerial circulars which give authorisation—accepted in the past, out of weakness and a desire for a quiet life, or ignorance on the part of IRI itself?are illegitimate because they assume a power without legislative underpinning,” wrote Sabino Cassese, one of Italy’s leading experts on administrative law, in a newspaper article on May 22nd 1985.

Nonetheless Mr Prodi submitted the deal to the government, perhaps for one of the reasons suggested by Mr Cassese. Mr De Benedetti believes that Mr Prodi knew in April 1985 that he did not need government approval. Buitoni duly sued IRI for fulfilment of the agreement signed on April 29th 1985.

In a case brought by Mr Fimiani’s Co.Fi.Ma, the highest level of the final appeals court, in March 1986, confirmed Mr Cassese’s view of the law. No government approval was necessary for IRI to sell SME, said the final appeals court, as IRI was subject to ordinary company law.

This was three months before Buitoni lost its case at the court of first instance in June 1986. In this court, three judges, presided over by Mr Verde, now one of the defendants in the SME case, ruled that Buitoni’s agreement with IRI was not enforceable because it was subject to government approval, and that had not been given.

Buitoni also lost at the appeals court in February 1987. This court criticised Mr Verde and his two fellow judges for their interpretation of the law. However, in a convoluted judgment, it ruled that even though the law did not provide for government approval, both Buitoni and IRI had expressed a wish to secure government sanction for the deal. They had done this, said the appeals court, through a two-line clause in the agreement of April 29th 1985, which was therefore not binding. In July 1988, in an even more convoluted judgment, the final appeals court also ruled that the agreement was not enforceable.

In its pleadings from December 1987, in a case started by IAR, IRI itself had declared that “it was completely free…to decide if, how, when, with whom and under what conditions to execute a contract.”

Given that no government approval was needed, it is not irrelevant to speculate about how a person who had been instructed to block the sale of SME would have achieved his objective. From the perspective of someone who was familiar with the final-appeals-court ruling in March 1986 (ie, that IRI was subject to ordinary company law), Buitoni and IRI had reached a valid agreement on April 29th 1985 that was not subject to government approval.

From this person’s perspective, the agreement between IRI and Buitoni was therefore binding. So the only blocking tactic that such a person could have deployed successfully would have been interference in the course of justice when Buitoni first tried to enforce the agreement.

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2. Your spontauneous declarations
(May 5th 2003)

 

It is a defendant’s right in a criminal trial in Italy to make “spontaneous declarations”. Not made under oath, they can be made at any stage of a trial. In essence, they are an opportunity for a defendant to make a plea in mitigation. A defendant is not supposed to use them to make allegations not directly related to his case.

Your words below are from a translation of your spontaneous declarations on May 5th in the SME trial. We have edited your speech, but fairly, we believe. The transcript is available in both Italian and English. What follows are words you spoke, except where indicated by the use of square brackets. For the sake of clarity, we have juxtaposed your opening and closing remarks, and have moved the context of two of your remarks, as indicated by use of italics. We note where we omit sizeable passages of your speech by use of the symbol (.).

Your opening remarks
“…I have decided to change my attitude to this case. My earlier attitude was…[no] involvement on my part, because I was convinced…that my lawyers were perfectly capable of putting forward all the arguments [to] fully demonstrate how ludicrous the charge is…Some three weeks ago my lawyers…told me…that the court had rejected [their] application to call some witnesses who…are…indispensable…

…for the first time at last night’s meeting with lawyers Ghedini and Pecorella – it may sound incredible, but the accusations seemed so illogical, so ludicrous, that I had never read the charges filed against me. I discovered… that the evidence against me was uncertain and fragmentary, and as I was well aware of my situation, I placed no importance on these proceedings. However, last night I discovered that it was actually alleged that I, or other partners, or jointly with other partners, had contacted one of the judges involved in these lawsuits filed by Buitoni, which Buitoni always lost, to the advantage of IRI. [From page 18-19 of the transcript].

Your closing remarks
I think the court needs to hear sworn evidence of the facts I have recounted today, and I believe that at this point, in view of the amount of public interest focusing on this trial, I need to be present when the witnesses are heard to exercise my right, the right of every citizen, to cross-examination. I believe that this can be arranged, despite…my heavy schedule…I am not only prime minister…but also, since May 1st, a member of the European troika that governs the Council of Europe; consequently, from now until the end of this year I will have to make 76 trips abroad…There will be my engagements as prime minister…

This does not mean that I won’t be able to find some free…mornings…This will allow the prime minister and citizen Berlusconi to be present…and exercise the right…to cross-examine the witnesses whom I would urge the president of the judges to call…The judgment will…relate to the integrity and morality of the prime minister…my conduct was scrupulously honest, and I hope that what I have said will be borne out in this trial, because the person before the court today is not only the defendant Berlusconi, but also citizen Berlusconi, to whom the majority of the country has entrusted the responsibility and honour of governing the country. Thank you.”

The aborted sale of SME to Buitoni
“I only wish to talk about facts, without giving opinions, or passing judgment…On 1st May 1985, while I was in Madrid…I [learned] that IRI had sold SME to Carlo De Benedetti’s Buitoni…In particular there was a very heated phone call from the late Pietro Barilla, who told me that…a fortnight earlier…, [he] was told that IRI did not intend to sell off [SME]…And he asked me, he begged me, in view of my friendship with the then prime minister, Bettino Craxi, to try and arrange an appointment…for him.

When I got back to Milan I spoke to the prime minister, who…gave the impression that he wasn’t particularly interested in it…

(.)

A few days later the prime minister rang and asked me to meet him…in his offices in Piazza del Duomo, Milan, where I found a totally different person…He used very strong, sometimes colourful language, and began to recount what he had learned of the affair, not only from…Undersecretary Amato, but also from…members of the IRI board who belonged to his political party.

He began by describing as incredible, horrifying and scandalous the way in which the negotiations had been conducted, as he put it, and I remember his words well, ‘behind closed doors’, rather than on the open market…He said it was scandalous that…board members of IRI had not been informed of these negotiations, or even the intention to sell SME; he said it was scandalous that IRI had rebuffed leading figures in the Italian food industry, and he named Buitoni, who had also been mentioned by Pietro Barilla when he phoned me in Spain.

If I may go back in time…Bruno Buitoni…said that he was even willing to sell Buitoni…to IRI…He also told Barilla…that De Benedetti had decided to buy [Buitoni], because he had convinced him that he was now sure the purchase would go ahead…and...he quoted the exact expression; I think he said that he had SME ‘in his pocket’. This was also reported to the prime minister, who described this behaviour as unacceptable. He also told me what…minister Altissimo…told him about an offer by the American multinational Heinz, which had asked to buy SME…[Mr Prodi] turned down the offer. On that occasion [Mr Prodi] said that the food holdings owned by SME were considered strategic to [Italy], and therefore unsaleable. [Mr Prodi] also estimated…the value of SME at 1,300-1,500 billion [lire], saying that SME was the casket, the safe in which the main historic Italian brands were kept…

(.)

He said Altissimo had told him about this discussion with [Mr Prodi]. He also said that the then chairman of the budget commission…had contacted Romano Prodi at the beginning of the year and received an identical negative answer about SME’s intentions…[Craxi] consequently felt that this sort of behaviour was totally unacceptable, and that the sale, which he viewed as stripping of government assets in return for a gift, for undue enrichment of a private individual, could not take place in that way. He described in even stronger terms the agreed price…497 billion [lire]…

… “It’s impossible for a deal of this kind to be concluded in just two sessions at Mediobanca”, he said he’d been informed that some IRI executives… were so offended that they walked out… leaving only [Mr Prodi], who then clinched the deal with De Benedetti.” [from page 14 of the transcript].

….Craxi added that a universal rule…had been disregarded, in other words that a majority premium should have been added to the valuation because the majority interest in the company was being sold.”

(.)

What you did and why you did it
What was Craxi’s conclusion? He said, “This is a loss to the state, it’s unacceptable asset-stripping…there’s only one solution: for IRI to receive a much higher bid than the one contained in the contract with CIR [the holding company for Buitoni]. I know Barilla’s trying to get together a syndicate of industrialists”, he said, “…Darida…has…asked for…signature of the agreement to be postponed from 10th to 28th May. They agreed, so there’s a very short time to submit to IRI a bid higher [than] the price agreed with CIR”…

He said: “…So I’d like you to get involved personally alongside Barilla; I know there are other businessmen interested”. He mentioned…that Ferrero, as well as Barilla, as well as Buitoni, had come forward…“So…”, he said “…I know that an accountant, a Mr. Locatelli of Milan, is working on the matter…I’d like you to…get involved, perhaps by having Fininvest join the syndicate, so that a much higher bid than CIR’s can be submitted by that date, 28th May”.

I told him that…two senior executives of [IRI] (you said CIR, but we assume you meant IRI) had come to see me…when I asked [them] if IRI was planning to sell SME, they said it definitely wasn’t…I told this story to the prime minister, but although at the time I had no direct interest in buying SME or any of the companies belonging to it, [Mr Craxi] still asked me in a very, very friendly but insistent way to co-operate; he asked me to contact [Pietro] Barilla immediately and to see, hear this accountant and to put my practical approach to work…

I eventually did, and I must say that it was no great sacrifice for me because I had some unfinished business with Mr. De Benedetti; he had holdings in the La Repubblica-Espresso group which kept attacking me – not just every other day, but practically every single day…

So I immediately got in touch with Locatelli. …In full agreement with [Mr]Barilla, I instructed a Rome lawyer [Mr Scalera] to submit a higher bid to IRI (I remember that the increase was around 50 billion [lire], and I think the actual bid was 550 billion [lire]), on behalf of persons to be named at a later stage…This bid was submitted on 23rd May…

(.)

We set up a meeting at Ferrero’s head office in Turin or a nearby town; we all went there together and drafted a telex, which we sent to IRI the same evening. It was the last day, 28th May…I would say that this was the most important step in the process; I’d carried out the prime minister’s instructions, a procedure which would have led to completion of the contract had been halted, and…much higher bids…[had been received] than the price specified in the preliminary agreement with CIR. So the entire deal came to a standstill.

Subsequent litigation and court rulings
The contract signed by Prodi and CIR wasn’t completed, and other parties interested in the purchase came on the scene, including Mr Fimiani of a company whose name I don’t remember. He has phoned me in the last few days, and I would ask my lawyers to file the letter and documents which Mr Fimiani has sent me as exhibits in these proceedings. His bid was 620 billion lire, so it was higher than ours.

(.)

There had been strong criticisms from the entire left wing, and there was also (as I was told in my meeting with prime minister Craxi) a rumour, supported by what Craxi called very precise circumstantial evidence, that bribes had been paid to…a faction of [the majority] party…Amato told me in no uncertain terms…that proof of this fact existed. This was the only possible explanation for such a huge gift to a private individual, leading to such a serious loss to the state…

De Benedetti then filed a series of lawsuits against IRI, attempting to enforce the document signed by Prodi. I believe that CIR was well aware that Prodi acted ultra vires, in other words he had no power to sign that agreement; in fact, I believe that Prodi said as much to De Benedetti as there is no other explanation why CIR later failed to take proceedings against Prodi…

In any event De Benedetti filed a series of lawsuits…Without my involvement…. the case against IAR [Industrie Alimentari Riunite] was dismissed, either in the final judgment or during the proceedings. De Benedetti appealed, and once again IAR was considered to be a party to the proceedings, but its application was rejected. De Benedetti appealed to the court of cassation [the final appeals court]…

(.)

…there were 15 judges involved in these lawsuits, who kept saying no to Buitoni…. so it seems very strange that it could be thought that one of these judges influenced the entire decision, which seems to me to be an impeccable decision that cannot be criticised on legal or objective grounds.

(.)

I was only involved once, in 1988, when, as the lawsuits that claimed from IRI, which had benefited from IAR’s involvement in the proceedings, and was the only party which could have been benefited from it…it kept control of SME, retained ownership of it, and would not have been obliged to sell it to CIR…

This was established at first instance and by the high court at all levels of appeal; if anything, it was [Mr Prodi] whose position was protected against the possible claims… by CIR against him for contractual liability, thanks to the rulings of the court, which stated that [IRI’s] commitment was merely a preliminary commitment and not a final agreement.

(.)

I believe that is everything: I think these are definite facts.

(.)

”

Our question
How would you reconcile your spontaneous declarations on May 5th 2003 with our factual recital of the aborted sale in 1985 by IRI of SME to Buitoni?

 

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3. The smearing of Romano Prodi*

In May 1993 Mr Prodi became chairman of IRI once again, with a mandate to privatise chunks of it. He inherited a plan to sell SME in three divisions. In October 1993, Mr Prodi sold SME’s food-production arm, Cirio-Bertolli-De Rica (CBD), to Fis.Vi, an agricultural consortium. A clause in Fis.Vi’s purchase contract with IRI allowed Fis.Vi to sell Bertolli, the edible oils business, to Unilever, which Fis.Vi soon did. Goldman Sachs advised Unilever, for whom Mr Prodi had served as an international advisory director from 1990 to May 1993. In October 1993 Mr Prodi also sold Italgel, SME’s ice-cream division, to Nestlé.

Mr Prodi left IRI in April 1994, entered politics in 1995 and served as Italy’s prime minister in 1996-98. The privatisation of SME finished in 1996, and raised a total of 2.05 trillion lire. The last bits to be sold were GS Supermercati and Autogrill.

Before long, there were allegations that if the companies comprising CBD had been sold separately, IRI would have received a better price. As a result, magistrates investigated the sale and Mr Prodi’s role in it. In December 1997 a judge at a preliminary hearing concluded that no charges should be brought as "the facts alleged are non-existent". He also stated that IRI had not suffered a loss and neither had Fis.Vi made a profit, and that if CBD had been sold piecemeal, IRI would have got less.

There were similar allegations over the sale of Italgel. Another investigation started in Rome in 1997 and closed without charges in March 1999 because the allegations were groundless.

By the end of May 1999, Mr Prodi was president-designate of the European Commission, but not yet formally appointed, a lengthy process. On June 12th 1999 the Daily Telegraph, a British newspaper, published an article about Mr Prodi’s business activities, and two further articles followed. The first article claimed that he was paid £1.4m in consulting fees in 1991-95 that he had failed to reveal while in public office, in possible violation of Italian law. It also said that both Goldman Sachs and Unilever were clients of a consultancy (ASE), belonging to Mr Prodi and his wife. (Unilever was not a client of ASE. From March 1990 to May 1993, when not in public office, Mr Prodi had acted as a consultant to Goldman Sachs. In total ASE received 3.1 billion lire from Goldman Sachs in 1991-95, including a total of 1.45 billion lire of bonuses paid in 1993 and 1994, but relating to periods prior to May 1993.)

According to Italian magistrates, the article insinuated that Mr Prodi had not declared the £1.4 million to the taxman. It suggested (correctly) that ASE’s fee income from Goldman Sachs rose sharply in 1993, but claimed: “ the surging payments in 1993 raise eyebrows, because Mr Prodi [sold CBD that year and] Mr Prodi’s former paymasters at Goldmans Sachs [advised the buyers]…The [CBD] group was sold for half its real value to a front company…then immediately resold in part to another of Mr Prodi’s former paymasters, …Unilever (Mr Prodi’s other ASE client).” Il Giornale, owned by your brother, Paolo, picked up some of the Daily Telegraph’s allegations.

Because of the Daily Telegraph’s article, magistrates in Bologna, ASE’s base, asked the Guardia di Finanza to investigate whether Mr Prodi and ASE had completed their tax returns correctly. The Guardia di Finanza concluded that the tax returns were accurate so the magistrates came to the same conclusion.

Magistrates in Rome investigated whether the fees from Goldman Sachs could be connected to the sale of CBD. They concluded that all the fees to ASE from Goldman Sachs were solely connected to Mr Prodi’s consultancy work and that he had severed links with Goldman Sachs by May 1993. In their written report, dated March 11th 2002, to the preliminary judge, the Rome magistrates stated the same allegations as those made in the Daily Telegraph were repeated in “Corruzione ad alta velocita”, a book by Ferdinando Imposimato, a former Italian judge.

Mr Imposimato told the magistrates that his source was Ambrose Evans-Pritchard, the Daily Telegraph journalist who had written the articles about Mr Prodi. Mr Imposimato said that Mr Evans-Pritchard had shown him two notes, one dated August 24th 1993 and the other November 26th 1993, which he had quoted in his book. According to Mr Imposimato, the notes would have shown collusion between Mr Prodi, Unilever and Fis.Vi. But he had no copies of the notes. The magistrates said that Mr Evans-Pritchard had not answered their questions and had not sent a memorandum on the two notes, as he said he would. Mr Evans-Pritchard says he did not answer magistrates' questions because he believed that they were engaged in a time-wasting exercise and that they had no desire to get to the bottom of the matter.

Mr Imposimato claimed to the magistrates that Mr Fimiani had given Mr Evans-Pritchard the two notes. So the magistrates concluded that it was “ likely” that Mr Fimiani was one of Mr Evans Pritchard’s two sources. They also concluded in effect that the “mythical documents” apparently given by Mr Fimiani to Mr Evans-Pritchard were most likely “artfully fabricated”. Mr Evans-Pritchard says that those documents in his possession that allege collusion between Mr Prodi, Unilever and Fis.Vi. did not come from Mr Fimiani and are certainly genuine.

You referred to evidence from Mr Fimiani in your spontaneous declarations, and asked your lawyers to submit written evidence to the court from him.

Our questions

Is Mr Fimiani, to whose oral and documentary evidence you referred in your spontaneous declarations, a reliable source?

Are you aware that Mr Fimiani was convicted for “serious bankruptcy” in Salerno on November 12th 1993?

Are you aware that the criminal court in Salerno in November 1993 ruled that Mr Fimiani bore “a very heavy responsibility” for the bankruptcy of Co.Fi.Ma?

Are you aware that on June 13th 1995 Mr Fimiani made a complaint against “unknown persons” for abuse of office? (He claimed that Co.Fi.Ma’s bankruptcy was due to a need to eliminate the firm when he had got in the way of IRI’s sale of SME to Buitoni in 1985.)

Are you aware that magistrates investigated Mr Fimiani’s complaint and that, in March 1997, a preliminary judge closed the investigation because Mr Fimiani’s “j’accuse” was groundless?

Did Mr Fimiani make his bid for SME in 1985 on your behalf?

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*We have compiled this section from documents (in Italian) which have been available on the website of the president of the European Commission since May 2003.

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4. Your gold medal claim*

 

In April this year, outside the Milan court, you told the media: “I believed and still believe that citizen Berlusconi should be given the credit for preventing the stripping of state assets. I deserved a gold medal (civil class) for having earned the state five times as much from the sale of SME.”

The divisions of SME were sold in 1993-96 for a total of around 2 trillion lire to different buyers compared with the price of around 500 billion lire offered by Buitoni in 1985. That is four times – not five times, as you claimed.

But to make a valid comparison, calculations rather more complex than your simple maths are necessary. The proceeds from the aborted sale were to have been received in instalments up to December 1986. Likewise, the actual privatisation proceeds were received in tranches. The privatisation finished near the end of 1996, so December 31st 1996 is an obvious comparison point.

In 1985-86, the Italian government could have done two things with the instalments from the sale of SME: either reduced its debt (and therefore saved on interest payments), or re-invested in equities (after all, SME was an equity investment).

To compare validly the lost 1985-86 SME privatisation proceeds with actual proceeds in 1993-96, an assumption needs to be made that the instalments in 1985-86 would have been invested from the date of receipt up to December 31st 1996.

500 billion lire invested in reducing government debt in 1985-86 would have cut the government’s interest bill by over 1.1 trillion lire up to December 31st 1996. That makes a comparative total of 1.6 trillion lire.

The actual sale proceeds of about 2 trillion lire in 1993-96 were in effect used to pay down government debt. Up to 31st December 1996, this would have reduced the government’s interest bill by around 500 billion lire. So the comparative total for the actual privatisation is about 2.5 trillion lire.

On this basis, the payoff from the actual privatisation sale is 1.5 times that of the aborted sale in the previous decade.

Similar calculations have been made for the expected return from investment of the two sets of privatisation receipts in a basket of equities (from the date of receipt up to December 31st 1996). As you will know, economic theory says investors demand a higher return on equities than on bonds, because equities are riskier.

Assuming a modest risk premium (3%), the proceeds from the aborted sale of the 1980s would have been projected to turn into almost 2.2 trillion lire by the end of 1996, while those of the actual sale in the 1990s would have yielded almost 2.7 trillion. As a result, selling SME in the 1990s would have given the Italian government an expected payoff only 1.2 times that of the aborted sale in the 1980s. With a more demanding risk premium (6%), this ratio comes down to 1.1.

In addition, the nature of the two sales was quite different, and so was their market environment. The 1993-96 sale was a break-up of SME to different buyers in a mature privatisation market. The 1985 privatisation was to be a sale of the whole group to Buitoni. In addition to SME, Buitoni had an obligation to take on its nearly bust sister company (Sidalm), which needed an immediate injection of 30 billion lire. And the 1985 sale of SME was to have been the first big privatisation in Italy. The delay in this privatisation (and hence in others) was to Italy’s detriment.

Our question
Why do you deserve a gold medal?

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*http://www.lavoce.info/, an Italian website on economic policy issues, is the source of the calculations in this section. In May this year it published an article by Marco Pagano and Carlo Scarpa entitled “Vendita SME: il prezzo era giusto?” (The SME sale: was the price right?). Using more precise data about the timing of the instalments of the aborted 1985-86 sale and of the actual 1993-96 privatisation receipts, www.lavoce.info published on July 10th an updated version of its calculations.

 

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5. Your other trials

 

We set out below a table of criminal charges against you since the start of the tangentopoli (bribesville) scandal in 1992. We indicate the dates of all appeals court decisions since April 28th 2001.

Nearly all these cases involved the alleged use of “black funds” by your Fininvest companies. For our readers’ benefit, black funds do not appear as such on a company’s balance sheet, nor is their use recorded in a company’s profit-and-loss account. While there may be some trace of black funds in official accounting records, they have to be disguised as something else. In other words, the creation and hiding of black funds invariably mean that a company’s accounts have been falsified. Black funds can be created (and hidden) in many ways, often in jurisdictions where beneficial ownership of companies is not a matter of public record, and where strict bank secrecy applies.

Illicit party donations
Italian law requires transparency of political payments both from donors and recipients. In 1991-92, a clandestine offshore part of Fininvest, known as All Iberian, paid a total of 23 billion lire via transit accounts into offshore accounts under the control of Mr Craxi.

In a sentence dated November 22nd 2000, your country’s final appeals court accepted that your Fininvest companies made donations illicitly without proper records and that you were responsible.

In deciding the latter the court said: “…[David MacKenzie] Mills’s declarations were not the only source of proof of [your] responsibility.” In other words, a clear inference is that Mr Mills, amongst others, linked you to the crime. Mr Mills, a British solicitor, married in July 1979 Tessa Jowell, who is now a minister in Tony Blair’s cabinet.

The final appeals court did not absolve you as you had requested. It upheld the guilty verdict of the court of first instance in Milan, but granted you a statute of limitation. As a result you, Mr G Foscale and two others had to pay expenses of the final appeals court hearing.

By definition, Fininvest must have accounted falsely for these illicit donations.

Our question
How often, if at all, did you speak to Mr Mills?

Guardia di Finanza trial
On October 19th 2001, the final appeals court acquitted you on charges of having bribed Guardia di Finanza officers to turn a blind eye during inspections at Mondadori, Telepiu, Mediolanum and Videotime, four of your companies. According to Paolo, your brother, the bribes came from black funds in a company called Edilnord.

You were found guilty in Milan’s court of first instance. In assessing your guilt, this court attached no evidential value to your meeting at Palazzo Chigi on June 8th 1994 (during your first term as Italy’s prime minister) with Massimo Berruti, a former officer in the Guardia di Finanza who had resigned in November 1979.

As there was no documentary or oral evidence of your guilt, the Milanese courts had relied on deductive reasoning to reach their verdicts. The final appeals court said that this reasoning was syllogistic. Your brother, Paolo, who ran Fininvest with you, admitted to authorising the bribes. But the Milanese courts acquitted him because they found his admissions unreliable. Once he was acquitted, you were guilty. There was no middle term.

The final appeals court issued definitive convictions against two former Fininvest senior managers for bribery. Mr Berruti, by then a member of parliament for Forza Italia, an expert in offshore tax havens and legal adviser to Fininvest, was also convicted. He had induced Angelo Tanca, a senior Guardia di Finanza officer, to keep quiet in front of prosecutors about 130m lire that had been paid to various Guardia di Finanza officers for favourable tax checks at Mondadori in 1991, a publishing group you acquired that year. The final appeals court issued definitive convictions against Guardia di Finanza officers, including Mr Tanca, in separate cases.

In July 2001, the court of first instance in Milan found that Marinella Brambilla, your long-standing secretary, and another of your secretaries had lied under oath in the court of first instance. Ms Brambilla had done so while testifying in one of the trials involving the Guardia di Finanza officers. She had testified that you had not met Mr Berruti on June 8th 1994, and that you had had little to do with Mr Berruti.

Shortly after meeting you on June 8th 1994, Mr Berruti saw Alberto Corrado, a former colleague, to ask a favour. (Mr Corrado had accompanied Mr Berruti on the tax inspection to your offices in November 1979?see section 6 “The foundation of Fininvest”.) Mr Berruti wanted Mr Corrado to speak to Mr Tanca, and ask him to keep quiet about the bribes. Mr Tanca kept quiet for a month. According to the judges in Ms Brambilla’s case, Mr Berruti told Mr Corrado that the prosecutors’ investigations into Mondadori “could have touched the prime minister’s interests”.

These judges concluded that Mr Berruti had asked Mr Corrado to ask Mr Tanca to keep quiet in front of prosecutors. The final appeals court came to the same conclusion in your case: it said that there was good reason to believe that the silence of Mr Tanca and the presumed solicitation of Mr Berruti were linked.

The judges in Ms Brambilla’s case also concluded that, out of the people charged over the Mondadori bribes, only you were in a position to have provided the information necessary to send Mr Corrado to keep Mr Tanca quiet. The clear inference is that only you could have told Mr Berruti of Mr Tanca’s corruption, since Mr Berruti’s first direct involvement in the matter was his meeting with you on June 8th 1994.

Milan’s appeals court upheld the guilty verdict in June 2002.

As for contact between you and Mr Berruti, prosecutors found that Mr Berruti had phoned you almost 60 times in the first six months of 1994, including an eight-minute call on May 4th 1994 at 12.03am.

Our question
How did you not know about the bribes paid to tax inspectors who turned a blind eye at Mondadori?

Mondadori
In 2000 you were accused of bribing an appeals-court judge, Vittorio Metta, with about 400m lire in cash. The allegation was that Mr Metta had ruled corruptly in your favour in a case that decided the takeover battle with Mr De Benedetti for control of Mondadori.

In February 1991, the month after Mr Metta’s ruling, All Iberian had paid around 3 billion lire into the bank account (called Mercier) of Mr Previti at Darier Henscht & Cie in Geneva. All Iberian made the payment through a transit account in Switzerland called Ferrido. Magistrates traced a payment of 425m lire from Mr Previti’s account to a Swiss bank account of another lawyer, Mr Pacifico, who withdrew over 400m lire in cash in October 1991. Mr Pacifico handed over the bribe to Mr Metta. Although the magistrates found no direct proof of the payment of cash by Mr Pacifico to Mr Metta, they believed they had a strong case based on indirect proof. Scrutiny of Mr Metta’s bank accounts revealed no cash withdrawals amounting to 400m lire in April 1992, when Mr Metta signed a contract to buy an apartment and paid 400m lire of the purchase price in cash.

Neither did investigation of the Italian and Swiss bank accounts of the late Orlando Falco, a former judge in Rome who, according to Mr Metta, had given him the 400m lire in cash. The accounts of Mr Falco, however, had contained SFr 5m-6m (then $3.5m?$4.2m).

Although magistrates found no direct proof of the payment of the cash to Mr Metta, they believed they had a strong case based on indirect proof. However, in June 2000, the judge at a preliminary hearing ruled that there was not sufficient proof that Mr Metta had received a bribe. He therefore decided that you and your co-defendants, Messrs Metta, Pacifico and Previti, had no case to answer.

Despite this, he was in no doubt about the money trail. “These are the elements of proof that allow one to be certain of the tie of Fininvest to…All Iberian, to the Ferrido account, and to the passage of money…to Cesare Previti’s Mercier account first through the account of All Iberian and then that of Ferrido,” the judge wrote. This was hardly surprising. After all, the money transferred by All Iberian to Ferrido came out of precisely the same bank account used by All Iberian to make the illegal donations through transit accounts to bank accounts under the control of Mr Craxi.

“All Iberian emerged as an offshore company used by Fininvest as a secret foreign treasury for a series of corporate operations with the aim of making them appear as though they were with third parties, and of hiding the direct tie to Fininvest,” the judge added.

The magistrates appealed against the verdict of the preliminary judge. On May 12th 2001, the eve of the general election that returned you to power, the appeals court ruled that your crime was statute-barred, but it did not absolve you as you had requested. A law in force between 1990 and 1992 meant that the payment of bribes, indirectly through an intermediary, was not considered an aggravation of the offence of corruption in the way that direct payment was. Hence the statute of limitations applied earlier for you than it did for the others, who were sent for trial.

The appeals court also found general extenuating factors that avoided your indictment. Among these was that any businessman might have got caught up in bribing judges, given that there had been a trade in court sentences in the Roman courts, and also that you were then leader of the opposition. The verdict of the final appeals court was the same, albeit for slightly different reasons.

On April 29th 2003 Milan’s court of first instance found Mr Previti and Mr Pacifico guilty of bribing Mr Metta to obtain a ruling favourable to you. Mr Metta was found guilty of receiving a bribe. Mr Previti was sentenced to 11 years in jail (including a sentence for a parallel judge-bribing offence) and Mr Metta to 13 years (including a sentence in the parallel trial for receiving a bribe via Mr Previti). These guilty verdicts are subject to appeal when the written judgment becomes available.

Our question
Pending the results of any appeals, what inference can be drawn from these three verdicts other than that you commissioned the payment of the bribe to Mr Metta for your direct personal benefit?

On June 17th 2003 you said: “…I have already had the opportunity of saying publicly what I know about the situation of Pacifico, that he ran a type of money import-export office around the Roman court offices frequented by clerks of the court, by judges, by lawyers, and there was his client base.”

Our question
When did you learn this?

False accounting*
Following leads from their investigation of bank accounts under Mr Craxi’s control, prosecutors eventually discovered a secret and substantial network of Fininvest companies, incorporated in the Bahamas, the British Virgin Islands (BVI) and the Channel Islands. Tens of billions of lire had flowed through bank accounts held in these companies’ names.

In their search for Fininvest’s black funds, magistrates sent requests to foreign authorities for assistance (known as rogatorie in Italian), especially to Switzerland where many of the secret bank accounts were. This was a long procedure, involving judiciaries, ministries and embassies of both countries, and the banks where evidence of the alleged wrongdoing lay.

On March 8th and 24th 1995, magistrates sent rogatorie to Switzerland. On April 10th 1995, Tanya Maynard, then a director of CMM Corporate Services (CMM), told those in Switzerland holding the records and papers for the network of Fininvest companies to transfer them to London. CMM was a British-registered company, incorporated in 1982 under the name of So.Ge.S International. The change of name took place in 1989, and CMM was dissolved in 1997.

According to company filings, the owner of CMM in April 1995 was Edsaco Holdings (UK) Ltd (Edsaco), a subsidiary of UBS, a Swiss bank, which had bought CMM in June 1994 for £750,000. One of Ms Maynard’s fellow CMM directors, Mr Mills, the husband of Tessa Jowell, had received £675,000 for his CMM stake. Two months earlier he had increased his stake in CMM to 90%, when he bought a 65% stake held in the name of a Milanese company, run by Studio Carnelutti, a Milan law firm. Mr Mills was a partner of Carnelutti & Co, the London affiliate of the Milan firm, until he left in 1988 to set up his own practice. Mr Mills and the Studio Carnelutti company in Milan had incorporated CMM as a company to provide services to administer other companies. In other words, it was partly a name-plate operation.

Italian magistrates asked the Serious Fraud Office (SFO) in London to obtain the records and papers moved from Switzerland. In October 1996 you petitioned the High Court in London to stop them getting the documents obtained by the SFO. The magistrates needed these documents as evidence in the case of illegal donations to Mr Craxi, whereas you claimed the alleged offence was political. “I just cannot see corrupt political contributors...as ‘political prisoners,’” concluded Lord Justice Simon Brown, a judge in the case, though he added at the end of his judgment that his words should not “raise the least presumption of guilt”.

Of Ms Maynard’s instructions to those holding the documents in Switzerland to transfer them to London, Lord Brown said: “ If there was innocent explanation for this, none has ever been provided.” In the SFO's application for a search warrant, a senior SFO official had stated: “Those persons running CMM/Edsaco must be aware that what they have done in managing the companies…is fraudulent and might render them liable to prosecution in Italy.” Mr Mills denies any wrongdoing.

Mr Mills gave evidence on your behalf in the SME case at a hearing in London in March 2003. Asked when his professional relationship with Fininvest began, Mr Mills replied in 1989 or 1990, and denied any relationship as early as 1981 or 1982.

Based on company filings in Britain, these statements were untrue. Mr Mills attributes this to “a failure of memory”. In March 1980 Mr Mills incorporated Reteitalia Ltd in Britain, as a 90% subsidiary of Reteitalia Srl, your film and TV rights company, set up in Italy that year. Fininvest Srl held the other 10%. In other words, Reteitalia Ltd was a Fininvest company. Between May 1981 and September 1983, you were one of its four directors, all of whom were resident in Italy. Mr Mills was Reteitalia Ltd’s company secretary from incorporation until 1989, when CMM took over.

In 1985 Mr Mills also set up Publitalia International Ltd in Britain for Fininvest, and signed the form appointing Marcello Dell’Utri, your close friend, as a director. In 1986 Reteitalia Ltd changed its name to Reteeuropa Ltd. A few months later, Mr Mills set up another company in Britain called Reteitalia Ltd, of which he became a director. This company changed its name to Reteitalia (UK) Ltd in 1988 and back again to Reteitalia Ltd in 1990.

The first Reteitalia Ltd (ie, the one that became Reteeuropa Ltd) bought film rights from third parties, which it then sold to other companies of yours. It was a tax wheeze. Between March 1980 and December 1987, Reteitalia/Reteeuropa Ltd made $75m in pre-tax profits, which escaped British tax as the firm was deemed to be non-resident in Britain for tax purposes. This was because, while registered in Britain, it did not trade in Britain, and its registered owner and directors were not resident in Britain. After changes in British tax rules in 1988 eliminated this type of tax-avoidance scheme, Reteeuropa Ltd sold all its films rights in 1989 and wound down its activity in 1990 to very small fraction of its previous level. It made total losses of $53m between 1989-90, after the tax law had changed.

The second Reteitalia Ltd also bought and sold film rights, but, unlike its former namesake, it did trade in Britain and had some British directors, including Mr Mills. It was therefore subject to British tax, but made only meagre profits, followed by a loss in 1990. It, too, sold all its film rights in 1989.

In fact, by 1990, according to KPMG, the companies that bought and sold the film rights were no longer British-registered. They were, by then, registered in more exotic offshore locations, such as the BVI. In particular, two BVI-registered companies, Century One Entertainment and Universal One, were involved in acquiring rights from third parties which were sold to your Italian companies.

These were just two of 29 companies in Fininvest “Group B”. The expression Group B was used to “differentiate the official companies of Group A from those which, although also controlled by Fininvest, should not appear as group companies and thus be kept out of the consolidated accounts”, Mr Mills told magistrates. On CMM’s summary sheet for each of the companies in Group B, were the words “very discreet”, an aide-mémoire to keep secret the link with the Fininvest group.

None of the 29 companies had any employees or any administrative infrastructure of their own. Trust companies acted as the registered agents for the companies’ shares (which were mainly in bearer form) and leading financial institutions in the Bahamas, Britain, Jersey, Luxembourg and Switzerland acted as bankers. Mr Mills claimed to the registered agents that he was the beneficial owner of three of the 29 companies. Mr G Foscale, your cousin, was presented as the beneficial owner of All Iberian.

CMM served as company secretary to 17 of the 29 companies. Ms Maynard was a director of Century One Entertainment and Universal One, and also of All Iberian. Mr Mills told Milanese prosecutors that Fininvest managed, directed and financed the operations of the All Iberian group. In other words, CMM was an interlocutor for Fininvest with bankers and registered agents of the Group B companies.

All Iberian was set up in Jersey, one of the Channel Islands, in May 1988. Six of Ms Maynard’s fellow All Iberian directors, mostly in their mid-60s in 1988, had addresses on the island of Sark. This is under the jurisdiction of Guernsey, another of the Channel Islands. In 1998 a senior British Treasury official wrote a report on financial regulations in the Channel Islands. It recommended a curb on the “Sark lark”. This involved use by non-resident companies, such as All Iberian, of nominee (ie, bogus) directors on Sark, where the directors were not subject to regulation. His report estimated that the 575 residents of Sark held around 15,000 directorships in 1997. According to KPMG, All Iberian’s directors (excluding Ms Maynard) held another 24 directorships of Group B companies, and Mr Mills was a director of one Group B company and was a bank account signatory for seven.

In relation to buying film rights, Mr Mills told prosecutors in 1997: “All the operations with the ‘majors’ [studios] were organised by Fininvest Service SA of Lugano. I gave legal advice on the content of the contracts with the majors…I will have signed hundreds of these contracts in London, in my office. Once signed, without keeping copies, I transmitted them straight to the office of Fininvest Service of Lugano…I never took part in any negotiation…”

Fininvest Service was incorporated (with bearer shares) in Lugano in November 1968 as a film and TV rights trading company under the name of Telecineton SA. For the its first 13 years, the company had one director only, a Swiss lawyer. This lawyer was also the only director of the Swiss company, incorporated in October 1968 in Lugano, behind Edilnord, the main developer of Milano 2 (see section 6?Milano 2).

By 1981 the company had changed its line of business; it then provided accounting and administrative services to other companies. And by 1985 the firm had moved from Lugano to another Swiss town. It had also changed its name three times from Telecineton SA: to Open SA in 1979, to Open Services SA in 1981 and finally to Fininvest Service SA in 1986.

KPMG found that a number of companies in both Groups A and B changed their names and at the same time, especially in 1991. And, over time, there were companies in Groups A and B that had identical or very similar names. For instance, Fininvest had three British-registered companies called Libra Communications Ltd or Libra UK Communications Ltd, and a Maltese-registered company called Libra Communications Ltd.

According to KPMG, between 1990-95 Fininvest Group A companies bought $886m of film rights from Fininvest Group B companies. This created profits and money for Fininvest Group B. KPMG also described other operations to put All Iberian in funds. You were involved in one such operation, called Mandato 500. The description that follows is based on the 20 pages in the KPMG report about that operation.

Between July 1991 and May 1993, you operated a fiduciary account known as Mandato 500 with Fiduciaria Orefici, a trust company in Milan, for which Giuseppe Scabini, Fininvest’s central treasurer, had power of signature on your behalf. You generated about 91 billion lire for Mandato 500 by selling half of two of your 23 Holding Italiana companies to a company called Nodit. The funds received from Nodit were used to buy Italian government bearer bonds; most of the bonds were placed in a safe deposit box at the Banca Provinciale Lombarda. A former senior Fininvest executive told a bank employee that bearer bonds were needed to finance the political system.

About 65 billion lire of securities were transferred to the Republic of San Marino using a security transport firm, which was paid in cash and which did not put the payment through its accounts. Those securities were cashed in San Marino. A further 10 billion lire were cashed through institutions in Italy. Of around 90 billion lire involved in the Mandato 500 operation, about 60 billion lire were eventually transferred to Switzerland, while the remaining 30 billion would have been available for you.

A total of about 26 billion lire were carried by spalloni (money-movers) into Switzerland, where the cash was deposited into All Iberian’s bank account in 1991. In the same period back-to-back operations credited All Iberian’s bank account with a further 27 billion lire.

In 1991 All Iberian paid around 3 billion lire out of this account to fund the bribe paid to the judge in the Mondadori case, and 21 billion lire to finance donations to Mr Craxi.

Our question
How much did you know about Fininvest’s offshore network?

False accounting legislation
In September 2001, your coalition government approved a law that downgraded false accounting as a crime, though some changes did not become effective until April of the following year. In the absence of aggravating circumstances, false accounting for private firms, such as your Fininvest group, became statute-barred after four and a half years rather than 15 years under the old legislation. As a result of the new legislation, you were granted a statute of limitation in three false-accounting cases because the alleged crime no longer existed

You have also been charged with false accounting in the SME case. In September 2002, the SME prosecutors claimed that your government’s new false accounting law contravened a European directive. This directive requires member states to set appropriate penalties where firms fail to publish accounts. The prosecutors argued that if appropriate penalties are laid down for failing to publish accounts, there is a persuasive case for stiffer penalties where published accounts are false. The matter was referred to the European Court of Justice, which could take as much as two years to deliberate. Prosecutors have referred one of the Fininvest false accounting cases to the same court, and the other to Italy’s constitutional court.

Unless prosecutors are successful with their challenges and the law is changed, the evidence in the KPMG report (and the underlying evidence) will not be tested in court. Recently, the ministry of justice started an examination of the amount of money prosecutors have spent on external forensic consultants, such as KPMG.

Our question
Why was new legislation on false accounting necessary?

“Rogatorie” law
On October 3rd 2001, the Italian parliament ratified an agreement between Italy and Switzerland on judicial assistance. Several clauses were inserted into what should have been a simple piece of legislation, among them that evidence obtained under rogatorie would be inadmissible unless the documents were originals, or were authenticated as originals with official stamps on every page of every document.

Under this law, according to your lawyers, a court would have to regard as inadmissible documents that were not stamped. The law applied to all trials, whatever stage they had reached. You signed the bill on October 4th, President Carlo Azeglio Ciampi the next day, and it appeared in the official gazette on October 6th, a Saturday.

Not surprisingly, the Swiss authorities were upset by your government’s use of the accord on judicial co-operation for political purposes. They could not see how they could continue to co-operate. For a start, if records of banking transactions were in the Swiss banks’ digital archives, was a printout of these archives an original or a copy document?

Your SME trial lawyers, who were members of the combined parliamentary commission that reviewed the bill, soon made an application to have evidence obtained under rogatorie ruled inadmissible. Before long, however, the Milan courts turned down your application. In broad terms, the ruling said that the previous 30 years of international practice would determine the admissibility of evidence. A letter signed by a foreign magistrate to accompany documents sent from abroad would continue to be sufficient to guarantee the authenticity of those documents.

Our question
Why was the law on rogatorie necessary?

Legitimate suspicion
On November 5th 2002, after a two-week marathon in the Senate, the legislature approved the so-called “legitimate suspicion” bill. President Ciampi signed it on November 7th; it was published in the official gazette that night.

Opponents, including the parliamentary opposition and leading jurists, said that the law was a bespoke measure to stall the SME trial, your one remaining criminal trial. Delays would have brought a statute of limitation nearer and allowed time for other laws to be passed.

The Consiglio Superiore della Magistratura (CSM), the magistrature’s governing body, has a constitutional duty to give its view on bills concerning judicial affairs. A CSM commission, which had raised a number of serious objections to the bill, wanted the full body of the CSM to approve its report before the bill was enacted. The commission was unsuccessful, because five members of the CSM, appointed by your coalition, abandoned the council’s meeting, thereby leaving it short of a quorum.

In March 2002, you had asked that the SME trial be transferred from Milan to another jurisdiction. Among other things, you claimed that the courts in Milan were biased and that the state of public order there prevented the SME trial from being conducted in conditions of serenity.

The final appeals court referred the matter to the constitutional court in May 2002. The matter for that court to decide was whether there was legislative vacuum on legitimate suspicion, as your lawyers claimed. Ten days after the legitimate suspicion bill was enacted, the constitutional court dismissed your case.

Our question
Why was the law on legitimate suspicion necessary?

The question of the transfer of your trial from Milan still needed to be settled. On January 28th 2003, the final appeals court ruled that you had no grounds for suspecting that you would not have a fair trial in Milan.

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*We have compiled this section from a forensic report on Fininvest’s offshore companies and bank accounts between 1990-95, prepared by KPMG, one of the big four global accountancy firms, for Milanese prosecutors. According to its report, KPMG had access to thousands of documents, and transcripts of magistrates’ questioning of 127 people in 233 different interviews, including you on December 13th 1994. KPMG’s report, a copy of which we obtained in April 2001, runs to hundreds of pages. In addition, The Economist has carried out company searches on companies belonging to Fininvest and registered in Britain between 1980 and 1990.

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6. Your early business career

 

Milano 2
Your proudest business achievement in the 1970s was Milano 2, a very large development of offices and flats at Segrate on the outskirts of Milan. You had just started construction of Milano 2 in 1970, leading your small and dedicated team. By the end of the decade, the development was complete.

Yet you were nowhere to be seen in the company filings of the main developer, a limited partnership called Edilnord Centro Residenziale di Lidia Borsani (Edilnord). Successive managing partners of Edilnord were your cousin (Lidia Borsani), her mother (your aunt), and an Edilnord employee. Umberto Previti, the father of your friend, Cesare Previti, at the time a little-known lawyer in Rome, became Edilnord’s liquidator in January 1978 when it went into voluntary liquidation.

Nor were you to be seen in company filings for Societa Generale Attrezzature di Walter Donati (SOGEAT), the firm that developed the commercial part of Milano 2. SOGEAT was also a limited partnership. Its managing partner was Walter Donati, a Milanese accountant who became a director of many companies connected to Fininvest.

Yet jointly with Luigi Berlusconi, your father, you guaranteed facilities from Banca Popolare di Novara (BPN), an Italian bank, to Edilnord of at least 6.9 billion lire in 1973-77. You also jointly guaranteed facilities to SOGEAT from BPN of at least 4.7 billion lire in 1976-77. And, in 1978, you personally guaranteed facilities of 3 billion lire to SOGEAT.

Swiss registered companies with nominee directors controlled both SOGEAT and Edilnord, and the Swiss companies’ shares were in bearer form. An internal document from one of your lenders, dated December 1976, shows that the bank believed you to be their beneficial owner. This was hardly surprising. Otherwise the bank would have been light on security for its loan.

Strict exchange-control laws were in force in Italy in the 1970s—prison sentences for violations were severe. The Swiss companies behind Edilnord and SOGEAT were punctilious in applying to the Bank of Italy for permission to bring into Italy a total of 4 billion lire in 1968-75 to increase the companies’ share capital. The Bank of Italy agreed on condition that any post-tax profits made by Edilnord or SOGEAT would be remitted to the Swiss parent companies.

The Swiss company behind Edilnord, your brother, Paolo, and you all had bank accounts at Banca Rasini, a little-known bank with only one branch (in Milan), where your father, by then retired, had worked for most of his life.

The foundation of Fininvest
Today, the holding company at the apex of your family’s business empire is Fininvest. A corporate forebear of Fininvest is a company called Finanziaria di Investimento Fininvest Srl (Fininvest Srl), which was incorporated in Rome in March 1975. Mr G Foscale, your cousin, was its sole director. In 1975, both Umberto Previti and his son, Cesare, were appointed to Fininvest Srl’s board of statutory auditors.

Mr G Foscale mandated two trust companies to be the registered holder of the shares: SAF and Servizio Italia, both owned by Banca Nazionale del Lavoro (BNL), then a state-controlled bank. The person who mandates a trust company is either the beneficial owner, or someone ultimately acting on behalf of the beneficial owner. Through use of a trust company, which shows up to the public as the registered shareholder, a beneficial owner remains anonymous. Use of them was common in the 1970s in Italy.

Before anti-money-laundering rules in 1991, a beneficial owner of shares registered to a trust company could sell shares and receive payment directly from the buyer under so-called “franco valuta” transactions (ie, the money would bypass the trust company). The trust company would merely execute a share transfer when instructed by the beneficial owner, and not handle the money. With a franco valuta transaction, the trust company would have only a beneficial owner’s word that he had sold his shares.

In May 1975, Fininvest Srl’s shareholder(s) agreed to inject 2 billion lire by way of share capital. Fininvest Srl bought 80% of Italcantieri in July 1975 and the rest in November 1976. Construction work at Milano 2 was sub-contracted to this Milanese firm, set up in 1973 by two Swiss registered companies which had nominee directors and bearer shares. The sole director of Italcantieri from 1973 until July 1975 had been Luigi Foscale, Giancarlo Foscale’s father and your uncle. You joined Italcantieri’s board in July 1975, immediately after Fininvest Srl bought it.

Bank of Italy inspectors carried out a check in 1979 at Cassa di Risparmio delle Provincie Lombarde (Cariplo). They found evidence that suggested that Edilnord, Italcantieri and SOGEAT might belong to you.

In October 1979, the Bank of Italy asked the Guardia di Finanza to investigate. The Guardia di Finanza found that Edilnord had made profits of 2.44 billion lire in 1974-78 that should have been remitted to the Swiss shareholder (ie, your alter ego), as agreed with the Bank of Italy. And SOGEAT had made 3.3 billion lire in 1974-78 that had not been remitted to Switzerland. The total infraction amounted to 5.74 billion lire.

As result, a posse of Guardia di Finanza officers came to another of your companies on November 13th 1979. Mr Berruti, then a captain in the Guardia di Finanza, led the team. The previous day you had told Mr Berruti that you were merely an external consultant to Edilnord and SOGEAT. Mr Berruti resigned from the Guardia di Finanza that month. Despite the strong evidence of exchange-control violations (ie, your personal guarantees at BPN and another bank, and failure to repatriate post-tax profits), no legal action was taken against you.

You, as chairman, and your brother, Paolo, joined Fininvest Srl’s board in November 1975.

Fininvest Roma and Fininvest Srl merger*
Another direct corporate forebear of Fininvest is Fininvest Roma Srl (Fininvest Roma), incorporated in Rome in June 1978. It was a shell company with paid-up share capital of 20 million lire. Umberto Previti was its sole director until June 1979.

On January 29th 1979, Fininvest Roma and Fininvest Srl voted to merge, but based on their respective balance sheets at December 27th 1978.

For 18 months prior to the merger you had been trying to increase the share capital of Fininvest Srl from its paid-up level (2 billion lire). This was a meagre capital base for a man of your ambition, so you needed more share capital. At that time, ministerial approval was needed for a share capital increase beyond 2 billion lire. By mid-1977, Fininvest Srl had not obtained this. The authorities typically requested information such as details of a company’s beneficial owners.

You found a solution. As chairman of Fininvest Srl, you proposed that shareholders make interest-free loans on account of the approved share capital increase. As the approved increase was 18 billion lire, that meant up to 18 billion lire of shareholder loans could be received. Your proposal was approved on December 2nd 1977.

Unofficial records at SAF (one of the BNL trust companies) show that between February 1977 and August 1978, Fininvest Srl received interest-free shareholder-loans of 16.94 billion lire on account of the capital increase. These came in 25 tranches, sometimes on successive days. The obvious inference is that the money was received in cash or cash equivalent, such as bank cheques. SAF got the information from Giovanni Dal Santo, an “interlocutor” and director of several Fininvest-related companies. Mr Dell’Utri’s technical consultant confirmed the accuracy of the list, but added that some of the funds may have come by ordinary current-account cheque.

In November 1978 Fininvest Srl decided to repay its shareholder loans of 16.94 billion lire and a 500m-lire convertible bond that had been issued in November 1976. What happened next is complicated—it is best understood by looking at steps 2-4 in table 1.

Your cousin, Mr G Foscale, told the BNL trust companies of the proposed redemption of shareholder-loans. The trust companies would be initial beneficiaries of three uncrossed bank cheques for a total of 16.94 billion lire, to be drawn on Fininvest Srl’s account with Banca Popolare di Abbiategrasso (BPA). He asked SAF to endorse the cheques in Mr L Foscale’s favour (ie, his father’s favour).

At the end of November, Mr Dal Santo, acting as interlocutor, picked up the three endorsed cheques from the trust companies. Mr Dal Santo gave the three cheques to Mr L Foscale, who was acting on your behalf. A negotiable cheque (ie, no named beneficiary) was also obtained for 500m lire. So there were four cheques in total.

On December 7th 1978 Mr L Foscale cashed the negotiable cheque and one of the three bank cheques. This came to 1.01 billion lire. So he had 1.01 billion lire in cash and 16.43 billion lire in cash equivalent (ie, the two remaining bank cheques)—17.44 billion lire in total. Thus 17.44 billion lire had left Fininvest Srl’s coffers.

That day, there was receipt from an unknown source of 17.5 billion lire into Fininvest Srl’s bank account at BPA. And on the same day, Fininvest Roma paid 17.5 billion lire to another party, whom the investigators were unable to identify from banking records, at the same BPA branch (see steps 1 and 8 of table 1). Since the Palermo investigators’ inspection of BPA’s records precluded the introduction of funds by a third party, the money must have gone round in a circle. (The investigators deduced this because the total movements shown in BPA’s daybook for December 7th 1978 were 78 billion lire. The four bank account movements of around 17.5 billion lire accounted for 70 of the 78 billion lire. If a third party had introduced funds, there would have been movements of at least 95.5 billion lire (ie, 78 plus 17.5)).

As 17.5 billion lire had gone in and 17.44 billion lire had gone out of Fininvest Srl’s bank account at BPA, the shareholder-loans and the convertible bond together totalling 17.44 billion lire could not have been repaid. So Fininvest Srl still had 17.44 billion lire outstanding, even after this bank-cheque shuffling (steps 2 to 4).

In other words, the 17.44 billion lire needed to disappear from its balance sheet. The merger, effected by Mr U Previti and based on balance sheets drawn up as at December 27th 1978, was the answer.

Mr U Previti said there would be an interest-bearing receivable, due from Fininvest Srl, of 17.69 billion lire in Fininvest Roma’s balance sheet at December 27th 1978 (ie, the payment made by Fininvest Roma at step 8 of table 1 must have been included in that balance). When Mr Previti merged the two companies, he literally merged the two companies’ balance sheets. The receivable of 17.69 billion lire in Fininvest Roma’s balance sheet simply netted off against the liabilities of 17.44 billion in Fininvest Srl’s balance sheets. Two of the equal and opposite accounting balances that had in effect arisen from the circular flow of funds had been eliminated.

The Holding Italiana companies
These operations were part of an even wider transaction involving 19 companies called Holding Italiana 1 (and so on sequentially to 19). Steps 6 to 7 in table 1 show how these companies were involved in the circular flow of funds.

The Holding Italiana companies have become synonymous with your family’s wealth as the owners of Fininvest, yet you are absent from these companies’ filings until 1990, and even then you do not appear in all of them.

Acting on your own behalf and/or on behalf of someone else, by December 4th 1978 you had bought 10% of 23 holding companies and had given a mandate to Par.Ma.Fid, a little-known trust company, to act as the registered shareholder. By December 5th 1978 you had bought the remaining 90% and had mandated SAF.

As at December 5th 1978, the holding companies had combined share capital of 420m lire. As there were 23 holding companies, their combined share capital could reach 46 billion lire without any ministerial approval (ie, 2 billion lire apiece).

You appointed Mr L Foscale, your uncle, as the companies’ sole director and mandated signatory for their bank accounts with BPA. Mr Dal Santo was appointed to their boards of statutory auditors.

You seemed to know the share issue was going to happen. By December 7th 1978 you had written to SAF to state that a total of 17.98 billion lire would be paid in as share capital to 19 of the holding companies “presso le casse sociali” (at the companies’ treasuries).

On December 7th 1978, the 19 holding companies received a total of 17.98 billion lire into their accounts at BPA. The source of nearly all the cash must have been the 17.44 billion lire (€46.8m in today’s money) in Mr L Foscale’s possession that day.

The 17.98 billion lire inflow was accounted for as share capital in the books of the 19 holding companies. These companies injected this amount as share capital into Fininvest Roma, thereby becoming the collective owners of Fininvest Roma. This transaction brought Fininvest Roma’s share capital to exactly 18 billion lire, all paid up.

In effect, a convertible bond of 500m lire and 16.94 billion lire in shareholder loans?received by Fininvest Srl, according to Mr Dal Santo’s information, in 25 tranches from February 1977 to August 1978?were recycled in December 1978 as fresh share capital for the 19 holding companies. The money had appeared all at once, as well.

However, the only new funds were 540m lire sitting in Fininvest Roma’s and Fininvest Srl’s bank accounts (see table 1).

As at December 26th 1978, Fininvest Roma had paid-up capital of 18 billion lire, all held by the 19 holding companies. The merger with Fininvest Srl had not yet happened. Fininvest Srl had paid-up share capital of 2 billion lire at that date. As part of the merger, its shareholder(s) must have exchanged his/their Fininvest Srl shares, which had been mandated to SAF, for 10% of the shares in the holding companies. This may explain why you mandated 10% of the holding companies’ shares to Par.Ma.Fid.

It is reasonable to surmise that the provider(s) of the shareholder-loans to Fininvest Srl between February 1977 and August 1978 owned the other 90% of the holding companies.

1979 and 1980
In 1979, 45.4 billion lire (about €104m in today’s money) flowed into the holding companies (see table 2). Nearly all of it involved money that had been sent round in a circle through companies under your control. The largest transaction of 27.68 billion lire is explained in the section below on Anna Maria Casati Stampa di Soncino’s legacy.

The holding companies put 32 billion lire in 1979 into Fininvest Roma by way of share capital, thereby apparently increasing its paid-up capital to 52 billion lire by December 31st 1979. But this money went straight out of Fininvest Roma, too, in effect whence it came. Therefore 32 billion lire of Fininvest Roma’s paid-up share capital of 52 billion lire were phoney.

In 1980, 20.05 billion lire was put into the holding companies in cash or equivalent, including 19.2 billion in late December 1980 (see table 2). This money was for Fininvest.

On December 22nd 1980, you wrote to the trust companies to say that 19.2 billion lire would be paid in as interest-free shareholder loans, with 90% going via SAF and 10% via Par.Ma.Fid. According to the holding companies’ books, the funds came in four tranches of 4.8 billion lire in the last week of December.

Yet the investigators from Palermo found trace of only one transaction in banking records at Banca Rasini, the little-known bank with one branch, which was another banker to the holding companies. They found that 4.3 billion lire (ie, SAF’s 90% share of 4.8 billion lire) had been recorded in a transit account at Banca Rasini and so had the payment for the same amount to Fininvest. The receipt was in cash (or equivalent), and so was the payment. The receipt must have been in cash. If you had funded 4.3 billion lire from your personal account at Banca Rasini, there would have been a withdrawal from your account that day for that amount. There was not.

The transaction had been recorded in a transit account. In those days, some banks used transit accounts to record very short-life transactions (ie, one week maximum to maturity). Recording a transaction in a transit account indicated that it was for a customer who was not a client of the bank. There was therefore a serious anomaly – for you were a Banca Rasini customer.

Banca Rasini
Banca Rasini acted as a bank to you, your brother, Mr Dell’Utri and his brother, your Swiss alter egos (the ones behind Edilnord and Italcantieri), and also Par.Ma.Fid. It was also very close to the Holding Italiana companies.

Armando Minna, a Milanese accountant, and his wife had founded Holding Italiana 1-23 in June 1978. Mr Minna, who was a member of the board of statutory auditors of Banca Rasini, set up bank accounts for the holding companies with Banca Rasini. You bought the 23 holding companies’ shares in December 1978 in franco valuta transactions with Mr and Mrs Minna. Mr Minna was appointed a member of the board of statutory auditors of the holding companies.

In the bank’s internal records, each Holding Italiana company was categorised as “hairdresser and beauty parlour”. Bank of Italy inspectors use this categorisation as one of the criteria for determining which bank accounts to inspect. The categorisation could have been a mistake, but there is no doubt that 23 “hairdressers” would have been far less susceptible to inspection than 23 financial holding companies.

At the time, Giuseppe Azzaretto, a Sicilian, appointed in 1973, was Banca Rasini’s managing director. Mr Azzaretto was one of the banks’ largest shareholders with 29.3%. Three Liechtenstein-registered companies held a further 32.7%, represented by Herbert Batliner, who runs one Liechtenstein’s leading trust companies.

Doubtless Mr Batliner represents many people who have valid reasons for privacy. Some clients did not. A court case in America in 1971 resulted in the conviction of two American citizens for evading taxes in the 1960s. They had done so through a Liechtenstein-registered front company that Mr Batliner had run on their behalf. Another court case from America (in 1998) revealed that Mr Batliner’s firm had acted for the common-law wife of a Latin American drug-trader. In 1989 the drug-trader had transferred $8m into a Swiss bank account. The account was held in the name of a Liechtenstein-registered company, represented by Mr Batliner who had been mandated by the common-law wife. The court case arose because the US government wanted to sequester the money, the alleged proceeds of narcotics trading and money laundering.

Anna Maria Casati Stampa di Soncino’s legacy
By November 1979, you had been living in a 17th century mansion, called Villa San Martino, for over five years. This beautiful house is in the town of Arcore, just north-east of Milan. You were not the legal owner; Anna Maria Casati Stampa di Soncino was. In September 1970, aged 19, Ms Casati Stampa became heiress to the family’s large fortune in tragic circumstances after Count Camillo Casati Stampa di Soncino, her father, shot her step-mother, her step-mother’s lover and then turned the gun on himself on August 30th 1970 in Rome.

As Ms Casati Stampa was under 21, the court appointed Giorgio Bergamasco, a senator and friend of the late count, as Ms Casati Stampa’s legal guardian. Cesare Previti, based in Rome and who had acted for Ms Casati Stampa’s step-mother, won Ms Casati Stampa’s confidence and became her lawyer. His role was to dispose of the estate, whereas Mr Bergamasco’s was to sign all the necessary legal paperwork in Ms Casati Stampa’s name. So Mr Bergamasco had legal control of her assets, while Mr Previti had practical control.

Traumatised, Ms Casati Stampa left Italy in 1970, briefly returned in 1972 and has lived abroad since. When she became 21 she gave Mr Bergamasco power of attorney over her affairs. Ms Casati Stampa declines to comment.

The Casati Stampa estate, mainly in Lombardy, included large tracts of land. As well as Villa San Martino and its parkland, the family owned about 250 hectares of land at Cusago. With effect from November 11th 1979, a company called Immobiliare Coriasco Spa (Coriasco) bought Ms Casati Stampa’s land at Cusago.

Mandated by Mr L Foscale, SAF were the registered holders of Coriasco’s shares, so Coriasco’s beneficial owners were anonymous. However, in Fininvest Srl’s 1976 accounts Coriasco was included as a wholly owned subsidiary. Coriasco’s only director was Giuseppe Scabini, who later became Fininvest’s treasurer.

Coriasco did not pay money for Ms Casati Stampa’s land. Instead, 800,000 shares, valued at 1.7 billion lire, in a company called Cantieri Riuniti Milanesi (CRM), a small property company, one of whose directors was Mr Dell’Utri, were given to Ms Casati Stampa. These shares represented a 40% stake in CRM. Around the same time 400,000 CRM shares were given to a trust company called Unione Fiduciaria, a subsidiary of an Italian bank. It is not known who the beneficial owner of these shares was.

Ms Casati Stampa was unhappy that she had been given shares in a company she knew nothing about in exchange for her land. She wanted the shares to be turned into cash. What followed next is best understood by referring to table 3.

The essence of what happened is that you arranged for a shell company of yours, Palina, fronted by a 75-year old stroke victim, to buy the 800,000 CRM shares from Ms Casati Stampa, and the 400,000 CRM shares from Unione Fiduciaria. Palina paid 1.7 billion lire to Ms Casati Stampa and 860m lire to Unione Fiduciaria. The investigators from Palermo did not find out where this money came from, as there was no trace of it at BPA. However, they found a bill from Unione Fiduciaria and a stamped share-transfer form signed by Mr Bergamasco, which strongly suggest that 2.56 billion lire was paid.

On December 19th 1979, Palina sold the 1.2 million CRM shares to Milano 3 Srl, another shell company. Milano 3 Srl paid Palina 27.68 billion lire (ie, more than ten times as much as Palina had paid weeks earlier). Palina was a cut-out company; it was incorporated in October 1979 and placed in liquidation in May 1980. There was nothing in its accounting records about the CRM share deals, or the sale of the CRM shares to Milano 3 Srl.

The transaction was a sham because Milano 3 Srl indirectly got the money to pay Palina from Palina. As table 3 shows, on December 19th 1979, Palina sent 27.68 billion lire to the trust companies, which then transferred this sum to holding companies’ bank accounts at BPA. From there, the funds went through Fininvest Roma’s BPA account, and then, through Milano 3 Srl’s account to an unknown beneficiary.

Since the Palermo investigators’ examination of BPA’s records precluded the introduction of funds by a third party, the funds must have gone round in a circle. This is because on the same day there was a receipt of 27.68 billion lire in Palina’s current account (ie, from Milano 3 Srl).

You seemed to have known what was going on. You had written to the trust companies on December 13th 1979 to advise them that a forthcoming payment of 25.68 billion lire was to be treated as shareholder loans to certain of the Holding Italiana companies. In the event you paid 27.68 billion lire. (Holding Italiana 18-19, not mentioned in your letter, received 2 billion lire.)

Milano 3 Srl was incorporated in November 1979, as a subsidiary of Fininvest Roma. Mr Dal Santo was its only director. The anti-Mafia investigator and the Palermo magistrates' technical consultant did not gain access to Milano 3 Srl’s books and records. However, Milano 3 Srl must have been the source of the 27.68 billion lire received by Palina on December 19th. It must also have recorded the 27.68 billion lire as an investment in CRM in its books. This investment was “funded” by the 27.68 billion lire that it had received from Fininvest Roma the same day.

CRM merged (literally) into Milano 3 Srl in July 1980. Milano 3 Srl, the surviving company, renamed itself Cantieri Riuniti Milanesi. It was the same manoeuvre once again—elimination of two equal and opposite accounting balances that had arisen from the circular flow of funds. When the two balance sheets were merged, the balances in Milano 3 Srl’s books relating to the Palina transaction disappeared. Its investment in CRM shares would simply have been netted off against the related financing received.

It needed to be. Fininvest could not possibly have spent 27.68 billion lire on buying the 1.2 million CRM shares that you already owned (through Palina) since precisely the same amount of money had gone in and out of Palina’s bank account on December 19th 1979. And CRM’s shares had little value since CRM did not even own the land at Cusago— Coriasco did.

Mr Dell’Utri’s technical consultant told the Palermo court that, if this transaction had taken place after anti-money laundering rules were introduced in 1991, “it would have had to have been reported” because of the amount of money involved.

Routing the funding for the Palina transaction through Fininvest Roma had the effect of puffing up this company’s assets and liabilities by 27.68 billion lire. As a part of the operation, Fininvest Roma’s share capital increased by 15 billion lire, treated as fully paid up. This share capital was phoney, as were the rest of the accounting entries relating to this operation. In other words, manufactured bank-account movements, made possible by Palina, which completed the circle, lent spurious credence to hollow accounting entries.

Immobiliare Coriasco
Coriasco (the company that acquired the Cusago land) also made a share issue in 1979 that was not what it seemed.

As noted above, in 1976, Fininvest Srl had owned 100% of Coriasco’s 200,000 shares of 1,000 lire each (ie, Coriasco had paid-up share capital of 200m lire in total), but SAF was Coriasco’s registered shareholder under a mandate from Mr L Foscale.

According to official SAF records, in mid-March 1979, Mr L Foscale had written to SAF to say that on March 22nd 1979 there would be a 2 billion lire increase in the share capital of Coriasco (ie, 2m shares would be issued).

He said the transaction would be franco valuta (ie, the money would bypass the trust companies). Instead, according to unofficial records at SAF, on March 20th 1979, Mr Dal Santo phoned to say he would give them the mandate to underwrite a 2 billion lire share capital increase. Again, according to SAF’s unofficial records, on March 21st 1979, Mr Dal Santo brought the mandate for SAF to sign, and made available 2 billion in cash. SAF paid that money to Cariplo and Banca Popolare di Novara and obtained two uncrossed bank cheques for a total of 2 billion lire.

SAF endorsed these cheques to Coriasco, which therefore looked as though it had received a 2 billion lire share capital increase paid by two bank cheques. It had not—the money for the shares was really in cash. In other words, Mr Dal Santo had laundered 2 billion lire through SAF with help from the trust company itself.

To any inspector of the official paperwork for the share issue (ie, Mr Foscale’s letter), it would have looked as though the money had bypassed the trust company. This is because there would have been no immediate reason to suppose that the deal had not been done as set out in Mr Foscale’s letter.

According to Fininvest’s accounts for 1979, its stake in Coriasco was by then only 9.09% (ie, the 200,000 shares it held in December 1976). It was not therefore clear who had provided the 2 billion lire in cash in March 1979. Mr Dell’Utri’s technical consultant told the Palermo court that Coriasco was “absolutely marginal and irrelevant”.

After getting planning permission, another company called Cantieri Riuniti Milanesi (ie, not the same company as involved in the Palina operation) later carried out a large development on land that Coriasco had acquired in 1979.

In 1980 Immobiliare Idra, a company fronted by Mr Dal Santo, became the legal owner of Villa San Martino (and its parkland, collection of books, pictures and so on) when it paid Ms Casati Stampa 500m lire (about €960,000 in today’s money). At some point Immobiliare Idra must have belonged to Fininvest because Fininvest later sold this company to you.

Giovanni Dal Santo
A number of influential figures in your early career—Mr C Previti, Mr G Foscale, Mr Scabini, Mr Dell’Utri, and Mr Berruti—later rose to positions of prominence with you. Like you, they were all charged in the 1990s with criminal offences. Far more enigmatic is Mr Dal Santo.

Born in Sicily in 1920, by the 1970s, Mr Dal Santo was working in Milan as a book-keeper. He was the only director of a number of companies at crucial points in their existence: for instance, of Milano 3 Srl when it acquired CRM from Palina, and of Immobiliare Idra when it bought Villa San Martino. He was also the “interlocutor” between Mr L Foscale and the BNL trust companies. He was the person who supplied the information found in SAF’s unofficial records (ie, information that the 16.9 billion lire of shareholder loans to Fininvest Srl were received in 25 tranches between February 1977 and August 1978). He served on the board of statutory auditors of the Holding Italiana companies. You certainly knew him.

Mr Dal Santo laundered 2 billion lire (about €5.1m in today’s money) through SAF and Coriasco in March 1979. From the date of its acquisition by Fininvest Srl in 1976 until January 1978, ISTIFI’s only director was Mr Dal Santo. This firm, a finance company, was to become the financial lung of the group.

He was obviously an uomo di fiducia (trusted man).

Our questions

Do you have any alternative explanations for the above transactions?

Who put 4 billion lire into Edilnord and SOGEAT by way of share capital in 1967-75?

Who put the 16.94 billion lire into Fininvest Srl as shareholder loans in 1977-78, and where did the money come from?

Why was this money injected in 25 tranches over a 20-month period?

On whose behalf was Mr Dal Santo an uomo di fiducia?

Do you think Ms Casata Stampa got a fair deal for Villa San Martino and her land at Cusago?

Who was the beneficial owner of the 400,000 CRM shares registered in the name of Unione Fiduciaria and who therefore received the 860m lire paid by Palina?

Who put 2 billion lire into Coriasco in March 1979 and where did the cash come from?

Why did you transact so many share deals franco valuta?

Why did you avail yourself of the right to silence when prosecutors wanted to question you at Palazzo Chigi on November 26th 2002 about these and other matters?

Your membership of P2
In October 1990 the appeals court in Venice found that you had perjured yourself while giving evidence in 1988 in an unsuccessful libel case that you had brought against Giovanni Ruggeri and Mario Guarino, both Italian journalists. They are the joint authors of “Inchiesta sul Signor TV”, a thoroughly researched book on your early business career, first published in 1987.

You were found guilty but your perjury was commuted by a general amnesty. Among other things, in the libel proceeding you said that you had joined the P2 lodge only shortly before it was uncovered in 1981 and that you had not paid your subscription. The court in Venice ruled that these statements were not true. You were initiated into the P2 lodge in early 1978 and paid your 100,000 lire subscription.

After Mr Berruti questioned you about Edilnord and SOGEAT in November 1979, Salvatore Gallo, a superior officer in the Guardia di Finanza in Rome, wrote the following month to the Ufficio Italiano dei Cambi. He recommended no further action be taken. Mr Gallo was initiated into the P2 lodge in July 1980.

BNL had more top managers who were members of P2 than any other Italian bank. At least six senior BNL executives had been initiated into the lodge, including Gianfranco Graziadei, chief executive of one the BNL trust companies.

During the 1970s your companies received generous support from Italian banks, including Monte dei Paschi di Siena whose general manager, Giovanni Cresti, was a member of P2. Later Monte dei Paschi di Siena’s statutory board of auditors concluded that: “ The risk profile towards [your group] was altogether exceptional. Inspectors who have looked at the loan book have made an accurate analysis of it that allows the conclusion that there was significant favouritism towards [your group].”

Our questions

Why did you lie about the date on which you were initiated into the P2 lodge?

Did you use your membership of the P2 lodge to obtain things that you would not otherwise have done?

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*We have compiled this sub-section from the reports on your companies by an anti-Mafia investigator and by the Palermo magistrates’ technical consultant from the Bank of Italy. An allegation from a pentito (supergrass) that 20 billion lire of Mafia money had been used to build up Fininvest’s television interests triggered their investigation. The two investigators spent 18 months combing records of companies at the top of the Fininvest corporate hierarchy in the period 1975—1985 (and companies connected to those, and so on), of trust companies connected to you, and of bank accounts belonging to you and the companies examined. They have both given evidence in relation to their findings in the trial of your close friend, Marcello Dell’Utri, who was charged in 1996 with aiding and abetting the Mafia.

Apart from a short spell in the late 1970s, Mr Dell’Utri, a Sicilian, worked with you from the mid-1960s to 1994. A member of the Italian parliament, he was a co-founder of Forza Italia, and acted as your campaign manager in the 1994 election.

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