Presidenza del Consiglio dei Ministri
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.
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 laws 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 judgeshas 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.
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.
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.
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:
The SME affair
Your spontaneous declarations
The smearing of Romano Prodi
Your gold medal claim
Your other trials
Your early business career
look forward to your reply
The SME affair
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.
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.
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.
March 1991, All Iberian had paid $434,404 into Mr Previtis 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.
late 1999, you and Mr Previti were charged with bribing Mr Squillante, and Mr
Verde who, with two fellow judges in Romes court of first instance, gave
a controversial ruling which stopped Mr De Benedetti buying SME.
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
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 states 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 ministers office.
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.
1984 TV decree
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.
the 1970s, only RAI, Italys 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.
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.
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.
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.
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.
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). IRIs sales were massive, but it made losses and was deep in debt.
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 Prodis aim was to sell those parts
of IRI that the private sector could operate better.
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).
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-caseit
lost 47 billion lire (then around $27m) in 1984 and needed a capital injection
of 30 billion lire to stop it going bust.
had capable managers, such as Giuseppe Rasero, recruited from Unilever, an Anglo-Dutch
food giant, in the 1970s as chief executive of SMEs 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.
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 1984its 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
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
Mr Prodis perspective, greater involvement of the private sector was essential,
perhaps through a partner. Terms could not be agreed with the most obvious candidatethe
Fossati family, the joint-venture partner in three of SMEs 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%.
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 IRIs 64.4% stake at 497 billion lire, and therefore
the whole of SME at 772 billion lire (then $389m).
Prodis 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.
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.
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 Craxis Socialist Party.
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 LEspresso, the
publisher of a news magazine of that name.
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.
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.
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
Prodi for IRI and Mr De Benedetti for Buitoni signed an agreement on April 29th
1985. Buitoni agreed to pay 497 billion lire for IRIs 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 frothyit had risen by
nearly 70% since January 1st. But Buitonis offer represented a 38% premium
to the average price over the preceding 12 months.
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 SMEs head office in Naples. (On May 26th 1985,
Buitoni also promised to retain SME for 15 years.)
agreement stipulated that the sale was subject to approval by IRIs boardthe
details of the negotiations had hitherto been kept to a closed circle in an attempt
to stop insider trading. (IRIs board approved the deal unanimously on May
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, Italys
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.
Darida, minister for state holdings, whom Mr Prodi had kept fully informed of
IRIs 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.
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 Polis 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.
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.
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 Scaleraan old schoolfriend
of Mr Previtimade 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
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 IRIs 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 Buitonis 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.
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, Italys 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
to the reputation of Italian financial markets
June 9th, LEspresso 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.
government said that all offers for SME should be considered, and, on June 15th
1985, Mr Darida issued a decree to stop the sale.
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 authorisationaccepted 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 Italys leading experts on administrative law, in a newspaper
article on May 22nd 1985.
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.
a case brought by Mr Fimianis Co.Fi.Ma, the highest level of the final appeals
court, in March 1986, confirmed Mr Casseses 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.
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 Buitonis agreement with IRI was
not enforceable because it was subject to government approval, and that had not
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.
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.
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.
this persons 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.
Your spontauneous declarations
(May 5th 2003)
is a defendants 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.
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 (.).
have decided to change my attitude to this case. My earlier attitude was
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
court had rejected [their] application to call some witnesses who
first time at last nights 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
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].
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
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
does not mean that I wont be able to find some free
will allow the prime minister and citizen Berlusconi to be present
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.
aborted sale of SME to Buitoni
only wish to talk about facts, without giving opinions, or passing judgment
1st May 1985, while I was in Madrid
I [learned] that IRI had sold SME to
Carlo De Benedettis 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
I got back to Milan I spoke to the prime minister, who
gave the impression
that he wasnt particularly interested in it
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
very strong, sometimes colourful language, and began to recount what he had learned
of the affair, not only from
Undersecretary Amato, but also from
of the IRI board who belonged to his political party.
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.
I may go back in time
said that he was even willing to
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
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
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
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 SMEs
[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
Its impossible for a deal of this kind to be concluded in just two
sessions at Mediobanca, he said hed 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].
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.
you did and why you did it
was Craxis conclusion? He said, This is a loss to the state, its
theres 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 Barillas trying to get together a syndicate
of industrialists, he said,
of the agreement to be postponed from 10th to 28th May. They agreed, so theres
a very short time to submit to IRI a bid higher [than] the price agreed with CIR
Id 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
, he said
I know that an accountant, a Mr. Locatelli of Milan, is working on
Id like you to
get involved, perhaps by having Fininvest
join the syndicate, so that a much higher bid than CIRs can be submitted
by that date, 28th May.
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 wasnt
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
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
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
bid was submitted on 23rd May
set up a meeting at Ferreros 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; Id carried out the prime ministers instructions,
a procedure which would have led to completion of the contract had been halted,
much higher bids
[had been received] than the price specified in
the preliminary agreement with CIR. So the entire deal came to a standstill.
litigation and court rulings
contract signed by Prodi and CIR wasnt completed, and other parties interested
in the purchase came on the scene, including Mr Fimiani of a company whose name
I dont 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.
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
faction of [the majority] party
Amato told me in no uncertain terms
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
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
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]
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.
was only involved once, in 1988, when, as the lawsuits that claimed from IRI,
which had benefited from IARs 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 [IRIs] commitment was merely a preliminary commitment
and not a final agreement.
believe that is everything: I think these are definite facts.
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?
The smearing of Romano Prodi*
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 SMEs food-production arm, Cirio-Bertolli-De Rica (CBD), to
Fis.Vi, an agricultural consortium. A clause in Fis.Vis 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, SMEs ice-cream division, to Nestlé.
Prodi left IRI in April 1994, entered politics in 1995 and served as Italys
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
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 Prodis 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
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
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 Prodis 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.)
to Italian magistrates, the article insinuated that Mr Prodi had not declared
the £1.4 million to the taxman. It suggested (correctly) that ASEs
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
Prodis former paymasters at Goldmans Sachs [advised the buyers]
[CBD] group was sold for half its real value to a front company
resold in part to another of Mr Prodis former paymasters,
(Mr Prodis other ASE client). Il Giornale, owned by your brother,
Paolo, picked up some of the Daily Telegraphs allegations.
of the Daily Telegraphs article, magistrates in Bologna, ASEs 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.
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 Prodis 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.
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.
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 Pritchards 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.
referred to evidence from Mr Fimiani in your spontaneous declarations, and asked
your lawyers to submit written evidence to the court from him.
Mr Fimiani, to whose oral and documentary evidence you referred in your spontaneous
declarations, a reliable source?
you aware that Mr Fimiani was convicted for serious bankruptcy in
Salerno on November 12th 1993?
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?
you aware that on June 13th 1995 Mr Fimiani made a complaint against unknown
persons for abuse of office? (He claimed that Co.Fi.Mas bankruptcy
was due to a need to eliminate the firm when he had got in the way of IRIs
sale of SME to Buitoni in 1985.)
you aware that magistrates investigated Mr Fimianis complaint and that,
in March 1997, a preliminary judge closed the investigation because Mr Fimianis
jaccuse was groundless?
Mr Fimiani make his bid for SME in 1985 on your behalf?
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.
Your gold medal claim*
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.
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.
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.
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).
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.
billion lire invested in reducing government debt in 1985-86 would have cut the
governments interest bill by over 1.1 trillion lire up to December 31st
1996. That makes a comparative total of 1.6 trillion lire.
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
governments interest bill by around 500 billion lire. So the comparative
total for the actual privatisation is about 2.5 trillion lire.
this basis, the payoff from the actual privatisation sale is 1.5 times that of
the aborted sale in the previous decade.
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.
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.
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 Italys
do you deserve a gold medal?
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.
Your other trials
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.
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 companys balance sheet, nor is their use recorded in a companys
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 companys 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.
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.
a sentence dated November 22nd 2000, your countrys final appeals court accepted
that your Fininvest companies made donations illicitly without proper records
and that you were responsible.
deciding the latter the court said:
[David MacKenzie] Millss
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 Blairs cabinet.
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.
definition, Fininvest must have accounted falsely for these illicit donations.
often, if at all, did you speak to Mr Mills?
di Finanza trial
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.
were found guilty in Milans 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 Italys prime minister) with Massimo
Berruti, a former officer in the Guardia di Finanza who had resigned in November
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.
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
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.
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 Brambillas
case, Mr Berruti told Mr Corrado that the prosecutors investigations into
Mondadori could have touched the prime ministers interests.
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.
judges in Ms Brambillas 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 Tancas corruption, since Mr Berrutis
first direct involvement in the matter was his meeting with you on June 8th 1994.
appeals court upheld the guilty verdict in June 2002.
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.
did you not know about the bribes paid to tax inspectors who turned a blind eye
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.
February 1991, the month after Mr Mettas 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 Previtis 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 Mettas 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.
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).
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.
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
to the Ferrido account, and to the passage of money
to Cesare Previtis
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.
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.
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
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.
April 29th 2003 Milans 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
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?
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.
did you learn this?
leads from their investigation of bank accounts under Mr Craxis 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.
their search for Fininvests 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.
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.
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 Maynards 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.
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.
Ms Maynards 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
and might render them liable to prosecution in Italy. Mr Mills denies any
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.
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 Ltds company secretary from incorporation until
1989, when CMM took over.
1985 Mr Mills also set up Publitalia International Ltd in Britain for Fininvest,
and signed the form appointing Marcello DellUtri, 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.
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.
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.
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.
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 CMMs 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.
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.
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.
Iberian was set up in Jersey, one of the Channel Islands, in May 1988. Six of
Ms Maynards 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 Iberians
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
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
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
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
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
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
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.
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,
Fininvests 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.
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 Iberians bank account in 1991. In the same
period back-to-back operations credited All Iberians bank account with a
further 27 billion lire.
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.
much did you know about Fininvests offshore network?
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
have also been charged with false accounting in the SME case. In September 2002,
the SME prosecutors claimed that your governments 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 Italys constitutional
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.
was new legislation on false accounting necessary?
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.
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
surprisingly, the Swiss authorities were upset by your governments 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?
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.
was the law on rogatorie necessary?
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.
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.
Consiglio Superiore della Magistratura (CSM), the magistratures 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 councils meeting, thereby leaving
it short of a quorum.
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.
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.
was the law on legitimate suspicion necessary?
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.
have compiled this section from a forensic report on Fininvests 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. KPMGs 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
Your early business career
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.
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 Edilnords liquidator
in January 1978 when it went into voluntary liquidation.
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.
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.
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.
exchange-control laws were in force in Italy in the 1970sprison 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.
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.
foundation of Fininvest
the holding company at the apex of your familys 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 Srls 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.
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 owners word
that he had sold his shares.
May 1975, Fininvest Srls 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 Foscales father and
your uncle. You joined Italcantieris board in July 1975, immediately after
Fininvest Srl bought it.
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.
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.
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.
as chairman, and your brother, Paolo, joined Fininvest Srls board in November
Roma and Fininvest Srl merger*
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.
January 29th 1979, Fininvest Roma and Fininvest Srl voted to merge, but based
on their respective balance sheets at December 27th 1978.
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 companys beneficial owners.
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
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 DellUtris technical consultant confirmed the accuracy
of the list, but added that some of the funds may have come by ordinary current-account
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 complicatedit is best understood by looking at steps 2-4 in table
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 Srls account
with Banca Popolare di Abbiategrasso (BPA). He asked SAF to endorse the cheques
in Mr L Foscales favour (ie, his fathers favour).
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.
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 Srls coffers.
day, there was receipt from an unknown source of 17.5 billion lire into Fininvest
Srls 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 BPAs 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 BPAs
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)).
17.5 billion lire had gone in and 17.44 billion lire had gone out of Fininvest
Srls 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).
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.
U Previti said there would be an interest-bearing receivable, due from Fininvest
Srl, of 17.69 billion lire in Fininvest Romas 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 Romas balance sheet simply netted off against the liabilities
of 17.44 billion in Fininvest Srls balance sheets. Two of the equal and
opposite accounting balances that had in effect arisen from the circular flow
of funds had been eliminated.
Holding Italiana companies
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.
Holding Italiana companies have become synonymous with your familys 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.
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.
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).
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
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).
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 todays money) in Mr L Foscales
possession that day.
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 Romas share capital to exactly 18 billion
lire, all paid up.
effect, a convertible bond of 500m lire and 16.94 billion lire in shareholder
loans?received by Fininvest Srl, according to Mr Dal Santos 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.
the only new funds were 540m lire sitting in Fininvest Romas and Fininvest
Srls bank accounts (see table 1).
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.
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.
45.4 billion lire (about €104m in todays 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
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 Romas paid-up
share capital of 52 billion lire were phoney.
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
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.
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, SAFs
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.
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.
Rasini acted as a bank to you, your brother, Mr DellUtri 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.
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.
the banks 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.
the time, Giuseppe Azzaretto, a Sicilian, appointed in 1973, was Banca Rasinis
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 Liechtensteins leading trust companies.
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 Batliners 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.
Maria Casati Stampa di Soncinos legacy
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
familys large fortune in tragic circumstances after Count Camillo Casati
Stampa di Soncino, her father, shot her step-mother, her step-mothers lover
and then turned the gun on himself on August 30th 1970 in Rome.
Ms Casati Stampa was under 21, the court appointed Giorgio Bergamasco, a senator
and friend of the late count, as Ms Casati Stampas legal guardian. Cesare
Previti, based in Rome and who had acted for Ms Casati Stampas step-mother,
won Ms Casati Stampas confidence and became her lawyer. His role was to
dispose of the estate, whereas Mr Bergamascos was to sign all the necessary
legal paperwork in Ms Casati Stampas name. So Mr Bergamasco had legal control
of her assets, while Mr Previti had practical control.
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.
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 Stampas land at Cusago.
by Mr L Foscale, SAF were the registered holders of Coriascos shares, so
Coriascos beneficial owners were anonymous. However, in Fininvest Srls
1976 accounts Coriasco was included as a wholly owned subsidiary. Coriascos
only director was Giuseppe Scabini, who later became Fininvests treasurer.
not pay money for Ms Casati Stampas 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 DellUtri, 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
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.
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.
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.
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 Romas
BPA account, and then, through Milano 3 Srls account to an unknown beneficiary.
Since the Palermo
investigators examination of BPAs 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 Palinas
current account (ie, from Milano 3 Srl).
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.)
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 Srls 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 againelimination
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 Srls books relating to the Palina transaction disappeared. Its investment
in CRM shares would simply have been netted off against the related financing
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 Palinas bank account on
December 19th 1979. And CRMs shares had little value since CRM did not even
own the land at Cusago Coriasco did.
DellUtris 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.
the funding for the Palina transaction through Fininvest Roma had the effect of
puffing up this companys assets and liabilities by 27.68 billion lire. As
a part of the operation, Fininvest Romas 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.
(the company that acquired the Cusago land) also made a share issue in 1979 that
was not what it seemed.
noted above, in 1976, Fininvest Srl had owned 100% of Coriascos 200,000
shares of 1,000 lire each (ie, Coriasco had paid-up share capital of 200m lire
in total), but SAF was Coriascos registered shareholder under a mandate
from Mr L Foscale.
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).
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 SAFs 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.
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 notthe
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.
any inspector of the official paperwork for the share issue (ie, Mr Foscales
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 Foscales letter.
to Fininvests 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 DellUtris
technical consultant told the Palermo court that Coriasco was absolutely
marginal and irrelevant.
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.
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 todays money).
At some point Immobiliare Idra must have belonged to Fininvest because Fininvest
later sold this company to you.
of influential figures in your early careerMr C Previti, Mr G Foscale, Mr
Scabini, Mr DellUtri, and Mr Berrutilater 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.
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 SAFs 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.
Dal Santo laundered 2 billion lire (about €5.1m in todays money) through
SAF and Coriasco in March 1979. From the date of its acquisition by Fininvest
Srl in 1976 until January 1978, ISTIFIs only director was Mr Dal Santo.
This firm, a finance company, was to become the financial lung of the group.
was obviously an uomo di fiducia (trusted man).
you have any alternative explanations for the above transactions?
put 4 billion lire into Edilnord and SOGEAT by way of share capital in 1967-75?
put the 16.94 billion lire into Fininvest Srl as shareholder loans in 1977-78,
and where did the money come from?
was this money injected in 25 tranches over a 20-month period?
whose behalf was Mr Dal Santo an uomo di fiducia?
you think Ms Casata Stampa got a fair deal for Villa San Martino and her land
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?
put 2 billion lire into Coriasco in March 1979 and where did the cash come from?
did you transact so many share deals franco valuta?
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?
membership of P2
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.
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.
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.
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.
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 Sienas 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
did you lie about the date on which you were initiated into the P2 lodge?
you use your membership of the P2 lodge to obtain things that you would not otherwise
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 Fininvests 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 19751985
(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 DellUtri, who was charged in 1996 with aiding and abetting the
a short spell in the late 1970s, Mr DellUtri, 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.
Copyright © 2003 The Economist Newspaper and The Economist Group. All