In 1992 Milan became the centre of a clean-up operation among the country’s
political class known as tangentopoli or bribesville. Policemen and public
prosecutors embarked on ‘Operation Clean Hands’ in the Lombardy capital and kept
court hacks in copy for months.
At the end of September 2005, more than a decade later, the Italian media was
again poised for equally pencil-shaking revelations in the Milan trial of
Calisto Tanzi, founder and former head of the dairy foods giant Parmalat.
The list of fellow defendants reads like a who’s who in corporate finance –
Deloitte & Touche, Grant Thornton, Bank of America. Add incandescent
shareholders to the courtroom chaos, which opened and adjourned on September 29,
and the atmosphere was understandably tense.
The collapse of the Parma-based firm, with debts of €14.3bn in 2003, has left
Deloitte Italy, the Italian arm of the parent firm and the former Italian
affiliate of Grant Thornton, Grant Thornton SpA (now known as Italaudit SpA,
following a parting of the ways with the firm), facing accounting fraud charges.
They are accused, as primary and secondary auditors respectively, of aiding
Parmalat’s top managers to keep the dire state of the firm’s affairs under
Professor Francesco Galgano of the University of Bologna, a member of the
commission that pushed through a bi-partisan reform of Italian company law, says
legislative changes regarding corporate crime have moved Italy into line with
English practice. ‘Liability for criminal offences by companies, which has
existed in Great Britain since 1950, was brought into Italian law several years
ago,’ he says. ‘Therefore, even accounting firms will be subject to penalties or
Elio Lannutti, president of Adusbef, a national association that protects
consumers’ rights in the financial services sector, estimates that if Tanzi and
company are convicted, they may face five years in prison. Lannutti believes
Italy’s law-makers should be looking to the US for a lesson in how to deal with
In the US in 2002, six months on from the Enron fall-out, Congress passed the
Sarbox legislation which imposes 12 to 25 years in prison for accounting fraud.
In contrast, around the same time, Italian Prime Minister Silvio Berlusconi
was decriminalising false accounting in private companies and, alleged his
detractors, in the process saving himself from prosecution.
Galgano, an expert in business law, puts things more technically. ‘False
accounting was the subject of legislative reform in 2002, but the crime had not
already been de-penalised, only diversely regulated,’ he says.
In the wake of Parmalat-type collapses there is a definite crisis of
confidence among Italians. Giorgio Benvenuto, who sits on the all-party finance
commission in the lower house of the Italian Parliament, maintains the scandal
saddles home-grown business with ‘a weathered calling card’. The image of Italy
abroad has been tarnished in the past two years,’ comments the Social Democrat
Benvenuto says that an important step to restoring Italy’s profile overseas
must include an overhaul of the country’s financial institutions. Starting, he
argues, with the role of the governor of the Bank of Italy (Banca d’Italia).
Antonio Fazio, the present incumbent, has sole responsibility for monitoring the
nation’s banking activities.
‘As the systems of vigilance stands, the bank cannot keep up with the pace of
change on the Italian and global financial markets. The governor, whatever their
economic pedigree, cannot make things work efficiently on his own,’ he argues.
Until law changes made in June this year, Fazio had exclusive access to
information from the bank’s central risk assessment centre (Centrale Rischi),
which records movements, abroad and at home, between banks and Italy’s listed
When the public prosecutor’s office in Milan sent its technical consultant,
Dr Stefania Chiaruttini, to pore over the Parmalat records, she reported: ‘The
central risk assessment centre and the data-banks (Bondware and Bloomberg)
highlighted that the overall debts far exceeded what was recorded in the
accounts’. Benvenuto believes the bank has too much power and too little success
in preventing cases such as Parmalat: ‘Whoever wants to defraud and get past the
bank’s controls, can do so,’ she says.
The debate as to who is to blame for Parmalat going sour continues. The
parliamentary opposition opines that Berlusconi’s stop-and-start approach to
reforming investment laws was at fault. Adusbef’s Lannutti takes issue with Bank
of Italia chief Fazio for allegedly failing to pick up on the company’s false
invoices. Deluded shareholders vent their anger at Tanzi for turning their
nest-eggs into nightmares.
Last week, the resurrected Parmalat re-entered the Italian stock market on a
high, only for shares to be suspended as figures spiralled downwards in the wake
of investors selling rather than buying. In the same period, Pamalat’s
administrator, Enrico Bondi, announced the firm would be filing further
compensation claims. The Milan trial resumes on 2 December.
Steve Absolom and Will Wright from KPMG Restructuring have been appointed joint administrators to City Motor Holdings and associated companies
Partners from Johnston Carmichael have been appointed as joint administrators to Axon Well Interventions Products UK
Begbies Traynor have been appointed administrators of William Anelay Ltd, York, one of Britain’s longest-established construction and heritage restoration companies
Smith & Williamson has been appointed administrators of charity 4Children