An open letter to Silvio Berlusconi
Jul 30th 2003
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Presidenza del Consiglio dei Ministri
370 Piazza Colonna
July 30th 2003
Dear Mr Berlusconi,
I am writing to you to pose questions that I believe the
public has a right to hear the answers to. As this can no
longer occur through the Italian courts, such questions
should be posed and answered in public.
On June 18th, the Italian parliament approved a bill to
grant immunity from criminal trials to the holders of the
five highest offices of state, including the president and
prime minister. It is now a law. The law applies even if
a trial started before the office-holder was elected. The
new 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.
On April 28th 2001, we published a cover story entitled
Why Silvio Berlusconi is unfit to lead Italy
and a four-page investigation An Italian story.
We sent you a letter on April 11th 2001, containing 51 questions,
that stated: The Economist intends to publish shortly
a feature on your business career and on the various investigations
into you and your companies that have been carried out by
the Italian magistracy during the last seven years.
You did not reply.
On May 2nd 2001, you filed a writ for defamation against
The Economist in the Rome court. As you will know, this
court has not yet ruled on your suit.
In light of the above, we are writing to you by way of open
letter and challenge you to answer our further set of questions
in a similar open, public fashion. Our letter comprises
six sections as follows:
1. The SME affair
2. Your spontaneous declarations
3. The smearing of Romano Prodi
4. Your gold medal claim
5. Your other trials
6. Your early business career
We look forward to your reply
Dear Mr Berlusconi...
Jul 31st 2003
From The Economist print editionWhy we are sending an open
letter to the Italian prime minister
Get article background
TO HIS many other talents, Silvio Berlusconi has
recently added that of ironist. The Italian prime minister
entered the role of president of the European Union's Council
of Ministers with a bang, by likening a German member of
the European Parliament to a Nazi-era concentration camp
guard. Many failed to see the joke. And the resulting imbroglio
with the German government had a paradoxical effect: it
distracted attention from the very accusation that the German
MEP had been noisily making, namely that Mr Berlusconi has
exploited his parliamentary majority in Italy to put himself
beyond the reach of the law.
For that is indeed what he has done. Dogged by a series
of judicial investigations and court cases when he entered
office in 2001, Mr Berlusconi has managed to defeat the
prosecutors and the courts. He secured the downgrading of
the charge of false accounting for private companies, with
retrospective effect, thus making accusations against him
barred under the statute of limitations. He tried to change
the rules on the admissibility of documents obtained from
across the border in Switzerland, and tried to get the jurisdiction
of his big remaining criminal trial moved. Finally, having
failed with those measures he managed to bring in a law
making Italy's prime minister, along with the country's
other top officials, immune from prosecution during their
time in office. As a democratically elected leader, with
grave and onerous responsibilities to the people, Mr Berlusconi
argued that he should not be made subject to the indignity
of a trial. His justice minister, Roberto Castelli, went
even further, causing a furore within the governing coalition
last week by trying to block a judicial investigation into
alleged tax fraud at Mr Berlusconi's biggest media company.
(This week he was forced to relent.) It is beyond the prime
minister's dignity even to be investigated.
He cannot be immune from the public
A serving prime minister should be answerable, on this argument,
to the court of public opinion, not to courts of law. So,
in an effort to make Mr Berlusconi answerable to the public,
The Economist is this week sending him a challenge. We have
drawn up a substantial dossier concerning his alleged misdeeds,
backed up by documentary evidence. Most notably, for the
criminal case which prompted the passing of the immunity
law, concerning the alleged bribery of judges as part of
the blocking of the sale of a state-owned food company,
SME, the evidence we have assembled stands in sharp contradiction
to the supposedly factual claims Mr Berlusconi made in court
on May 5th this year, proclaiming his innocence.
We believe that, having made claims that appear to be at
variance to the evidence, Mr Berlusconi must explain publicly
why that evidence is wrong. Therefore, on the SME case,
and on Mr Berlusconi's other trials and actions, we are
sending our whole dossier to the Italian prime minister
at Palazzo Chigi in Rome as an open letter, challenging
him to answer our many questions. The full dossier, including
the section concerning the SME case and his declarations
in May, can be found here. We look forward to his reply.
Why Mr Berlusconi matters
Some readers, familiar with our previous investigative article
on Mr Berlusconi published on April 28th 2001, when we said
that he was not fit to run Italy, may wonder why we are
continuing to investigate him and to pose questions. Does
it matter whether Italy is run by a man investigated by
magistrates for money-laundering and accused by prosecutors
of being a perjurer, a falsifier of company accounts and
a briber of judges, among other things? Mr Berlusconi evidently
thinks it does, as he brought a lawsuit against us for defamation
following that 2001 article: he must think these accusations
are damaging to his reputation, and (since he continues
to pursue the case) that the courts are suitable for protecting
that even if he wants immunity from other cases. Our modest
case, though, is immaterial compared with the wider issues.
Those wider issues begin with Mr Berlusconi's efforts to
put himself beyond the reach of the law, and thus to evade
both scrutiny and punishment. They extend to the series
of attacks Mr Berlusconi's government has conducted against
the judiciary, including threats of criminal charges against
judges and prosecutors, and most recently the prosecutors
who are conducting the SME case. Moreover, when our first
article was published in 2001 many of the cases involving
him were in their early stages. Since then, in one of the
cases, concerning the purchase of Mondadori, a publishing
group, his close friend and lawyer, Cesare Previti, has
been found guilty of bribing judges and sentenced to 11
years in prison. (He is certain to appeal.) Since the verdict
finds him guilty of giving these bribes for the direct benefit
of Mr Berlusconi, it seems to The Economist that the prime
minister needs to explain, to the public, what was (or was
not) going on. Instead, he has managed to use the statute
of limitations to avoid trial.
This is more than just a matter of political pride, arrogance
or evasion. The SME case from which the prime minister has
now obtained immunity while in office has opened a window
on to Mr Berlusconi's business techniques. The case involved
a successful effort by Mr Berlusconi to block the sale in
1985 of a state-owned food conglomerate, SME, to another
Italian businessman, Carlo De Benedetti, a sale for which
a contract had already been drawn up and signed. Beyond
the accusations about what was done, perhaps the most noteworthy
point about SME is that neither Mr Berlusconi nor his companies
benefited directly from blocking the sale. They did not
buy the firm instead, nor have they done so since. Yet they
went to remarkable lengths to prevent Mr De Benedetti from
Why? On Mr Berlusconi's own admission, it was because he
was asked to by the then prime minister, Bettino Craxi.
Was this on ideological grounds? No: the late Craxi was
head of the Socialist Party, and as a self-proclaimed free-marketeer
Mr Berlusconi is supposedly in favour of privatisation.
The real reason is that Craxi had issued a decree that made
it possible for Mr Berlusconi's television companies to
build the national networks that have now given them a near
monopoly on commercial broadcasting. Another case, which
ended in 2000, found that in 1991-92 Mr Berlusconi's companies
had made illegal donations to bank accounts under Craxi's
control totalling 23 billion lire (then $18.5m). In other
words, for Mr Berlusconi politics has been a means to his
And it continues to be. Mr Berlusconi's government has brought
in a new communications bill which would ensure that the
state television network is privatised in such a way as
not to challenge his own private TV business and will permit
him to extend his newspaper empire. This is not a matter
of a rich businessman now applying his talents to reforming
Italy and giving it a greater voice in the world, though
no doubt Mr Berlusconi is sincere when he says he would
like to do those things. It is a matter of a rich businessman
using his political power to foster his businesses, both
by defeating judicial investigations against him and by
enacting new laws and regulations in his own interest. The
Economist is thus concerned about Mr Berlusconi both as
an outrage against the Italian people and their judicial
system, and as Europe's most extreme case of the abuse by
a capitalist of the democracy within which he lives and
operates. Far from being, as he claims, the man who is creating
a new Italy, he is a prime representative, and perpetuator,
of the worst of old Italy. Ironic, really.
1. The SME affair
Jul 31st 2003
From The Economist print edition
This opening section examines the trial from which Silvio
Berlusconi, Italy's prime minister, has recently gained
immunity while in office, thanks to a new law passed by
his government. In section 2 we publish Mr Berlusconi's
own account, made on May 5th 2003 in court but not under
oath. Since the courts can no longer judge him, we invite
readers to decide whether his version fits the facts.
In your one remaining trial, you are accused of bribing
judges. One of your co-defendants is Cesare Previti, a close
friend, a senator for your Forza Italia party, and defence
minister in your first government in 1994. The judges who
allegedly took bribes are Filippo Verde and Renato Squillante,
both of whom formerly worked in the courts in Rome.
While investigating the aborted 1985 sale of SME, a state-owned
food conglomerate, to Carlo De Benedetti, a wealthy Italian
businessman, magistrates came across a payment made by All
Iberian, a secret offshore part of Fininvest, the company
at the apex of your corporate hierarchy.
In March 1991, All Iberian had paid $434,404 into Mr 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.
In 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.
On May 30th 2003, prosecutors requested 11 years in jail
for each of Mr Previti and Attilio Pacifico, 11 years and
four months for Mr Squillante, and four years and eight
months for Mr Verde. No request was made for your sentencing,
because on May 16th the court had ruled that your trial
should continue separately, due to your heavy commitments
as prime minister and prospective president of the European
You are in a unique position in this trial. As prime minister,
you are a civil co-plaintiff; as Silvio Berlusconi, you
are a defendant. On June 6th the 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
On June 18th, the Italian parliament approved a bill to
grant immunity from criminal trials to the prime minister.
As a result, the SME trial has been suspended until you
are no longer prime minister. But the immunity law is being
challenged in the constitutional court.
The 1984 TV decree
By 1985, when the SME sale to Mr De Benedetti was stopped,
your main business was commercial television, in which you
had secured a near monopoly.
Until the 1970s, only RAI, 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
You found a way round this ruling. You bought programmes,
especially American films and soaps, and offered them at
attractive prices to small, regional television stations.
You collected the revenue from pre-recorded advertising
slots that you inserted. Each station in the embryonic network
agreed to broadcast the same programmes at the same time.
In this way, you secured, in effect, a national audience.
To skirt round the law and broadcast nationwide, you needed
help from Bettino Craxi, who became leader of the Socialist
Party in 1976 and prime minister in 1983. On October 16th
1984, magistrates in three Italian cities shut down your
television stations (and others) for allegedly broadcasting
Within four days, Mr Craxi signed a decree that allowed
your stations (and others) to stay on air. After parliamentary
tussles, this decree became law in early 1985.
In 1994 Mr Craxi fled to Tunisia and died there in 2000
as a disgraced fugitive from Italian justice. He had been
sentenced in absentia to prison for corruption.
Background to SME
Until the mid-1980s, the state controlled much of the Italian
economy through three holding companies, the largest of
which was Istituto per la Ricostruzione Industriale (IRI).
IRIs sales were massive, but it made losses and was
deep in debt.
Romano Prodi, at the time an ebullient and respected industrial
economist from Bologna, became its chairman in November
1982. A lapsed Christian Democrat, he was ahead of his time:
he believed in market forces and had a penchant for pragmatic
privatisation. Politicians had run IRI to buy votes; Mr
Prodis aim was to sell those parts of IRI that the
private sector could operate better.
A prime candidate was a business that had become a national
joke. This was Societa Meridionale di Elettricita (SME),
in which IRI had a 64.4% stake. Originally a quoted utility,
its assets were taken over directly by the state in 1962.
SME used the proceeds to create a new core business: a food
empire. Over the next 20 years, SME became a dustbin for
companies that should have gone bust, a conglomerate without
strategic rationale. It was involved in food production
(tomatoes through Cirio, edible oils through Bertolli and
milk through De Rica), food distribution (GS Supermarkets
and motorway catering through Autogrill), and ice cream
and frozen foods (through Italgel).
SME also had a management contract to run a sister group
called Sidalm, which owned companies making biscuits, crackers
and cakes. Sidalm was virtually a basket-caseit lost
47 billion lire (then around $27m) in 1984 and needed a
capital injection of 30 billion lire to stop it going bust.
SME had capable managers, such as Giuseppe Rasero, recruited
from Unilever, an Anglo-Dutch food giant, in the 1970s as
chief executive of 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
Even so, these managers made some impact on the group. SME
reported attributable post-tax profits of 65 billion lire
on sales of 2.5 trillion lire in 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 employees.
The Italian food industry was highly fragmented and sold
mainly in its domestic market. Elsewhere in Europe, the
industry was consolidating aggressively; pan-European groups
were emerging, such as BSN Gervais-Danone (now Danone),
a French group. Danone was nowhere near as big as Unilever
but was far bigger and stronger than SME.
From 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%.
After this, SME proposed to merge Alivar, 8% of which was
still listed, into itself. SME therefore had to be valued.
In early 1985, a leading valuation expert, Professor Roberto
Poli, valued IRIs 64.4% stake at 497 billion lire,
and therefore the whole of SME at 772 billion lire (then
Mr 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.
You made known your interest in food companies as early
as February 1985. On April 3rd 1985 you met Mr Rasero, who
told you that IRI was only prepared to sell the whole of
its stake in SME, and that the stake was worth about 500
billion lire. According to Mr Rasero, you replied that the
price was beyond your companies.
Enter De Benedetti
Meanwhile, Mr De Benedetti, known as a maverick businessman,
was looking to diversify. His group, Compagnie Industriali
Riunite (CIR), controlled Olivetti, a computer business
that CIR had gained control of in the late 1970s when it
was in deep financial trouble. CIR had turned round Olivetti
by ruthless cost-cutting and by spotting that the future
of computing was in PCs not mainframes. Mr De Benedetti
had also brought in AT&T, a huge American phone company,
as a significant shareholder in Olivetti in 1983, to the
chagrin of Mr Craxis Socialist Party.
You already had a large stake in il Giornale, a daily paper,
and like you, Mr De Benedetti wanted a newspaper. In October
1984 he failed to win control of Corriere della Sera, one
of two national newspapers, control of which went instead
to the late Gianni Agnelli, with the support of Mr Craxi,
by then prime minister. Not to be deterred, Mr De Benedetti
soon had a small shareholding in Mondadori, the joint owner
of La Repubblica, the other national newspaper, with LEspresso,
the publisher of a news magazine of that name.
As CIR was dependent on Olivetti, it needed a business that
would counter-balance the risk of an increasingly competitive
PC market. Such a business needed compensating characteristics:
low risk, mature markets and strong cashflow. The food industry
fitted the bill.
In a typically opportunistic move, Mr De Benedetti snatched
Buitoni from under the nose of Danone. In February 1985,
he offered the Buitoni family 10% more than the French group
for its controlling stake, and clinched the deal in one
evening. One thing soon became clear to CIR: Buitoni and
SME would be good fits. SME sold mainly to the domestic
market; Buitoni more internationally.
Mr De Benedetti seized the moment. In mid-April he contacted
Mr Prodi to ask if CIR (through Buitoni) could buy SME.
He was initially rebuffed, but eventually hammered out a
deal with Mr Prodi (and both sides professional advisers)
during two marathon meetings.
Mr Prodi for IRI and Mr De Benedetti for Buitoni signed
an agreement on April 29th 1985. Buitoni agreed to pay 497
billion lire for 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.
In return for concessions made by Mr De Benedetti during
negotiations, the price was payable by instalments. Buitoni
also agreed to buy, for one lira, the deeply troubled Sidalm,
into which it would inject 30 billion lire. The only undertaking
given by Buitoni was to keep SMEs head office in Naples.
(On May 26th 1985, Buitoni also promised to retain SME for
The 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 7th 1985.)
Food for thought
Mr Prodi and Mr De Benedetti announced the agreement in
a blaze of publicity at a joint press conference on April
30th 1985. The next day, Il Sole-24 Ore, 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.
Clelio 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
Mr Prodi soon submitted the agreement to Mr Darida. IRI
appointed Professor Luigi Guatri, another eminent valuation
expert, to value its stake in SME. When he reported on May
4th, he concurred with Mr 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.
At a cabinet meeting on May 2nd, Mr Craxi asked Mr Darida
to check that the price was fair and report on the sale.
On May 9th, he wrote to Mr Darida claiming that IRI had
acted in a unilateral and prejudicial way by
not seeking government approval before April 29th. Mr Craxi
wanted to know if all possible offers had been looked at.
On the same day, Mr Prodi asked Mr De Benedetti to put the
conclusion of the deal back to May 28th from its original
deadline of May 10th.
On May 23rd La Stampa, a daily, published an interview with
you about SME. You were quoted as saying: Now people
are trying to promote the image of SME as a golden group
that Mr De Benedetti would buy at an advantageous price.
In reality, the turnaround of SME has scarcely started,
and [Mr De Benedetti] will have to free [the group] from
the weight of so many years of political management
The same day, out of the blue, a little-known lawyer in
Rome, Italo 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 the offer.
On May 28th yet another offer was received. This time it
was from Industrie Alimentari Riunite (IAR), a consortium
between your Fininvest, Barilla, run by Pietro Barilla,
and the Ferrero group, run by Michele Ferrero. IAR offered
600 billion lire (with some payment by instalments) for
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.
The privatisation of SME soon became a farce. On June 4th,
a senior banker at Swiss Bank Corporation in London, where
there were many SME shareholders, fired off an angry telex
to the chairman of Consob, Italys stock exchange regulator.
It seems strange, she wrote,
a deal agreed, and signed, between those parties involved
should subsequently be called into question in such a public
fashion. The apparent chaos
damage to the reputation of Italian financial markets
On 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.
The government said that all offers for SME should be considered,
and, on June 15th 1985, Mr Darida issued a decree to stop
In all this manoeuvring, one small, but highly significant,
detail had been overlooked. For years, IRI, as requested
in ministerial circulars, had been seeking government approval
to sell companies. This was not necessary, however, under
the law. Ministerial circulars which give 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
Nonetheless Mr Prodi submitted the deal to the government,
perhaps for one of the reasons suggested by Mr Cassese.
Mr De Benedetti believes that Mr Prodi knew in April 1985
that he did not need government approval. Buitoni duly sued
IRI for fulfilment of the agreement signed on April 29th
In 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.
This was three months before Buitoni lost its case at the
court of first instance in June 1986. In this court, three
judges, presided over by Mr Verde, now one of the defendants
in the SME case, ruled that Buitonis agreement with
IRI was not enforceable because it was subject to government
approval, and that had not been given.
Buitoni also lost at the appeals court in February 1987.
This court criticised Mr Verde and his two fellow judges
for their interpretation of the law. However, in a convoluted
judgment, it ruled that even though the law did not provide
for government approval, both Buitoni and IRI had expressed
a wish to secure government sanction for the deal. They
had done this, said the appeals court, through a two-line
clause in the agreement of April 29th 1985, which was therefore
not binding. In July 1988, in an even more convoluted judgment,
the final appeals court also ruled that the agreement was
In its pleadings from December 1987, in a case started by
IAR, IRI itself had declared that it was completely
to decide if, how, when, with whom and under what
conditions to execute a contract.
Given that no government approval was needed, it is not
irrelevant to speculate about how a person who had been
instructed to block the sale of SME would have achieved
his objective. From the perspective of someone who was familiar
with the final-appeals-court ruling in March 1986 (ie, that
IRI was subject to ordinary company law), Buitoni and IRI
had reached a valid agreement on April 29th 1985 that was
not subject to government approval.
From this 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.
2. Your spontaneous declarations (May 5th 2003)
Jul 31st 2003
From The Economist print edition
It 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.
Your words below are from a translation of your spontaneous
declarations on May 5th in the SME trial. We have edited
your speech, but fairly, we believe. The transcript is available
in both Italian and English. What follows are words you
spoke, except where indicated by the use of square brackets.
For the sake of clarity, we have juxtaposed your opening
and closing remarks, and have moved the context of two of
your remarks, as indicated by use of italics. We note where
we omit sizeable passages of your speech by use of the symbol
Your opening remarks
I have decided to change my attitude to this
case. My earlier attitude was
[no] involvement on my
part, because I was convinced
that my lawyers were
perfectly capable of putting forward all the arguments [to]
fully demonstrate how ludicrous the charge is
three weeks ago my lawyers
that the court
had rejected [their] application to call some witnesses
for the 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
that the evidence against me was uncertain and fragmentary,
and as I was well aware of my situation, I placed no importance
on these proceedings. However, last night I discovered that
it was actually alleged that I, or other partners, or jointly
with other partners, had contacted one of the judges involved
in these lawsuits filed by Buitoni, which Buitoni always
lost, to the advantage of IRI. [From page 18-19 of the transcript].
Your closing remarks
I think the court needs to hear sworn evidence of the facts
I have recounted today, and I believe that at this point,
in view of the amount of public interest focusing on this
trial, I need to be present when the witnesses are heard
to exercise my right, the right of every citizen, to cross-examination.
I believe that this can be arranged, despite
I am not only prime minister
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
will be my engagements as prime minister
This does not mean that I wont be able to find some
This will allow the prime minister
and citizen Berlusconi to be present
and exercise the
to cross-examine the witnesses whom I would urge
the president of the judges to call
The judgment will
to the integrity and morality of the prime minister
conduct was scrupulously honest, and I hope that what I
have said will be borne out in this trial, because the person
before the court today is not only the defendant Berlusconi,
but also citizen Berlusconi, to whom the majority of the
country has entrusted the responsibility and honour of governing
the country. Thank you.
The aborted sale of SME to Buitoni
I only wish to talk about facts, without giving opinions,
or passing judgment
On 1st May 1985, while I was in
I [learned] that IRI had sold SME to Carlo De
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
When I got back to Milan I spoke to the prime minister,
gave the impression that he wasnt particularly
interested in it
A few days later the prime minister rang and asked me to
in his offices in Piazza del Duomo, Milan,
where I found a totally different person
He used very
strong, sometimes colourful language, and began to recount
what he had learned of the affair, not only from
Amato, but also from
members of the IRI board who belonged
to his political party.
He began by describing as incredible, horrifying and scandalous
the way in which the negotiations had been conducted, as
he put it, and I remember his words well, behind closed
doors, rather than on the open market
it was scandalous that
board members of IRI had not
been informed of these negotiations, or even the intention
to sell SME; he said it was scandalous that IRI had rebuffed
leading figures in the Italian food industry, and he named
Buitoni, who had also been mentioned by Pietro Barilla when
he phoned me in Spain.
If I may go back in time
he was even willing to sell Buitoni
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
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
told him about an offer
by the American multinational Heinz, which had asked to
[Mr Prodi] turned down the offer. On that occasion
[Mr Prodi] said that the food holdings owned by SME were
considered strategic to [Italy], and therefore unsaleable.
[Mr Prodi] also estimated
the value of SME at 1,300-1,500
billion [lire], saying that SME was the casket, the safe
in which the main historic Italian brands were kept
He said Altissimo had told him about this discussion with
[Mr Prodi]. He also said that the then chairman of the budget
had contacted Romano Prodi at the beginning
of the year and received an identical negative answer about
[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
[Mr Prodi], who then clinched the deal with De Benedetti.
[from page 14 of the transcript].
.Craxi added that a universal rule
had been disregarded,
in other words that a majority premium should have been
added to the valuation because the majority interest in
the company was being sold.
What you did and why you did it
What was Craxis conclusion? He said, This is
a loss to the state, its unacceptable asset-stripping
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,
signature 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
So 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
I know that an accountant, a Mr. Locatelli
of Milan, is working on the matter
Id like you
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.
I told him that
two senior executives of [IRI] (you
said CIR, but we assume you meant IRI) had come to see me
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 to work
I eventually did, and I must say that it was no great sacrifice
for me because I had some unfinished business with Mr. De
Benedetti; he had holdings in the La Repubblica-Espresso
group which kept attacking me not just every other
day, but practically every single day
So I immediately got in touch with Locatelli.
agreement with [Mr]Barilla, I instructed a Rome lawyer [Mr
Scalera] to submit a higher bid to IRI (I remember that
the increase was around 50 billion [lire], and I think the
actual bid was 550 billion [lire]), on behalf of persons
to be named at a later stage
This bid was submitted
on 23rd May
We set up a meeting at 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.
Subsequent litigation and court rulings
The 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.
There had been strong criticisms from the entire left wing,
and there was also (as I was told in my meeting with prime
minister Craxi) a rumour, supported by what Craxi called
very precise circumstantial evidence, that bribes had been
a faction of [the majority] party
told me in no uncertain terms
that proof of this fact
existed. This was the only possible explanation for such
a huge gift to a private individual, leading to such a serious
loss to the state
De Benedetti then filed a series of lawsuits against IRI,
attempting to enforce the document signed by Prodi. I believe
that CIR was well aware that Prodi acted ultra vires, in
other words he had no power to sign that agreement; in fact,
I believe that Prodi said as much to De Benedetti as there
is no other explanation why CIR later failed to take proceedings
In any event De Benedetti filed a series of lawsuits
. the case against IAR [Industrie Alimentari
Riunite] was dismissed, either in the final judgment or
during the proceedings. De Benedetti appealed, and once
again IAR was considered to be a party to the proceedings,
but its application was rejected. De Benedetti appealed
to the court of cassation [the final appeals court]
there were 15 judges involved in these lawsuits, who
kept saying no to Buitoni
. so it seems very strange
that it could be thought that one of these judges influenced
the entire decision, which seems to me to be an impeccable
decision that cannot be criticised on legal or objective
I 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
I believe that is everything: I think these are definite
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?
3. The smearing of Romano Prodi*
Jul 31st 2003
In May 1993 Mr Prodi became chairman of IRI once again,
with a mandate to privatise chunks of it. He inherited a
plan to sell SME in three divisions. In October 1993, Mr
Prodi sold 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.
Mr 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 Autogrill.
Before long, there were allegations that if the companies
comprising CBD had been sold separately, IRI would have
received a better price. As a result, magistrates investigated
the sale and Mr 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 got less.
There were similar allegations over the sale of Italgel.
Another investigation started in Rome in 1997 and closed
without charges in March 1999 because the allegations were
By the end of May 1999, Mr Prodi was president-designate
of the European Commission, but not yet formally appointed,
a lengthy process. On June 12th 1999 the Daily Telegraph,
a British newspaper, published an article about Mr 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.)
According 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
then immediately resold in part to another
of Mr Prodis former paymasters,
Prodis other ASE client). Il Giornale, owned
by your brother, Paolo, picked up some of the Daily Telegraphs
Because 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.
Magistrates in Rome investigated whether the fees from Goldman
Sachs could be connected to the sale of CBD. They concluded
that all the fees to ASE from Goldman Sachs were solely
connected to Mr 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.
Mr Imposimato told the magistrates that his source was Ambrose
Evans-Pritchard, the Daily Telegraph journalist who had
written the articles about Mr Prodi. Mr Imposimato said
that Mr Evans-Pritchard had shown him two notes, one dated
August 24th 1993 and the other November 26th 1993, which
he had quoted in his book. According to Mr Imposimato, the
notes would have shown collusion between Mr Prodi, Unilever
and Fis.Vi. But he had no copies of the notes. The magistrates
said that Mr Evans-Pritchard had not answered their questions
and had not sent a memorandum on the two notes, as he said
he would. Mr Evans-Pritchard says he did not answer magistrates'
questions because he believed that they were engaged in
a time-wasting exercise and that they had no desire to get
to the bottom of the matter.
Mr Imposimato claimed to the magistrates that Mr Fimiani
had given Mr Evans-Pritchard the two notes. So the magistrates
concluded that it was likely that Mr Fimiani
was one of Mr Evans 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.
You referred to evidence from Mr Fimiani in your spontaneous
declarations, and asked your lawyers to submit written evidence
to the court from him.
Is Mr Fimiani, to whose oral and documentary evidence you
referred in your spontaneous declarations, a reliable source?
Are you aware that Mr Fimiani was convicted for serious
bankruptcy in Salerno on November 12th 1993?
Are you aware that the criminal court in Salerno in November
1993 ruled that Mr Fimiani bore a very heavy responsibility
for the bankruptcy of Co.Fi.Ma?
Are you aware that on June 13th 1995 Mr Fimiani made a complaint
against unknown persons for abuse of office?
(He claimed that Co.Fi.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.)
Are you aware that magistrates investigated Mr Fimianis
complaint and that, in March 1997, a preliminary judge closed
the investigation because Mr Fimianis jaccuse
Did Mr Fimiani make his bid for SME in 1985 on your behalf?
*We have compiled this section from documents (in Italian)
which have been available on the website of the president
of the European Commission since May 2003.
4. Your gold medal claim*
Jul 31st 2003
In April this year, outside the Milan court, you told the
media: I believed and still believe that citizen Berlusconi
should be given the credit for preventing the stripping
of state assets. I deserved a gold medal (civil class) for
having earned the state five times as much from the sale
The divisions of SME were sold in 1993-96 for a total of
around 2 trillion lire to different buyers compared with
the price of around 500 billion lire offered by Buitoni
in 1985. That is four times not five times, as you
But to make a valid comparison, calculations rather more
complex than your simple maths are necessary. The proceeds
from the aborted sale were to have been received in instalments
up to December 1986. Likewise, the actual privatisation
proceeds were received in tranches. The privatisation finished
near the end of 1996, so December 31st 1996 is an obvious
In 1985-86, the Italian government could have done two things
with the instalments from the sale of SME: either reduced
its debt (and therefore saved on interest payments), or
re-invested in equities (after all, SME was an equity investment).
To compare validly the lost 1985-86 SME privatisation proceeds
with actual proceeds in 1993-96, an assumption needs to
be made that the instalments in 1985-86 would have been
invested from the date of receipt up to December 31st 1996.
500 billion lire invested in reducing government debt in
1985-86 would have cut the governments interest bill
by over 1.1 trillion lire up to December 31st 1996. That
makes a comparative total of 1.6 trillion lire.
The actual sale proceeds of about 2 trillion lire in 1993-96
were in effect used to pay down government debt. Up to 31st
December 1996, this would have reduced the governments
interest bill by around 500 billion lire. So the comparative
total for the actual privatisation is about 2.5 trillion
On this basis, the payoff from the actual privatisation
sale is 1.5 times that of the aborted sale in the previous
Similar calculations have been made for the expected return
from investment of the two sets of privatisation receipts
in a basket of equities (from the date of receipt up to
December 31st 1996). As you will know, economic theory says
investors demand a higher return on equities than on bonds,
because equities are riskier.
Assuming a modest risk premium (3%), the proceeds from the
aborted sale of the 1980s would have been projected to turn
into almost 2.2 trillion lire by the end of 1996, while
those of the actual sale in the 1990s would have yielded
almost 2.7 trillion. As a result, selling SME in the 1990s
would have given the Italian government an expected payoff
only 1.2 times that of the aborted sale in the 1980s. With
a more demanding risk premium (6%), this ratio comes down
In addition, the nature of the two sales was quite different,
and so was their market environment. The 1993-96 sale was
a break-up of SME to different buyers in a mature privatisation
market. The 1985 privatisation was to be a sale of the whole
group to Buitoni. In addition to SME, Buitoni had an obligation
to take on its nearly bust sister company (Sidalm), which
needed an immediate injection of 30 billion lire. And the
1985 sale of SME was to have been the first big privatisation
in Italy. The delay in this privatisation (and hence in
others) was to Italys detriment.
Why do you deserve a gold medal?
*www.lavoce.info, an Italian website on economic policy
issues, is the source of the calculations in this section.
In May this year it published an article by Marco Pagano
and Carlo Scarpa entitled Vendita SME: il prezzo era
giusto? (The SME sale: was the price right?). Using
more precise data about the timing of the instalments of
the aborted 1985-86 sale and of the actual 1993-96 privatisation
receipts, www.lavoce.info published on July 10th an updated
version of its calculations.
5. Your other trials
Jul 31st 2003
We set out below a table of criminal charges against you
since the start of the tangentopoli (bribesville) scandal
in 1992. We indicate the dates of all appeals court decisions
since April 28th 2001.
Nearly all these cases involved the alleged use of black
funds by your Fininvest companies. For our readers
benefit, black funds do not appear as such on a 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.
Illicit party donations
Italian law requires transparency of political payments
both from donors and recipients. In 1991-92, a clandestine
offshore part of Fininvest, known as All Iberian, paid a
total of 23 billion lire via transit accounts into offshore
accounts under the control of Mr Craxi.
In a sentence dated November 22nd 2000, your countrys
final appeals court accepted that your Fininvest companies
made donations illicitly without proper records and that
you were responsible.
In deciding the latter the court said:
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
The final appeals court did not absolve you as you had requested.
It upheld the guilty verdict of the court of first instance
in Milan, but granted you a statute of limitation. As a
result you, Mr G Foscale and two others had to pay expenses
of the final appeals court hearing.
By definition, Fininvest must have accounted falsely for
these illicit donations.
How often, if at all, did you speak to Mr Mills?
Guardia di Finanza trial
On October 19th 2001, the final appeals court acquitted
you on charges of having bribed Guardia di Finanza officers
to turn a blind eye during inspections at Mondadori, Telepiu,
Mediolanum and Videotime, four of your companies. According
to Paolo, your brother, the bribes came from black funds
in a company called Edilnord.
You were found guilty in 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 1979.
As there was no documentary or oral evidence of your guilt,
the Milanese courts had relied on deductive reasoning to
reach their verdicts. The final appeals court said that
this reasoning was syllogistic. Your brother, Paolo, who
ran Fininvest with you, admitted to authorising the bribes.
But the Milanese courts acquitted him because they found
his admissions unreliable. Once he was acquitted, you were
guilty. There was no middle term.
The final appeals court issued definitive convictions against
two former Fininvest senior managers for bribery. Mr Berruti,
by then a member of parliament for Forza Italia, an expert
in offshore tax havens and legal adviser to Fininvest, was
also convicted. He had induced Angelo Tanca, a senior Guardia
di Finanza officer, to keep quiet in front of prosecutors
about 130m lire that had been paid to various Guardia di
Finanza officers for favourable tax checks at Mondadori
in 1991, a publishing group you acquired that year. The
final appeals court issued definitive convictions against
Guardia di Finanza officers, including Mr Tanca, in separate
In July 2001, the court of first instance in Milan found
that Marinella Brambilla, your long-standing secretary,
and another of your secretaries had lied under oath in the
court of first instance. Ms Brambilla had done so while
testifying in one of the trials involving the Guardia di
Finanza officers. She had testified that you had not met
Mr Berruti on June 8th 1994, and that you had had little
to do with Mr Berruti.
Shortly after meeting you on June 8th 1994, Mr Berruti saw
Alberto Corrado, a former colleague, to ask a favour. (Mr
Corrado had accompanied Mr Berruti on the tax inspection
to your offices in November 1979_see section 6 The
foundation of Fininvest.) Mr Berruti wanted Mr Corrado
to speak to Mr Tanca, and ask him to keep quiet about the
bribes. Mr Tanca kept quiet for a month. According to the
judges in Ms Brambillas case, Mr Berruti told Mr Corrado
that the prosecutors investigations into Mondadori
could have touched the prime ministers interests.
These judges concluded that Mr Berruti had asked Mr Corrado
to ask Mr Tanca to keep quiet in front of prosecutors. The
final appeals court came to the same conclusion in your
case: it said that there was good reason to believe that
the silence of Mr Tanca and the presumed solicitation of
Mr Berruti were linked.
The judges in Ms 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.
Milans appeals court upheld the guilty verdict in
As for contact between you and Mr Berruti, prosecutors found
that Mr Berruti had phoned you almost 60 times in the first
six months of 1994, including an eight-minute call on May
4th 1994 at 12.03am.
How did you not know about the bribes paid to tax inspectors
who turned a blind eye at Mondadori?
In 2000 you were accused of bribing an appeals-court judge,
Vittorio Metta, with about 400m lire in cash. The allegation
was that Mr Metta had ruled corruptly in your favour in
a case that decided the takeover battle with Mr De Benedetti
for control of Mondadori.
In February 1991, the month after Mr 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
Neither did investigation of the Italian and Swiss bank
accounts of the late Orlando Falco, a former judge in Rome
who, according to Mr Metta, had given him the 400m lire
in cash. The accounts of Mr Falco, however, had contained
SFr 5m-6m (then $3.5m_$4.2m).
Although magistrates found no direct proof of the payment
of the cash to Mr Metta, they believed they had a strong
case based on indirect proof. However, in June 2000, the
judge at a preliminary hearing ruled that there was not
sufficient proof that Mr Metta had received a bribe. He
therefore decided that you and your co-defendants, Messrs
Metta, Pacifico and Previti, had no case to answer.
Despite this, he was in no doubt about the money trail.
These are the elements of proof that allow one to
be certain of the tie of Fininvest to
to the Ferrido account, and to the passage of money
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.
All Iberian emerged as an offshore company used by
Fininvest as a secret foreign treasury for a series of corporate
operations with the aim of making them appear as though
they were with third parties, and of hiding the direct tie
to Fininvest, the judge added.
The magistrates appealed against the verdict of the preliminary
judge. On May 12th 2001, the eve of the general election
that returned you to power, the appeals court ruled that
your crime was statute-barred, but it did not absolve you
as you had requested. A law in force between 1990 and 1992
meant that the payment of bribes, indirectly through an
intermediary, was not considered an aggravation of the offence
of corruption in the way that direct payment was. Hence
the statute of limitations applied earlier for you than
it did for the others, who were sent for trial.
The appeals court also found general extenuating factors
that avoided your indictment. Among these was that any businessman
might have got caught up in bribing judges, given that there
had been a trade in court sentences in the Roman courts,
and also that you were then leader of the opposition. The
verdict of the final appeals court was the same, albeit
for slightly different reasons.
On April 29th 2003 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 becomes available.
Pending the results of any appeals, what inference can be
drawn from these three verdicts other than that you commissioned
the payment of the bribe to Mr Metta for your direct personal
On June 17th 2003 you said:
I have already had
the opportunity of saying publicly what I know about the
situation of Pacifico, that he ran a type of money import-export
office around the Roman court offices frequented by clerks
of the court, by judges, by lawyers, and there was his client
When did you learn this?
Following 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
In 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
On March 8th and 24th 1995, magistrates sent rogatorie to
Switzerland. On April 10th 1995, Tanya Maynard, then a director
of CMM Corporate Services (CMM), told those in Switzerland
holding the records and papers for the network of Fininvest
companies to transfer them to London. CMM was a British-registered
company, incorporated in 1982 under the name of So.Ge.S
International. The change of name took place in 1989, and
CMM was dissolved in 1997.
According to company filings, the owner of CMM in April
1995 was Edsaco Holdings (UK) Ltd (Edsaco), a subsidiary
of UBS, a Swiss bank, which had bought CMM in June 1994
for £750,000. One of Ms 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
Italian magistrates asked the Serious Fraud Office (SFO)
in London to obtain the records and papers moved from Switzerland.
In October 1996 you petitioned the High Court in London
to stop them getting the documents obtained by the SFO.
The magistrates needed these documents as evidence in the
case of illegal donations to Mr Craxi, whereas you claimed
the alleged offence was political. I just cannot see
corrupt political contributors...as political prisoners,
concluded Lord Justice Simon Brown, a judge in the case,
though he added at the end of his judgment that his words
should not raise the least presumption of guilt.
Of Ms 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
is fraudulent and
might render them liable to prosecution in Italy.
Mr Mills denies any wrongdoing.
Mr Mills gave evidence on your behalf in the SME case at
a hearing in London in March 2003. Asked when his professional
relationship with Fininvest began, Mr Mills replied in 1989
or 1990, and denied any relationship as early as 1981 or
Based on company filings in Britain, these statements were
untrue. Mr Mills attributes this to a failure of memory.
In March 1980 Mr Mills incorporated Reteitalia Ltd in Britain,
as a 90% subsidiary of Reteitalia Srl, your film and TV
rights company, set up in Italy that year. Fininvest Srl
held the other 10%. In other words, Reteitalia Ltd was a
Fininvest company. Between May 1981 and September 1983,
you were one of its four directors, all of whom were resident
in Italy. Mr Mills was Reteitalia Ltds company secretary
from incorporation until 1989, when CMM took over.
In 1985 Mr Mills also set up Publitalia International Ltd
in Britain for Fininvest, and signed the form appointing
Marcello 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.
The first Reteitalia Ltd (ie, the one that became Reteeuropa
Ltd) bought film rights from third parties, which it then
sold to other companies of yours. It was a tax wheeze. Between
March 1980 and December 1987, Reteitalia/Reteeuropa Ltd
made $75m in pre-tax profits, which escaped British tax
as the firm was deemed to be non-resident in Britain for
tax purposes. This was because, while registered in Britain,
it did not trade in Britain, and its registered owner and
directors were not resident in Britain. After changes in
British tax rules in 1988 eliminated this type of tax-avoidance
scheme, Reteeuropa Ltd sold all its films rights in 1989
and wound down its activity in 1990 to very small fraction
of its previous level. It made total losses of $53m between
1989-90, after the tax law had changed.
The second Reteitalia Ltd also bought and sold film rights,
but, unlike its former namesake, it did trade in Britain
and had some British directors, including Mr Mills. It was
therefore subject to British tax, but made only meagre profits,
followed by a loss in 1990. It, too, sold all its film rights
In fact, by 1990, according to KPMG, the companies that
bought and sold the film rights were no longer British-registered.
They were, by then, registered in more exotic offshore locations,
such as the BVI. In particular, two BVI-registered companies,
Century One Entertainment and Universal One, were involved
in acquiring rights from third parties which were sold to
your Italian companies.
These were just two of 29 companies in Fininvest Group
B. The expression Group B was used to differentiate
the official companies of Group A from those which, although
also controlled by Fininvest, should not appear as group
companies and thus be kept out of the consolidated accounts,
Mr Mills told magistrates. On 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.
None of the 29 companies had any employees or any administrative
infrastructure of their own. Trust companies acted as the
registered agents for the companies shares (which
were mainly in bearer form) and leading financial institutions
in the Bahamas, Britain, Jersey, Luxembourg and Switzerland
acted as bankers. Mr Mills claimed to the registered agents
that he was the beneficial owner of three of the 29 companies.
Mr G Foscale, your cousin, was presented as the beneficial
owner of All Iberian.
CMM served as company secretary to 17 of the 29 companies.
Ms Maynard was a director of Century One Entertainment and
Universal One, and also of All Iberian. Mr Mills told Milanese
prosecutors that Fininvest managed, directed and financed
the operations of the All Iberian group. In other words,
CMM was an interlocutor for Fininvest with bankers and registered
agents of the Group B companies.
All Iberian was set up in Jersey, one of the Channel Islands,
in May 1988. Six of Ms 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 for seven.
In relation to buying film rights, Mr Mills told prosecutors
in 1997: All the operations with the majors
[studios] were organised by Fininvest Service SA of Lugano.
I gave legal advice on the content of the contracts with
I will have signed hundreds of these contracts
in London, in my office. Once signed, without keeping copies,
I transmitted them straight to the office of Fininvest Service
I never took part in any negotiation
Fininvest Service was incorporated (with bearer shares)
in Lugano in November 1968 as a film and TV rights trading
company under the name of Telecineton SA. For the its first
13 years, the company had one director only, a Swiss lawyer.
This lawyer was also the only director of the Swiss company,
incorporated in October 1968 in Lugano, behind Edilnord,
the main developer of Milano 2 (see section 6_Milano 2).
By 1981 the company had changed its line of business; it
then provided accounting and administrative services to
other companies. And by 1985 the firm had moved from Lugano
to another Swiss town. It had also changed its name three
times from Telecineton SA: to Open SA in 1979, to Open Services
SA in 1981 and finally to Fininvest Service SA in 1986.
KPMG found that a number of companies in both Groups A and
B changed their names and at the same time, especially in
1991. And, over time, there were companies in Groups A and
B that had identical or very similar names. For instance,
Fininvest had three British-registered companies called
Libra Communications Ltd or Libra UK Communications Ltd,
and a Maltese-registered company called Libra Communications
According to KPMG, between 1990-95 Fininvest Group A companies
bought $886m of film rights from Fininvest Group B companies.
This created profits and money for Fininvest Group B. KPMG
also described other operations to put All Iberian in funds.
You were involved in one such operation, called Mandato
500. The description that follows is based on the 20 pages
in the KPMG report about that operation.
Between July 1991 and May 1993, you operated a fiduciary
account known as Mandato 500 with Fiduciaria Orefici, a
trust company in Milan, for which Giuseppe Scabini, 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.
About 65 billion lire of securities were transferred to
the Republic of San Marino using a security transport firm,
which was paid in cash and which did not put the payment
through its accounts. Those securities were cashed in San
Marino. A further 10 billion lire were cashed through institutions
in Italy. Of around 90 billion lire involved in the Mandato
500 operation, about 60 billion lire were eventually transferred
to Switzerland, while the remaining 30 billion would have
been available for you.
A total of about 26 billion lire were carried by spalloni
(money-movers) into Switzerland, where the cash was deposited
into All Iberians bank account in 1991. In the same
period back-to-back operations credited All Iberians
bank account with a further 27 billion lire.
In 1991 All Iberian paid around 3 billion lire out of this
account to fund the bribe paid to the judge in the Mondadori
case, and 21 billion lire to finance donations to Mr Craxi.
How much did you know about Fininvests offshore network?
False accounting legislation
In September 2001, your coalition government approved a
law that downgraded false accounting as a crime, though
some changes did not become effective until April of the
following year. In the absence of aggravating circumstances,
false accounting for private firms, such as your Fininvest
group, became statute-barred after four and a half years
rather than 15 years under the old legislation. As a result
of the new legislation, you were granted a statute of limitation
in three false-accounting cases because the alleged crime
no longer existed
You have also been charged with false accounting in the
SME case. In September 2002, the SME prosecutors claimed
that your 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 court.
Unless prosecutors are successful with their challenges
and the law is changed, the evidence in the KPMG report
(and the underlying evidence) will not be tested in court.
Recently, the ministry of justice started an examination
of the amount of money prosecutors have spent on external
forensic consultants, such as KPMG.
Why was new legislation on false accounting necessary?
On October 3rd 2001, the Italian parliament ratified an
agreement between Italy and Switzerland on judicial assistance.
Several clauses were inserted into what should have been
a simple piece of legislation, among them that evidence
obtained under rogatorie would be inadmissible unless the
documents were originals, or were authenticated as originals
with official stamps on every page of every document.
Under this law, according to your lawyers, a court would
have to regard as inadmissible documents that were not stamped.
The law applied to all trials, whatever stage they had reached.
You signed the bill on October 4th, President Carlo Azeglio
Ciampi the next day, and it appeared in the official gazette
on October 6th, a Saturday.
Not surprisingly, the Swiss authorities were upset by your
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?
Your SME trial lawyers, who were members of the combined
parliamentary commission that reviewed the bill, soon made
an application to have evidence obtained under rogatorie
ruled inadmissible. Before long, however, the Milan courts
turned down your application. In broad terms, the ruling
said that the previous 30 years of international practice
would determine the admissibility of evidence. A letter
signed by a foreign magistrate to accompany documents sent
from abroad would continue to be sufficient to guarantee
the authenticity of those documents.
Why was the law on rogatorie necessary?
On November 5th 2002, after a two-week marathon in the Senate,
the legislature approved the so-called legitimate
suspicion bill. President Ciampi signed it on November
7th; it was published in the official gazette that night.
Opponents, including the parliamentary opposition and leading
jurists, said that the law was a bespoke measure to stall
the SME trial, your one remaining criminal trial. Delays
would have brought a statute of limitation nearer and allowed
time for other laws to be passed.
The Consiglio Superiore della Magistratura (CSM), the 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
In March 2002, you had asked that the SME trial be transferred
from Milan to another jurisdiction. Among other things,
you claimed that the courts in Milan were biased and that
the state of public order there prevented the SME trial
from being conducted in conditions of serenity.
The final appeals court referred the matter to the constitutional
court in May 2002. The matter for that court to decide was
whether there was legislative vacuum on legitimate suspicion,
as your lawyers claimed. Ten days after the legitimate suspicion
bill was enacted, the constitutional court dismissed your
Why was the law on legitimate suspicion necessary?
The question of the transfer of your trial from Milan
still needed to be settled. On January 28th 2003, the final
appeals court ruled that you had no grounds for suspecting
that you would not have a fair trial in Milan.
*We 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 1990.
6. Your early business career
Jul 31st 2003
Your proudest business achievement in the 1970s was Milano
2, a very large development of offices and flats at Segrate
on the outskirts of Milan. You had just started construction
of Milano 2 in 1970, leading your small and dedicated team.
By the end of the decade, the development was complete.
Yet you were nowhere to be seen in the company filings of
the main developer, a limited partnership called Edilnord
Centro Residenziale di Lidia Borsani (Edilnord). Successive
managing partners of Edilnord were your cousin (Lidia Borsani),
her mother (your aunt), and an Edilnord employee. Umberto
Previti, the father of your friend, Cesare Previti, at the
time a little-known lawyer in Rome, became Edilnords
liquidator in January 1978 when it went into voluntary liquidation.
Nor were you to be seen in company filings for Societa Generale
Attrezzature di Walter Donati (SOGEAT), the firm that developed
the commercial part of Milano 2. SOGEAT was also a limited
partnership. Its managing partner was Walter Donati, a Milanese
accountant who became a director of many companies connected
Yet jointly with Luigi Berlusconi, your father, you guaranteed
facilities from Banca Popolare di Novara (BPN), an Italian
bank, to Edilnord of at least 6.9 billion lire in 1973-77.
You also jointly guaranteed facilities to SOGEAT from BPN
of at least 4.7 billion lire in 1976-77. And, in 1978, you
personally guaranteed facilities of 3 billion lire to SOGEAT.
Swiss registered companies with nominee directors controlled
both SOGEAT and Edilnord, and the Swiss companies
shares were in bearer form. An internal document from one
of your lenders, dated December 1976, shows that the bank
believed you to be their beneficial owner. This was hardly
surprising. Otherwise the bank would have been light on
security for its loan.
Strict exchange-control laws were in force in Italy in the
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.
The Swiss company behind Edilnord, your brother, Paolo,
and you all had bank accounts at Banca Rasini, a little-known
bank with only one branch (in Milan), where your father,
by then retired, had worked for most of his life.
The foundation of Fininvest
Today, the holding company at the apex of your 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.
Before anti-money-laundering rules in 1991, a beneficial
owner of shares registered to a trust company could sell
shares and receive payment directly from the buyer under
so-called franco valuta transactions (ie, the
money would bypass the trust company). The trust company
would merely execute a share transfer when instructed by
the beneficial owner, and not handle the money. With a franco
valuta transaction, the trust company would have only a
beneficial owners word that he had sold his shares.
In 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.
Bank of Italy inspectors carried out a check in 1979 at
Cassa di Risparmio delle Provincie Lombarde (Cariplo). They
found evidence that suggested that Edilnord, Italcantieri
and SOGEAT might belong to you.
In October 1979, the Bank of Italy asked the Guardia di
Finanza to investigate. The Guardia di Finanza found that
Edilnord had made profits of 2.44 billion lire in 1974-78
that should have been remitted to the Swiss shareholder
(ie, your alter ego), as agreed with the Bank of Italy.
And SOGEAT had made 3.3 billion lire in 1974-78 that had
not been remitted to Switzerland. The total infraction amounted
to 5.74 billion lire.
As result, a posse of Guardia di Finanza officers came to
another of your companies on November 13th 1979. Mr Berruti,
then a captain in the Guardia di Finanza, led the team.
The previous day you had told Mr Berruti that you were merely
an external consultant to Edilnord and SOGEAT. Mr Berruti
resigned from the Guardia di Finanza that month. Despite
the strong evidence of exchange-control violations (ie,
your personal guarantees at BPN and another bank, and failure
to repatriate post-tax profits), no legal action was taken
You, as chairman, and your brother, Paolo, joined Fininvest
Srls board in November 1975.
Fininvest Roma and Fininvest Srl merger*
Another direct corporate forebear of Fininvest is Fininvest
Roma Srl (Fininvest Roma), incorporated in Rome in June
1978. It was a shell company with paid-up share capital
of 20 million lire. Umberto Previti was its sole director
until June 1979.
On January 29th 1979, Fininvest Roma and Fininvest Srl voted
to merge, but based on their respective balance sheets at
December 27th 1978.
For 18 months prior to the merger you had been trying to
increase the share capital of Fininvest Srl from its paid-up
level (2 billion lire). This was a meagre capital base for
a man of your ambition, so you needed more share capital.
At that time, ministerial approval was needed for a share
capital increase beyond 2 billion lire. By mid-1977, Fininvest
Srl had not obtained this. The authorities typically requested
information such as details of a companys beneficial
You found a solution. As chairman of Fininvest Srl, you
proposed that shareholders make interest-free loans on account
of the approved share capital increase. As the approved
increase was 18 billion lire, that meant up to 18 billion
lire of shareholder loans could be received. Your proposal
was approved on December 2nd 1977.
Unofficial records at SAF (one of the BNL trust companies)
show that between February 1977 and August 1978, Fininvest
Srl received interest-free shareholder-loans of 16.94 billion
lire on account of the capital increase. These came in 25
tranches, sometimes on successive days. The obvious inference
is that the money was received in cash or cash equivalent,
such as bank cheques. SAF got the information from Giovanni
Dal Santo, an interlocutor and director of several
Fininvest-related companies. Mr DellUtris technical
consultant confirmed the accuracy of the list, but added
that some of the funds may have come by ordinary current-account
In November 1978 Fininvest Srl decided to repay its shareholder
loans of 16.94 billion lire and a 500m-lire convertible
bond that had been issued in November 1976. What happened
next is complicatedit is best understood by looking
at steps 2-4 in table 1.
Your cousin, Mr G Foscale, told the BNL trust companies
of the proposed redemption of shareholder-loans. The trust
companies would be initial beneficiaries of three uncrossed
bank cheques for a total of 16.94 billion lire, to be drawn
on Fininvest Srls account with Banca Popolare di Abbiategrasso
(BPA). He asked SAF to endorse the cheques in Mr L Foscales
favour (ie, his fathers favour).
At the end of November, Mr Dal Santo, acting as interlocutor,
picked up the three endorsed cheques from the trust companies.
Mr Dal Santo gave the three cheques to Mr L Foscale, who
was acting on your behalf. A negotiable cheque (ie, no named
beneficiary) was also obtained for 500m lire. So there were
four cheques in total.
On December 7th 1978 Mr L Foscale cashed the negotiable
cheque and one of the three bank cheques. This came to 1.01
billion lire. So he had 1.01 billion lire in cash and 16.43
billion lire in cash equivalent (ie, the two remaining bank
cheques)17.44 billion lire in total. Thus 17.44 billion
lire had left Fininvest Srls coffers.
That 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
As 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).
In other words, the 17.44 billion lire needed to disappear
from its balance sheet. The merger, effected by Mr U Previti
and based on balance sheets drawn up as at December 27th
1978, was the answer.
Mr U Previti said there would be an interest-bearing receivable,
due from Fininvest Srl, of 17.69 billion lire in Fininvest
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.
The Holding Italiana companies
These operations were part of an even wider transaction
involving 19 companies called Holding Italiana 1 (and so
on sequentially to 19). Steps 6 to 7 in table 1 show how
these companies were involved in the circular flow of funds.
The Holding Italiana companies have become synonymous with
your 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.
Acting on your own behalf and/or on behalf of someone else,
by December 4th 1978 you had bought 10% of 23 holding companies
and had given a mandate to Par.Ma.Fid, a little-known trust
company, to act as the registered shareholder. By December
5th 1978 you had bought the remaining 90% and had mandated
As at December 5th 1978, the holding companies had combined
share capital of 420m lire. As there were 23 holding companies,
their combined share capital could reach 46 billion lire
without any ministerial approval (ie, 2 billion lire apiece).
You appointed Mr L Foscale, your uncle, as the companies
sole director and mandated signatory for their bank accounts
with BPA. Mr Dal Santo was appointed to their boards of
You seemed to know the share issue was going to happen.
By December 7th 1978 you had written to SAF to state that
a total of 17.98 billion lire would be paid in as share
capital to 19 of the holding companies presso le casse
sociali (at the companies treasuries).
On December 7th 1978, the 19 holding companies received
a total of 17.98 billion lire into their accounts at BPA.
The source of nearly all the cash must have been the 17.44
billion lire (_46.8m in todays money) in Mr L Foscales
possession that day.
The 17.98 billion lire inflow was accounted for as share
capital in the books of the 19 holding companies. These
companies injected this amount as share capital into Fininvest
Roma, thereby becoming the collective owners of Fininvest
Roma. This transaction brought Fininvest Romas share
capital to exactly 18 billion lire, all paid up.
In effect, a convertible bond of 500m lire and 16.94 billion
lire in shareholder loans_received by Fininvest Srl, according
to Mr Dal 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.
However, the only new funds were 540m lire sitting in Fininvest
Romas and Fininvest Srls bank accounts (see
As at December 26th 1978, Fininvest Roma had paid-up capital
of 18 billion lire, all held by the 19 holding companies.
The merger with Fininvest Srl had not yet happened. Fininvest
Srl had paid-up share capital of 2 billion lire at that
date. As part of the merger, its shareholder(s) must have
exchanged his/their Fininvest Srl shares, which had been
mandated to SAF, for 10% of the shares in the holding companies.
This may explain why you mandated 10% of the holding companies
shares to Par.Ma.Fid.
It is reasonable to surmise that the provider(s) of the
shareholder-loans to Fininvest Srl between February 1977
and August 1978 owned the other 90% of the holding companies.
1979 and 1980
In 1979, 45.4 billion lire (about _104m in 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 Soncinos legacy.
The holding companies put 32 billion lire in 1979 into Fininvest
Roma by way of share capital, thereby apparently increasing
its paid-up capital to 52 billion lire by December 31st
1979. But this money went straight out of Fininvest Roma,
too, in effect whence it came. Therefore 32 billion lire
of Fininvest Romas paid-up share capital of 52 billion
lire were phoney.
In 1980, 20.05 billion lire was put into the holding companies
in cash or equivalent, including 19.2 billion in late December
1980 (see table 2). This money was for Fininvest.
On December 22nd 1980, you wrote to the trust companies
to say that 19.2 billion lire would be paid in as interest-free
shareholder loans, with 90% going via SAF and 10% via Par.Ma.Fid.
According to the holding companies books, the funds
came in four tranches of 4.8 billion lire in the last week
Yet the investigators from Palermo found trace of only one
transaction in banking records at Banca Rasini, the little-known
bank with one branch, which was another banker to the holding
companies. They found that 4.3 billion lire (ie, 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.
The transaction had been recorded in a transit account.
In those days, some banks used transit accounts to record
very short-life transactions (ie, one week maximum to maturity).
Recording a transaction in a transit account indicated that
it was for a customer who was not a client of the bank.
There was therefore a serious anomaly for you were
a Banca Rasini customer.
Banca Rasini 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.
Armando Minna, a Milanese accountant, and his wife had founded
Holding Italiana 1-23 in June 1978. Mr Minna, who was a
member of the board of statutory auditors of Banca Rasini,
set up bank accounts for the holding companies with Banca
Rasini. You bought the 23 holding companies shares
in December 1978 in franco valuta transactions with Mr and
Mrs Minna. Mr Minna was appointed a member of the board
of statutory auditors of the holding companies.
In the 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
At 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.
Doubtless Mr Batliner represents many people who have valid
reasons for privacy. Some clients did not. A court case
in America in 1971 resulted in the conviction of two American
citizens for evading taxes in the 1960s. They had done so
through a Liechtenstein-registered front company that Mr
Batliner had run on their behalf. Another court case from
America (in 1998) revealed that Mr 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.
Anna Maria Casati Stampa di Soncinos legacy
By November 1979, you had been living in a 17th century
mansion, called Villa San Martino, for over five years.
This beautiful house is in the town of Arcore, just north-east
of Milan. You were not the legal owner; Anna Maria Casati
Stampa di Soncino was. In September 1970, aged 19, Ms Casati
Stampa became heiress to the 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.
As 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.
Traumatised, Ms Casati Stampa left Italy in 1970, briefly
returned in 1972 and has lived abroad since. When she became
21 she gave Mr Bergamasco power of attorney over her affairs.
Ms Casati Stampa declines to comment.
The Casati Stampa estate, mainly in Lombardy, included large
tracts of land. As well as Villa San Martino and its parkland,
the family owned about 250 hectares of land at Cusago. With
effect from November 11th 1979, a company called Immobiliare
Coriasco Spa (Coriasco) bought Ms Casati Stampas land
Mandated 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.
Coriasco did 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 shares was.
Ms Casati Stampa was unhappy that she had been given shares
in a company she knew nothing about in exchange for her
land. She wanted the shares to be turned into cash. What
followed next is best understood by referring to table 3.
The essence of what happened is that you arranged for a
shell company of yours, Palina, fronted by a 75-year old
stroke victim, to buy the 800,000 CRM shares from Ms Casati
Stampa, and the 400,000 CRM shares from Unione Fiduciaria.
Palina paid 1.7 billion lire to Ms Casati Stampa and 860m
lire to Unione Fiduciaria. The investigators from Palermo
did not find out where this money came from, as there was
no trace of it at BPA. However, they found a bill from Unione
Fiduciaria and a stamped share-transfer form signed by Mr
Bergamasco, which strongly suggest that 2.56 billion lire
On December 19th 1979, Palina sold the 1.2 million CRM shares
to Milano 3 Srl, another shell company. Milano 3 Srl paid
Palina 27.68 billion lire (ie, more than ten times as much
as Palina had paid weeks earlier). Palina was a cut-out
company; it was incorporated in October 1979 and placed
in liquidation in May 1980. There was nothing in its accounting
records about the CRM share deals, or the sale of the CRM
shares to Milano 3 Srl.
The transaction was a sham because Milano 3 Srl indirectly
got the money to pay Palina from Palina. As table 3 shows,
on December 19th 1979, Palina sent 27.68 billion lire to
the trust companies, which then transferred this sum to
holding companies bank accounts at BPA. From there,
the funds went through Fininvest Romas BPA account,
and then, through Milano 3 Srls account to an unknown
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).
You seemed to have known what was going on. You had written
to the trust companies on December 13th 1979 to advise them
that a forthcoming payment of 25.68 billion lire was to
be treated as shareholder loans to certain of the Holding
Italiana companies. In the event you paid 27.68 billion
lire. (Holding Italiana 18-19, not mentioned in your letter,
received 2 billion lire.)
Milano 3 Srl was incorporated in November 1979, as a subsidiary
of Fininvest Roma. Mr Dal Santo was its only director. The
anti-Mafia investigator and the Palermo magistrates' technical
consultant did not gain access to Milano 3 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 received.
It needed to be. Fininvest could not possibly have spent
27.68 billion lire on buying the 1.2 million CRM shares
that you already owned (through Palina) since precisely
the same amount of money had gone in and out of 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.
Mr 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.
Routing 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
Coriasco (the company that acquired the Cusago land) also
made a share issue in 1979 that was not what it seemed.
As noted above, in 1976, Fininvest Srl had owned 100% of
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.
According to official SAF records, in mid-March 1979, Mr
L Foscale had written to SAF to say that on March 22nd 1979
there would be a 2 billion lire increase in the share capital
of Coriasco (ie, 2m shares would be issued).
He said the transaction would be franco valuta (ie, the
money would bypass the trust companies). Instead, according
to unofficial records at SAF, on March 20th 1979, Mr Dal
Santo phoned to say he would give them the mandate to underwrite
a 2 billion lire share capital increase. Again, according
to 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.
SAF endorsed these cheques to Coriasco, which therefore
looked as though it had received a 2 billion lire share
capital increase paid by two bank cheques. It had 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.
To 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
According 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.
After getting planning permission, another company called
Cantieri Riuniti Milanesi (ie, not the same company as involved
in the Palina operation) later carried out a large development
on land that Coriasco had acquired in 1979.
In 1980 Immobiliare Idra, a company fronted by Mr Dal Santo,
became the legal owner of Villa San Martino (and its parkland,
collection of books, pictures and so on) when it paid Ms
Casati Stampa 500m lire (about _960,000 in todays
money). At some point Immobiliare Idra must have belonged
to Fininvest because Fininvest later sold this company to
Giovanni Dal Santo
A number 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.
Born in Sicily in 1920, by the 1970s, Mr Dal Santo was working
in Milan as a book-keeper. He was the only director of a
number of companies at crucial points in their existence:
for instance, of Milano 3 Srl when it acquired CRM from
Palina, and of Immobiliare Idra when it bought Villa San
Martino. He was also the interlocutor between
Mr L Foscale and the BNL trust companies. He was the person
who supplied the information found in 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.
Mr 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.
He was obviously an uomo di fiducia (trusted man).
Do you have any alternative explanations for the above transactions?
Who put 4 billion lire into Edilnord and SOGEAT by way of
share capital in 1967-75?
Who put the 16.94 billion lire into Fininvest Srl as shareholder
loans in 1977-78, and where did the money come from?
Why was this money injected in 25 tranches over a 20-month
On whose behalf was Mr Dal Santo an uomo di fiducia?
Do you think Ms Casata Stampa got a fair deal for Villa
San Martino and her land at Cusago?
Who was the beneficial owner of the 400,000 CRM shares registered
in the name of Unione Fiduciaria and who therefore received
the 860m lire paid by Palina?
Who put 2 billion lire into Coriasco in March 1979 and where
did the cash come from?
Why did you transact so many share deals franco valuta?
Why did you avail yourself of the right to silence when
prosecutors wanted to question you at Palazzo Chigi on November
26th 2002 about these and other matters?
Your membership of P2
In October 1990 the appeals court in Venice found that you
had perjured yourself while giving evidence in 1988 in an
unsuccessful libel case that you had brought against Giovanni
Ruggeri and Mario Guarino, both Italian journalists. They
are the joint authors of Inchiesta sul Signor TV,
a thoroughly researched book on your early business career,
first published in 1987.
You were found guilty but your perjury was commuted by a
general amnesty. Among other things, in the libel proceeding
you said that you had joined the P2 lodge only shortly before
it was uncovered in 1981 and that you had not paid your
subscription. The court in Venice ruled that these statements
were not true. You were initiated into the P2 lodge in early
1978 and paid your 100,000 lire subscription.
After Mr Berruti questioned you about Edilnord and SOGEAT
in November 1979, Salvatore Gallo, a superior officer in
the Guardia di Finanza in Rome, wrote the following month
to the Ufficio Italiano dei Cambi. He recommended no further
action be taken. Mr Gallo was initiated into the P2 lodge
in July 1980.
BNL had more top managers who were members of P2 than any
other Italian bank. At least six senior BNL executives had
been initiated into the lodge, including Gianfranco Graziadei,
chief executive of one the BNL trust companies.
During the 1970s your companies received generous support
from Italian banks, including Monte dei Paschi di Siena
whose general manager, Giovanni Cresti, was a member of
P2. Later Monte dei Paschi di 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 group].
Why did you lie about the date on which you were initiated
into the P2 lodge?
Did you use your membership of the P2 lodge to obtain things
that you would not otherwise have done?
*We have compiled this sub-section from the reports on your
companies by an anti-Mafia investigator and by the Palermo
magistrates technical consultant from the Bank of
Italy. An allegation from a pentito (supergrass) that 20
billion lire of Mafia money had been used to build up 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 Mafia.
Apart from 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