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 company’s balance sheet, nor is their use recorded in a company’s profit-and-loss account. While there may be some trace of black funds in official accounting records, they have to be disguised as something else. In other words, the creation and hiding of black funds invariably mean that a company’s accounts have been falsified. Black funds can be created (and hidden) in many ways, often in jurisdictions where beneficial ownership of companies is not a matter of public record, and where strict bank secrecy applies.
Italian law requires transparency of political payments both from donors and recipients. In 1991-92, a clandestine offshore part of Fininvest, known as All Iberian, paid a total of 23 billion lire via transit accounts into offshore accounts under the control of Mr Craxi.
In a sentence dated November 22nd 2000, your country’s final appeals court accepted that your Fininvest companies made donations illicitly without proper records and that you were responsible.
In deciding the latter the court said: “…[David MacKenzie] Mills’s declarations were not the only source of proof of [your] responsibility.” In other words, a clear inference is that Mr Mills, amongst others, linked you to the crime. Mr Mills, a British solicitor, married in July 1979 Tessa Jowell, who is now a minister in Tony Blair’s cabinet.
The final appeals court did not absolve you as you had requested. It upheld the guilty verdict of the court of first instance in Milan, but granted you a statute of limitation. As a result you, Mr G Foscale and two others had to pay expenses of the final appeals court hearing.
By definition, Fininvest must have accounted falsely for these illicit donations.
How often, if at all, did you speak to Mr Mills?
On October 19th 2001, the final appeals court acquitted you on charges of having bribed Guardia di Finanza officers to turn a blind eye during inspections at Mondadori, Telepiu, Mediolanum and Videotime, four of your companies. According to Paolo, your brother, the bribes came from black funds in a company called Edilnord.
You were found guilty in Milan’s court of first instance. In assessing your guilt, this court attached no evidential value to your meeting at Palazzo Chigi on June 8th 1994 (during your first term as Italy’s prime minister) with Massimo Berruti, a former officer in the Guardia di Finanza who had resigned in November 1979.
As there was no documentary or oral evidence of your guilt, the Milanese courts had relied on deductive reasoning to reach their verdicts. The final appeals court said that this reasoning was syllogistic. Your brother, Paolo, who ran Fininvest with you, admitted to authorising the bribes. But the Milanese courts acquitted him because they found his admissions unreliable. Once he was acquitted, you were guilty. There was no middle term.
The final appeals court issued definitive convictions against two former Fininvest senior managers for bribery. Mr Berruti, by then a member of parliament for Forza Italia, an expert in offshore tax havens and legal adviser to Fininvest, was also convicted. He had induced Angelo Tanca, a senior Guardia di Finanza officer, to keep quiet in front of prosecutors about 130m lire that had been paid to various Guardia di Finanza officers for favourable tax checks at Mondadori in 1991, a publishing group you acquired that year. The final appeals court issued definitive convictions against Guardia di Finanza officers, including Mr Tanca, in separate cases.
In July 2001, the court of first instance in Milan found that Marinella Brambilla, your long-standing secretary, and another of your secretaries had lied under oath in the court of first instance. Ms Brambilla had done so while testifying in one of the trials involving the Guardia di Finanza officers. She had testified that you had not met Mr Berruti on June 8th 1994, and that you had had little to do with Mr Berruti.
Shortly after meeting you on June 8th 1994, Mr Berruti saw Alberto Corrado, a former colleague, to ask a favour. (Mr Corrado had accompanied Mr Berruti on the tax inspection to your offices in November 1979―see section 6 “The foundation of Fininvest”.) Mr Berruti wanted Mr Corrado to speak to Mr Tanca, and ask him to keep quiet about the bribes. Mr Tanca kept quiet for a month. According to the judges in Ms Brambilla’s case, Mr Berruti told Mr Corrado that the prosecutors’ investigations into Mondadori “could have touched the prime minister’s interests”.
These judges concluded that Mr Berruti had asked Mr Corrado to ask Mr Tanca to keep quiet in front of prosecutors. The final appeals court came to the same conclusion in your case: it said that there was good reason to believe that the silence of Mr Tanca and the presumed solicitation of Mr Berruti were linked.
The judges in Ms Brambilla’s case also concluded that, out of the people charged over the Mondadori bribes, only you were in a position to have provided the information necessary to send Mr Corrado to keep Mr Tanca quiet. The clear inference is that only you could have told Mr Berruti of Mr Tanca’s corruption, since Mr Berruti’s first direct involvement in the matter was his meeting with you on June 8th 1994.
Milan’s appeals court upheld the guilty verdict in June 2002.
As for contact between you and Mr Berruti, prosecutors found that Mr Berruti had phoned you almost 60 times in the first six months of 1994, including an eight-minute call on May 4th 1994 at 12.03am.
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 Metta’s ruling, All Iberian had paid around 3 billion lire into the bank account (called Mercier) of Mr Previti at Darier Henscht & Cie in Geneva. All Iberian made the payment through a transit account in Switzerland called Ferrido. Magistrates traced a payment of 425m lire from Mr Previti’s account to a Swiss bank account of another lawyer, Mr Pacifico, who withdrew over 400m lire in cash in October 1991. Mr Pacifico handed over the bribe to Mr Metta. Although the magistrates found no direct proof of the payment of cash by Mr Pacifico to Mr Metta, they believed they had a strong case based on indirect proof. Scrutiny of Mr Metta’s bank accounts revealed no cash withdrawals amounting to 400m lire in April 1992, when Mr Metta signed a contract to buy an apartment and paid 400m lire of the purchase price in cash.
Neither did investigation of the Italian and Swiss bank accounts of the late Orlando Falco, a former judge in Rome who, according to Mr Metta, had given him the 400m lire in cash. The accounts of Mr Falco, however, had contained SFr 5m-6m (then $3.5m―$4.2m).
Although magistrates found no direct proof of the payment of the cash to Mr Metta, they believed they had a strong case based on indirect proof. However, in June 2000, the judge at a preliminary hearing ruled that there was not sufficient proof that Mr Metta had received a bribe. He therefore decided that you and your co-defendants, Messrs Metta, Pacifico and Previti, had no case to answer.
Despite this, he was in no doubt about the money trail. “These are the elements of proof that allow one to be certain of the tie of Fininvest to…All Iberian, to the Ferrido account, and to the passage of money…to Cesare Previti’s Mercier account first through the account of All Iberian and then that of Ferrido,” the judge wrote. This was hardly surprising. After all, the money transferred by All Iberian to Ferrido came out of precisely the same bank account used by All Iberian to make the illegal donations through transit accounts to bank accounts under the control of Mr Craxi.
“All Iberian emerged as an offshore company used by Fininvest as a secret foreign treasury for a series of corporate operations with the aim of making them appear as though they were with third parties, and of hiding the direct tie to Fininvest,” the judge added.
The magistrates appealed against the verdict of the preliminary judge. On May 12th 2001, the eve of the general election that returned you to power, the appeals court ruled that your crime was statute-barred, but it did not absolve you as you had requested. A law in force between 1990 and 1992 meant that the payment of bribes, indirectly through an intermediary, was not considered an aggravation of the offence of corruption in the way that direct payment was. Hence the statute of limitations applied earlier for you than it did for the others, who were sent for trial.
The appeals court also found general extenuating factors that avoided your indictment. Among these was that any businessman might have got caught up in bribing judges, given that there had been a trade in court sentences in the Roman courts, and also that you were then leader of the opposition. The verdict of the final appeals court was the same, albeit for slightly different reasons.
On April 29th 2003 Milan’s court of first instance found Mr Previti and Mr Pacifico guilty of bribing Mr Metta to obtain a ruling favourable to you. Mr Metta was found guilty of receiving a bribe. Mr Previti was sentenced to 11 years in jail (including a sentence for a parallel judge-bribing offence) and Mr Metta to 13 years (including a sentence in the parallel trial for receiving a bribe via Mr Previti). These guilty verdicts are subject to appeal when the written judgment becomes available.
Pending the results of any appeals, what inference can be drawn from these three verdicts other than that you commissioned the payment of the bribe to Mr Metta for your direct personal benefit?
On June 17th 2003 you said: “…I have already had the opportunity of saying publicly what I know about the situation of Pacifico, that he ran a type of money import-export office around the Roman court offices frequented by clerks of the court, by judges, by lawyers, and there was his client base.”
When did you learn this?
Following leads from their investigation of bank accounts under Mr Craxi’s control, prosecutors eventually discovered a secret and substantial network of Fininvest companies, incorporated in the Bahamas, the British Virgin Islands (BVI) and the Channel Islands. Tens of billions of lire had flowed through bank accounts held in these companies’ names.
In their search for Fininvest’s black funds, magistrates sent requests to foreign authorities for assistance (known as rogatorie in Italian), especially to Switzerland where many of the secret bank accounts were. This was a long procedure, involving judiciaries, ministries and embassies of both countries, and the banks where evidence of the alleged wrongdoing lay.
On March 8th and 24th 1995, magistrates sent rogatorie to Switzerland. On April 10th 1995, Tanya Maynard, then a director of CMM Corporate Services (CMM), told those in Switzerland holding the records and papers for the network of Fininvest companies to transfer them to London. CMM was a British-registered company, incorporated in 1982 under the name of So.Ge.S International. The change of name took place in 1989, and CMM was dissolved in 1997.
According to company filings, the owner of CMM in April 1995 was Edsaco Holdings (UK) Ltd (Edsaco), a subsidiary of UBS, a Swiss bank, which had bought CMM in June 1994 for £750,000. One of Ms Maynard’s fellow CMM directors, Mr Mills, the husband of Tessa Jowell, had received £675,000 for his CMM stake. Two months earlier he had increased his stake in CMM to 90%, when he bought a 65% stake held in the name of a Milanese company, run by Studio Carnelutti, a Milan law firm. Mr Mills was a partner of Carnelutti & Co, the London affiliate of the Milan firm, until he left in 1988 to set up his own practice. Mr Mills and the Studio Carnelutti company in Milan had incorporated CMM as a company to provide services to administer other companies. In other words, it was partly a name-plate operation.
Italian magistrates asked the Serious Fraud Office (SFO) in London to obtain the records and papers moved from Switzerland. In October 1996 you petitioned the High Court in London to stop them getting the documents obtained by the SFO. The magistrates needed these documents as evidence in the case of illegal donations to Mr Craxi, whereas you claimed the alleged offence was political. “I just cannot see corrupt political contributors...as ‘political prisoners,’” concluded Lord Justice Simon Brown, a judge in the case, though he added at the end of his judgment that his words should not “raise the least presumption of guilt”.
Of Ms Maynard’s instructions to those holding the documents in Switzerland to transfer them to London, Lord Brown said: “ If there was innocent explanation for this, none has ever been provided.” In the SFO's application for a search warrant, a senior SFO official had stated: “Those persons running CMM/Edsaco must be aware that what they have done in managing the companies…is fraudulent and might render them liable to prosecution in Italy.” Mr Mills denies any wrongdoing.
Mr Mills gave evidence on your behalf in the SME case at a hearing in London in March 2003. Asked when his professional relationship with Fininvest began, Mr Mills replied in 1989 or 1990, and denied any relationship as early as 1981 or 1982.
Based on company filings in Britain, these statements were untrue. Mr Mills attributes this to “a failure of memory”. In March 1980 Mr Mills incorporated Reteitalia Ltd in Britain, as a 90% subsidiary of Reteitalia Srl, your film and TV rights company, set up in Italy that year. Fininvest Srl held the other 10%. In other words, Reteitalia Ltd was a Fininvest company. Between May 1981 and September 1983, you were one of its four directors, all of whom were resident in Italy. Mr Mills was Reteitalia Ltd’s company secretary from incorporation until 1989, when CMM took over.
In 1985 Mr Mills also set up Publitalia International Ltd in Britain for Fininvest, and signed the form appointing Marcello Dell’Utri, your close friend, as a director. In 1986 Reteitalia Ltd changed its name to Reteeuropa Ltd. A few months later, Mr Mills set up another company in Britain called Reteitalia Ltd, of which he became a director. This company changed its name to Reteitalia (UK) Ltd in 1988 and back again to Reteitalia Ltd in 1990.
The first Reteitalia Ltd (ie, the one that became Reteeuropa Ltd) bought film rights from third parties, which it then sold to other companies of yours. It was a tax wheeze. Between March 1980 and December 1987, Reteitalia/Reteeuropa Ltd made $75m in pre-tax profits, which escaped British tax as the firm was deemed to be non-resident in Britain for tax purposes. This was because, while registered in Britain, it did not trade in Britain, and its registered owner and directors were not resident in Britain. After changes in British tax rules in 1988 eliminated this type of tax-avoidance scheme, Reteeuropa Ltd sold all its films rights in 1989 and wound down its activity in 1990 to very small fraction of its previous level. It made total losses of $53m between 1989-90, after the tax law had changed.
The second Reteitalia Ltd also bought and sold film rights, but, unlike its former namesake, it did trade in Britain and had some British directors, including Mr Mills. It was therefore subject to British tax, but made only meagre profits, followed by a loss in 1990. It, too, sold all its film rights in 1989.
In fact, by 1990, according to KPMG, the companies that bought and sold the film rights were no longer British-registered. They were, by then, registered in more exotic offshore locations, such as the BVI. In particular, two BVI-registered companies, Century One Entertainment and Universal One, were involved in acquiring rights from third parties which were sold to your Italian companies.
These were just two of 29 companies in Fininvest “Group B”. The expression Group B was used to “differentiate the official companies of Group A from those which, although also controlled by Fininvest, should not appear as group companies and thus be kept out of the consolidated accounts”, Mr Mills told magistrates. On CMM’s summary sheet for each of the companies in Group B, were the words “very discreet”, an aide-mémoire to keep secret the link with the Fininvest group.
None of the 29 companies had any employees or any administrative infrastructure of their own. Trust companies acted as the registered agents for the companies’ shares (which were mainly in bearer form) and leading financial institutions in the Bahamas, Britain, Jersey, Luxembourg and Switzerland acted as bankers. Mr Mills claimed to the registered agents that he was the beneficial owner of three of the 29 companies. Mr G Foscale, your cousin, was presented as the beneficial owner of All Iberian.
CMM served as company secretary to 17 of the 29 companies. Ms Maynard was a director of Century One Entertainment and Universal One, and also of All Iberian. Mr Mills told Milanese prosecutors that Fininvest managed, directed and financed the operations of the All Iberian group. In other words, CMM was an interlocutor for Fininvest with bankers and registered agents of the Group B companies.
All Iberian was set up in Jersey, one of the Channel Islands, in May 1988. Six of Ms Maynard’s fellow All Iberian directors, mostly in their mid-60s in 1988, had addresses on the island of Sark. This is under the jurisdiction of Guernsey, another of the Channel Islands. In 1998 a senior British Treasury official wrote a report on financial regulations in the Channel Islands. It recommended a curb on the “Sark lark”. This involved use by non-resident companies, such as All Iberian, of nominee (ie, bogus) directors on Sark, where the directors were not subject to regulation. His report estimated that the 575 residents of Sark held around 15,000 directorships in 1997. According to KPMG, All Iberian’s directors (excluding Ms Maynard) held another 24 directorships of Group B companies, and Mr Mills was a director of one Group B company and was a bank account signatory for seven.
In relation to buying film rights, Mr Mills told prosecutors in 1997: “All the operations with the ‘majors’ [studios] were organised by Fininvest Service SA of Lugano. I gave legal advice on the content of the contracts with the majors…I will have signed hundreds of these contracts in London, in my office. Once signed, without keeping copies, I transmitted them straight to the office of Fininvest Service of Lugano…I never took part in any negotiation…”
Fininvest Service was incorporated (with bearer shares) in Lugano in November 1968 as a film and TV rights trading company under the name of Telecineton SA. For the its first 13 years, the company had one director only, a Swiss lawyer. This lawyer was also the only director of the Swiss company, incorporated in October 1968 in Lugano, behind Edilnord, the main developer of Milano 2 (see section 6―Milano 2).
By 1981 the company had changed its line of business; it then provided accounting and administrative services to other companies. And by 1985 the firm had moved from Lugano to another Swiss town. It had also changed its name three times from Telecineton SA: to Open SA in 1979, to Open Services SA in 1981 and finally to Fininvest Service SA in 1986.
KPMG found that a number of companies in both Groups A and B changed their names and at the same time, especially in 1991. And, over time, there were companies in Groups A and B that had identical or very similar names. For instance, Fininvest had three British-registered companies called Libra Communications Ltd or Libra UK Communications Ltd, and a Maltese-registered company called Libra Communications Ltd.
According to KPMG, between 1990-95 Fininvest Group A companies bought $886m of film rights from Fininvest Group B companies. This created profits and money for Fininvest Group B. KPMG also described other operations to put All Iberian in funds. You were involved in one such operation, called Mandato 500. The description that follows is based on the 20 pages in the KPMG report about that operation.
Between July 1991 and May 1993, you operated a fiduciary account known as Mandato 500 with Fiduciaria Orefici, a trust company in Milan, for which Giuseppe Scabini, Fininvest’s central treasurer, had power of signature on your behalf. You generated about 91 billion lire for Mandato 500 by selling half of two of your 23 Holding Italiana companies to a company called Nodit. The funds received from Nodit were used to buy Italian government bearer bonds; most of the bonds were placed in a safe deposit box at the Banca Provinciale Lombarda. A former senior Fininvest executive told a bank employee that bearer bonds were needed to finance the political system.
About 65 billion lire of securities were transferred to the Republic of San Marino using a security transport firm, which was paid in cash and which did not put the payment through its accounts. Those securities were cashed in San Marino. A further 10 billion lire were cashed through institutions in Italy. Of around 90 billion lire involved in the Mandato 500 operation, about 60 billion lire were eventually transferred to Switzerland, while the remaining 30 billion would have been available for you.
A total of about 26 billion lire were carried by spalloni (money-movers) into Switzerland, where the cash was deposited into All Iberian’s bank account in 1991. In the same period back-to-back operations credited All Iberian’s bank account with a further 27 billion lire.
In 1991 All Iberian paid around 3 billion lire out of this account to fund the bribe paid to the judge in the Mondadori case, and 21 billion lire to finance donations to Mr Craxi.
How much did you know about Fininvest’s offshore network?
In September 2001, your coalition government approved a law that downgraded false accounting as a crime, though some changes did not become effective until April of the following year. In the absence of aggravating circumstances, false accounting for private firms, such as your Fininvest group, became statute-barred after four and a half years rather than 15 years under the old legislation. As a result of the new legislation, you were granted a statute of limitation in three false-accounting cases because the alleged crime no longer existed
You have also been charged with false accounting in the SME case. In September 2002, the SME prosecutors claimed that your government’s new false accounting law contravened a European directive. This directive requires member states to set appropriate penalties where firms fail to publish accounts. The prosecutors argued that if appropriate penalties are laid down for failing to publish accounts, there is a persuasive case for stiffer penalties where published accounts are false. The matter was referred to the European Court of Justice, which could take as much as two years to deliberate. Prosecutors have referred one of the Fininvest false accounting cases to the same court, and the other to Italy’s constitutional court.
Unless prosecutors are successful with their challenges and the law is changed, the evidence in the KPMG report (and the underlying evidence) will not be tested in court. Recently, the ministry of justice started an examination of the amount of money prosecutors have spent on external forensic consultants, such as KPMG.
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 government’s use of the accord on judicial co-operation for political purposes. They could not see how they could continue to co-operate. For a start, if records of banking transactions were in the Swiss banks’ digital archives, was a printout of these archives an original or a copy document?
Your SME trial lawyers, who were members of the combined parliamentary commission that reviewed the bill, soon made an application to have evidence obtained under rogatorie ruled inadmissible. Before long, however, the Milan courts turned down your application. In broad terms, the ruling said that the previous 30 years of international practice would determine the admissibility of evidence. A letter signed by a foreign magistrate to accompany documents sent from abroad would continue to be sufficient to guarantee the authenticity of those documents.
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 magistrature’s governing body, has a constitutional duty to give its view on bills concerning judicial affairs. A CSM commission, which had raised a number of serious objections to the bill, wanted the full body of the CSM to approve its report before the bill was enacted. The commission was unsuccessful, because five members of the CSM, appointed by your coalition, abandoned the council’s meeting, thereby leaving it short of a quorum.
In March 2002, you had asked that the SME trial be transferred from Milan to another jurisdiction. Among other things, you claimed that the courts in Milan were biased and that the state of public order there prevented the SME trial from being conducted in conditions of serenity.
The final appeals court referred the matter to the constitutional court in May 2002. The matter for that court to decide was whether there was legislative vacuum on legitimate suspicion, as your lawyers claimed. Ten days after the legitimate suspicion bill was enacted, the constitutional court dismissed your case.
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 Fininvest’s offshore companies and bank accounts between 1990-95, prepared by KPMG, one of the big four global accountancy firms, for Milanese prosecutors. According to its report, KPMG had access to thousands of documents, and transcripts of magistrates’ questioning of 127 people in 233 different interviews, including you on December 13th 1994. KPMG’s report, a copy of which we obtained in April 2001, runs to hundreds of pages. In addition, The Economist has carried out company searches on companies belonging to Fininvest and registered in Britain between 1980 and 1990.