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Italians fear backlash over Parmalat scandal

By Tom Rachman
The Associated Press

	AP, 2001 Parmalat founder Calisto Tanzi has admitted draining money into family-run businesses.
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Some experts deny there's anything specifically Italian about the scandal at the dairy-and-food giant, citing recent corporate fraud in the United States. Others acknowledge Italy needs to tighten its rules, but say the problem is bigger than one country.

"It's time to ask ourselves, 'Why, in relatively few years, have we seen such a high number of scams?' " Italian economist Marco Vitale said. "If we pose this question only about Parmalat, we'll never find the true answer."

The Parmalat scandal exploded in December after the company admitted it did not have a nearly $5 billion account with Bank of America as Parmalat had stated in September. Auditors now say the company has about $18 billion in debt — eight times what the company had claimed.

Company founder Calisto Tanzi has admitted draining about $600 million into family-run tourism businesses, while top executives have spoken of systematic fraud over years.

The Parmalat scandal "represents an abrupt and significant setback for the image of this country's business and financial communities," Telecom Italia chairman Marco Tronchetti Provera wrote in the Financial Times newspaper. Premier Silvio Berlusconi, himself a billionaire businessman, acknowledged that the case damaged Italy's credibility.

Already, bond offerings from small and medium-sized companies are drying up and investors are becoming more jumpy.

In Europe, Italians often face a stereotype as incorrigible corner-cutters. That belief has been fed by the influence of the Mafia and by past corruption cases — including the notorious "Bribesville" scandal of the early 1990s, which involved kickbacks between Italian political parties and business.

In a study last year by Berlin-based watchdog Transparency International, business workers, country analysts and other experts ranked Italy the second-most-corrupt nation in the 15-nation European Union, after Greece.

The country's good name wasn't exactly buffed by another, if far smaller, accounting scandal recently involving software company Finmatica. Last week, its two former top executives were placed under house arrest as prosecutors look into allegations.

Antonio D'Amato, chairman of the Italian industrialists' group Confindustria, rejects all suspicions of his country.

"It's absolutely not justified and not possible to talk of the Parmalat case as an Italian case or an Italian risk," he said. "Italy is made up of millions of businesses and entrepreneurs who are serious and honest and who work in respect of the law."

He noted that the Parmalat investigation has already placed 10 people behind bars, including Tanzi.

Many Italians point out that foreign financial institutions had dealings with Parmalat, including Citigroup, Bank of America and Deutsche Bank. The banks say they, too, were hoodwinked, and none is charged in the investigation. Still, they have faced heat for having worked with a company whose fraud seems so blatant in retrospect.

"Sure, it had an Italian owner; the administrators were Italian," economist Vitale said. "But the auditors were American, the ratings agency was American, the great bank that guided and followed the development of the group was American. ... Two-thirds of the creditors and investors were American or international."

One element that doesn't help is the brazenness of the Parmalat case: the use of forged Bank of America letterhead to fake the $5 billion account; orders for a computer to be destroyed with a hammer when the heat got too hot, and the massive underreporting of the company's debt.

The case has stretched far beyond Italy: Yesterday, Parmalat's Brazilian dairy unit filed for bankruptcy protection.

Also yesterday, the lower chamber of the Italian Parliament approved a government decree on bankruptcy protection to streamline requirements in a bid to help save Parmalat and the jobs of some 36,000 employees worldwide.

Vitale argues that the international financial system must be shaken up, with investment banks punished for conflicts of interest and auditors giving more than just a stamp of approval.

"This system doesn't hold up anymore. It's been shattered. It wasn't made for the system of mass finance that we now have," he said.

Many experts argue that national regulatory bodies cannot effectively oversee companies with subsidiaries around the world. Yet the idea of a powerful international watchdog would be hard to sell.

"There would be accountability problems. Who would it report to? Politically there would be no one watching over what it does," said Luca Enriques, a professor of business law at the University of Bologna.

A more realistic prospect is having a European regulator, he said — but added that might not be enough, since Parmalat's dealings involved a web of overseas subsidiaries far from the reach of Europe.

Copyright © 2004 The Seattle Times Company