News • January 04 2004

Directors of Malta based Parmalat companies arrested

Julian Manduca

Several of the directors of the Parmalat owned companies in Malta were arrested January 1 and are being investigated by Italian police for massive fraud, MaltaToday can reveal. This revelation continues to raise concern that Malta is being used as a centre for dubious dealing and crass tax avoidance.
In Malta, Parmalat SpA set up three companies, Parmalat Malta Holding Limited, Parmalat Trading Limited, which are Maltese companies and Parmalat Capital Finance Limited, which is registered in Malta and is the owner of a subsidiary in the Cayman Islands: Bonlat Financing Corporation.
Several of Parmalat Capital Finances’s and Parmalat Malta Holding Limited’s current and past directors are now under investigation including Fausto Tonna, former financial controller of Parmalat and Mr Tanzi’s (the founder of Parmalat’s) second-in-command; Luciano del Soldato, the present financial controller of Parmalat who took over from Mr Tonna; and Giovanni Bonici, chairman of Parmalat Venezuela. All three have been arrested. Associated Press, which detailed new admissions and finger-pointing by Parmalat executives and employees implicated in the scandal, has revealed new admissions made by some of the directors: "Four times a year, the system of putting together false documents was activated on the occasion of the four balance sheet operations that the company had," a document quotes Parmalat's former chief financial officer, Fausto Tonna, as telling prosecutors a few days before he was detained January 1, 2004.

The Parmalat Malta connection

Parmalat Capital Finances’s and Parmalat Malta Holding Limited’s current and past directors are under investigation including Fausto Tonna, former financial controller of Parmalat and Mr Calisto Tanzi’s (the founder of Parmalat’s) second-in-command; Luciano del Soldato, the present financial controller of Parmalat who took over from Mr Tonna; and Giovanni Bonici Chairman of Parmalat Venezuela. They have been all arrested. Associated Press, which detailed new admissions and finger-pointing by Parmalat executives and employees implicated in the scandal, has revealed new admissions made by some of the directors: "Four times a year, the system of putting together false documents was activated on the occasion of the four balance sheet operations that the company had," a document quotes Parmalat's former chief financial officer, Fausto Tonna, as telling prosecutors a few days before he was detained January 1, 2004.
The document quotes another official, former financial executive Luciano Del Soldato who was nabbed in the same sweep, as saying he directed that documents be forged on a computer that had a phoney Bank of America logo stored on the hard drive. "I should specify that recently we destroyed the computer's memory," Del Soldato said.
Company employee Gianfranco Bocchi, who was also detained today, said Del Soldato had instructed another employee to destroy the computer with a hammer.
As could be expected auditors Deloitte & Touche were not in a position to reply to any questions put to it by MaltaToday on the Parmalat companies registered in Malta. Auditors are duty bound to protect the confidentiality of their clients and Deloitte & Touche would not answer questions about figures appearing in the accounts they audit.
Bonlat Financing Corporation, the company which is fully owned by the Malta registered Parmalat Capital Finance Limited, is at the centre of the entire scandal as it all came to light when Parmalat claimed Bonlat held US$5 billion with the Bank of America, which did not exist. Bonlat has since been taken under the control of liquidators Ernst & Young, while according to CNN "Parmalat Capital Finance Ltd, was placed in provisional liquidation by the Caymans Grand Court on Christmas Eve."
According to the accounts of the Malta company for 2002, Parmalat Capital Finance Ltd "was incorporated in the Cayman Islands on 24 October 1997. On 31 March 2002, the directors resolved, with effect from that date, to transfer the management and control of the company to Malta." Parmalat Capital Finance Limited was registered in Malta on 1 April 2002, as an ‘Oversea company.’
According to the same accounts the value of the investment in Bonlat Financing Corporation, which is 100 percent owned by PCFL, is valued at US$2.
Other Parmalat related companies have been subjected to investigations by police, but so far the ‘Maltese’ Parmalat companies have not come under official scrutiny.
According to an article appearing in di-ve.com: "Italian and Swiss auditors are looking for 250 million euros believed to have passed through Malta, or even invested on the islands.
"According to a Brazilian financial institution questioned in 2001, it had issued a 500 million Euro bond. Out of this, half (250 million) went to pay for a debt in Brazil, while the rest was sent to offshore banks in the Cayman Islands, which was eventually lost. In preliminary investigations it has turned out that the money had ended in Maltese industries."
According to the Italian daily Corriere della Sera, the international press is scrambling to investigate over 250 hundred companies related to Parmalat in an attempt to get to the bottom of a web of transactions which siphoned millions from the company.
The press is trying to unravel a multitude of payments between so called ‘shell’ companies in off-shore tax shelters such as Malta, the Cayman Islands or Dutch Antilles, or elsewhere in Europe and the United States.
When MaltaToday contacted the Malta Financial Services Authority, its chairman, Professor Joe Bannister said: "The MFSA has to date received no official enquiry about anything to do with the Parmalat affair.
"The MFSA has, since the first signals of the impending crisis came out some three weeks ago, been doing its best to keep developments under close review and to keep abreast of the daily stream of reports in the international media on the unfolding Parmalat affair."
According to the accounts of Parmalat Capital Finance Limited as verified by Deloitte and Touche, the company was engaged "in the business of procuring and placing funds within the Parmalat group and in the raising of finance for the group from institutional and other investors."
The company is exempt from exchange control regulations in terms of an exemption given in Maltese law in 1972.
Malta is clearly considered a tax haven by many and while companies may not have done anything illegal, they avoid the higher tax rates faced in their home countries.
In the year ended 2002, the PCFL registered a profit of US$ 188,461,695. That profit figure was reduced by US$ 158,367,848 due to a loss on currency exchanges, leaving a profit of US$30,093,847.
On that profit taxation at 35 percent was US$ 10,532,846, but because of double taxation relief of US$ 6,212,880 and an adjustment for "exempt profits arising prior to the date of transfer of the management and control of the company to Malta, which are not subject to Malta tax" of US$ 2,633,211, the tax due in Malta was a mere US$ 1,686,755.
According to the Financial Times, rating agency Standard and Poor, auditors Deloitte and Touche, analysts in London and fund managers in the US, nobody paid attention to Parmalat’s companies abroad until Parmalat admitted it could not find 40 million Euro to pay one of its bonds.
The income of PCFL declared at the year-end was of US$ 18,236,177 in investment income and US$ 243,290,845 in net interest from group undertakings.
From those amounts were deducted finance costs of US$72,176,220 and administrative costs of US$ 889,107. No breakdown or explanation for the administrative costs were given in the accounts.
Asked about the possible damage to Malta’s reputation by the Parmalat scandal, Prof Bannister said: "From the information known to it to date, the MFSA envisages that the participation of these Maltese companies was a very marginal one even when viewed against a backdrop of the 260 or so companies scattered all round the globe which formed the Parmalat multinational.
"The well-publicised reasons for Parmalat’s problems are located elsewhere. There is no reason why Malta should suffer any reputational risk. The real issues at stake here are quite different and seem to relate to grave allegations of forgery, misappropriation, incorrect statements to investors and false accounting."

Professor Bannister clarified some misconceptions: "In cases such as this, one inevitably finds some misunderstandings and confusion as to what or which regulators should have seen or done something. You will be aware of the very heated debate in Italy as to presumed lapses by the Banca D’Italia and the Consob.
"The Parmalat companies present in Malta are not licensed or supervised companies, but they are normal trading entities, where all the relevant corporate information is accessible to the public in our Registry website facility or at the Registry itself in Mriehel.
"The identity of the shareholders is disclosed and all documents have been duly filed as required by our company legislation, which is very demanding and in line with UK and EU requirements. It is also interesting to note that all the three entities carry the Parmalat name and there has never been no attempt to conceal the connection."
Professor Bannister was adamant that Malta’s reputation remains intact: "It is being repeatedly stated in the media, that these three companies were offshore companies. In reality, none of these companies was an offshore company. Two were actually registered here as normal companies under the Companies Act. The third was what is known as an ‘oversea company’ which means that it is a branch or a place of business of a company registered outside Malta. "These facts may be easily verified at the Registry of
Companies. The registration of offshore companies stopped on the 31 December 1996 following amendments to the relevant legislation. All the three above-mentioned Parmalat companies came to Malta much, much later.

Parmalat’s problems intensify
The eight largest Italian business finds itself gasping for breathing space following revelations in the media on December 19 that Bank of America Corporation was not holding about US$4.9 billion of its funds as the Italian company had reported in September. Since then, the estimated amount of money missing from its balance sheet has ballooned.
Founder and owner Calisto Tanzi has admitted to have taken about EUR500 million (US$624 million) from the Parmalat group. The affair has grown into one of Europe's biggest financial scandals, hitting global banks and small-time investors, as well as dairy farmers.
Mr Tanzi is currently in custody and being subjected to interrogation in Italy while an inquiry has started in Ecuador as it has been suggested that some Euro 800 million may gave been left there.
Tanzi visited Ecuador over the holiday period after a ‘rest’ in Spain. The enigmatic head of the Parmalat empire, was always considered a serious businessman. He avoided the media limelight and surplus cash was devoted to worthy causes such as the restoration of Parma's cathedral.
While Parma has a reputation for high-living sensuality, Mr Tanzi demonstrated a high-minded sobriety. He told an interviewer from a popular women's magazine that he would opt for Rita Levi Montalcini, the almost centenarian Nobel physics laureate, as his ideal dinner companion, over the charms of Monica Bellucci or Sharon Stone. He voiced the same serious-mindedness in relation to business, telling a financial reporter: "What do you mean new economy! I'm proud to belong to the old-old economy!"
Tanzi however had links with the Christian Democrats in Italy and his family owned limousines and a valuable collection of 19 century paintings. Encouraged by the success of Parma football club which Parmalat owned Tanzi bought other clubs in Brazil, Russia, Mexico and Uruguay, and was said to be jealous of the success of another Italian food magnate Pietro Barilla.
Things must have started to go wrong for Tanzi as his empire expanded too quickly and investments in television, a high advertising budget and new expensive company headquarters must have stretched his resources.
In Malta, Labour spokesman for Industry John Attard Montalto revealed that Parmalat was one of four companies interested to invest in Malta when Labour was elected to government in 1996. According to Attard Montalto, the approach was rejected when it was decided that Parmalat’s presence in Malta could do more harm than good, especially to the agricultural sector. Attard Montalto said the decision not to accept the Italian giants was now vindicated.