Complexity of ‘fraud’ boggles the mind

From a Harrods safebox to deals brokered from a yacht off Venezuela to the alleged Mafia-rigged election of a senator, one of Italy’s largest cases of suspected tax fraud and money-laundering that has embroiled broadband operators Sparkle and Fastweb is said by investigators to be “mind-boggling” in its complexity.

More than 1,600 pages of court documents obtained by the Financial Times detail a “carousel of fraud” that led last week to the issuing of 56 arrest warrants, including for Silvio Scaglia, the billionaire founder of Fastweb, and four British businessmen seized by the UK’s Serious Organised Crime Agency.

One investigator, who asked not to be named, sketched out a diagram illustrating the prosecutor’s case that Sparkle and Fastweb were involved in defrauding the state of value added tax worth more than €300m ($410m) and €38m respectively in operations dating from 2003 to 2007 that turned over a total of €2.2bn in funds recycled through Italy.

The alleged masterminds have been named as Gennaro Mokbel, a Rome businessman and would-be politician linked to far-right parties; Carlo Focarelli, a business consultant paid by the telecoms groups; and Marco Toseroni, described as the financial brains of the criminal organisation.

All three are under arrest.

Companies stretching from the US to Finland and the UK – including London-based Acumen and Diadem – are alleged to have purchased fictitious broadband services from Sparkle, a unit of Telecom Italia, and Fastweb, a listed company acquired by Swisscom in 2007.

In turn, Sparkle and Fastweb are alleged to have sold the services to other Italian groups, which existed only on paper, in the process adding 20 per cent in VAT that was later reclaimed.

A part of the transactions was then cycled back to the UK companies, where the “carousel” began again.

Hundreds of millions of euros are alleged to have passed through Panamanian-based Broker Management, a unit which it is claimed was run by Mr Mokbel, which used some of the funds to pay off those involved.

Beneficiaries included a major in Italy’s finance ministry police and two other policemen.

As part of the operation, Mr Mokbel is alleged to have teamed up with Calabria’s ’Ndrangheta to penetrate deeper into Italy’s institutions by rigging the election in the 2008 senate campaign of Nicola Di Girolamo, involving fake ballot papers and signatures.

In one wiretapped telephone conversation, it is claimed, Mr Mokbel is overheard dictating orders to the senator, saying: “You can become president of Italy, but for me you will always be a doorman, meaning you are my slave.”

Mr Di Girolamo, from the People of Liberty party headed by Silvio Berlusconi, prime minister, resigned this week from the senate and was arrested.

He denied all wrongdoing.

Mr Mokbel’s lawyers did not return calls.

Investigators relied heavily on telephone intercepts to unravel the alleged scam, working out the real identities of associates variously codenamed Stinky, Pinocchio, Boxer and Peanut.

Conversations were allegedly tapped between Mr Mokbel and Augusto Morri, who headed Broker Management and sometimes worked from his yacht off Venezuela.

The two men later fell out.

Investigators secretly filmed suspects in London where they accessed a safebox in Harrods, the UK department store, said to contain more than £880,000 ($1.3m).

Acumen UK, which is alleged to have been one of the starting points of the “carousel” and has had two of its executives arrested, declined to comment.

Representatives for Mr Scaglia and Fastweb – which has dismissed two managers who were among those arrested – on Friday night made clear that the company was accused only of tax fraud.

Both parties insisted that VAT had been paid and that there had been broadband traffic involved in the transactions.

They denied any involvement in setting up the alleged “paper” companies and pointed out that they are not accused of involvement with the Mafia.

Finance ministry police raided Fastweb in November 2006 and seized documents but, according to Fastweb, did not reveal the scope of the investigation.

A company source said the prosecutor asked Fastweb to continue its suspect operations to allow the investigation to continue.

Mr Scaglia, being held in a Rome prison, said through a spokeswoman that he only knew of the affair from an article in La Repubblica in January 2007, and that Fastweb acted immediately to close down the “rogue” operations.

The company confirmed that a week before reading the report, Mr Scaglia had sold 5m Fastweb shares at €44 each.

Sparkle has severed links with five former employees under arrest or investigation. It says it is cooperating fully with the authorities and sees itself as a “victim” in the affair.

Police have seized €300m of Sparkle’s assets and €38m from Fastweb.

Sparkle and Fastweb are awaiting a court’s decision on whether to put the two companies into administration. A decision is expected within about a week.

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