The founder of Parmalat, Italy's crippled food giant, has admitted diverting about €500m (£352m) away from the crippled Italian food giant.
The admission, made by one of Calisto Tanzi's defence lawyers yesterday, came in the wake of Italian press reports that investigators have accused Mr Tanzi of having misappropriated €800m. The Milan stock exchange, meanwhile, announced an indefinite suspension of the company's shares.
Mr Tanzi, the president of the business until he was forced out before Christmas, has yet to be charged with any crime. He was arrested on Saturday and is now being held in Milan's San Vittore prison. Investigating magistrates hope to get permission to keep him in custody for up to six months while they question him about a raft of suspected accounting offences. The most serious to have been made public so far is fraudulent bankruptcy, which carries a maximum penalty of 10 years in prison.
Mr Tanzi is the most important of about 20 people at the heart of the company who are suspected of complicity in the scandal, but he is the only one to have been arrested.
In a leaked order published by Italian newspapers yesterday, the magistrates claimed that Mr Tanzi had "diverted in his favour and to companies which are not part of the [Parmalat] group the sum of about €800m". Allegations that Mr Tanzi siphoned off such huge funds are new. Until now it has been alleged only that the company had set up enormously complex offshore financing arrangements that functioned as a smokescreen for its massive debts, said to amount to more than €10bn. On Sunday one of Mr Tanzi's lawyers, Michele Ributti, said there had been "non-existent" credit items in Parmalat's accounts which explained the huge debt. "No money disappeared, just non-existent assets," he said.
One of the investigating magistrates, Guido Piffer, also claimed in a submission leaked in the Italian press yesterday that Mr Tanzi "had perfect knowledge of the fraudulent mechanism" within the company, "having instigated it and later backed its realisation".
"Moreover," Mr Piffer went on, "one does not see how this could have been otherwise considering the enormous size of the financial loss that must have been hidden and considering that it was Mr Tanzi himself [and members of his family] who benefited from this conduct."
Until three weeks ago, Parmalat, the company that pioneered long-life milk and Tetrapak cartons in Italy, was the eighth-biggest company in the country, a solid blue-chip stock on the Milan stock exchange, with an investment grade rating from Standard & Poor's. But on 10 December it proved unable to meet a bond issue of €150m, investors dived for cover and the €10bn black hole in the company's finances was exposed.
Parmalat has been called "Europe's Enron" although the company's giant size in Italy, with a turnover equal to 0.8 per cent of the nation's GDP, makes Enron in the context of the US look like small change. It was revealed that Parmalat, founded in 1961 near Parma, the north Italian home of parmesan cheese and prosciutto ham, had used intricate and incomprehensible derivative transactions in the Cayman Islands and the Dutch Antilles to hide massive debts. One single account in the Cayman Islands was claimed to contain €3.95bn but the Bank of America notepaper on which the letter was written confirming the fact to the company's auditors turned out to be forged. Bank of America subsequently denied the account's existence, and has filed criminal charges.
The Parmalat affair has quickly embroiled its successive auditors, first Grant Thornton International and then Deloitte & Touche, in allegations of incompetence at best. Grant Thornton's chief executive, David McConnell, has insisted that "the worst we have done is to allow ourselves to be duped".
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