The Italian job: Trouble in adland as the allegations fly at Sir Martin Sorrell's WPP falls victim to Italian

'Break-ins. Alleged bribes. An affair. The casual viewer finds it hard to keep up'

When Marco Benatti flew to London on 22 January, two weeks after being sacked as head of WPP's Italian operations, it was for a showdown with his former boss, the global advertising giant's founder and chief executive, Sir Martin Sorrell, who presented him with allegations of corruption. No lawyers, no advisers, just the two men face to face. This is as personal as business gets.

On the one side, the self-confessed workaholic whose forensic knowledge of WPP has allowed him to build it up from almost nothing not once, but twice. On the other, a quietly-spoken Italian with a passion for the paintings of the Austrian expressionist Schiele.

It was an unsatisfactory meeting for both men. Sir Martin did not get the full "confession" he sought, having presented Mr Benatti with the findings of a fraud investigation by Kroll, the corporate detective firm. Mr Benatti went away without the pay-off he might have hoped for, without even an agreement that he would even be allowed back into his office to get personal documents he badly wanted back.

Worst of all, the meeting failed to halt one of the media industry's most bitter and extraordinary public feuds.

Sir Martin alleges a web of corruption weaved by Mr Benatti, while the Italian argues he has done nothing wrong and has hinted that Sir Martin is pursuing a personal vendetta. It was the last time the two men met.

Since then, the story has taken more twists and thrown up more revelations than an episode of Columbo, with Sir Martin cast as dogged detective. Break-ins. Irregular payments. Alleged bribes. A corporate takeover battle. An affair. The casual viewer will find it hard to separate the real clues from the red herrings, and even Sir Martin is clearly some distance from tying all the ends together.

As Kroll's investigation gets more complicated, not less, and as he prepares to sack other employees in Italy, Sir Martin must be ruing how he did not act on a hunch that something was odd in the Italian business two years back. One of the former owners of a media buying company called Mediaclub left half-way through an earn-out, apparently giving up millions of euros of the proceeds of selling the company to WPP. Only now does Sir Martin think he understands that puzzling move. The man was not really one of Mediaclub's controlling shareholders at all.

WPP alleges the company was controlled by Mr Benatti, who shouldn't have charged WPP a £140,000 fee for "finding" the acquisition and should have disclosed his interest. This discovery prompted Sir Martin to march into Mr Benatti's office in Milan on 9 January and fire him.

Mr Benatti originally denied any shareholding in Mediaclub but now admits to a small, indirect interest through an investment fund of which he owned up to 10 per cent.

The battle between Sir Martin and Mr Benatti will certainly end up in court. WPP has already launched a suit and the Italian is threatening to do the same. The battle is also being pursued in the effort to control FullSix, an Italian media-buying company in which Mr Benatti and WPP both have stakes. But mainly, as befits a struggle between media types, it is being played out in the British and Italian press.

It was Daniela Weber, the chief operating officer of WPP's Italian operations, who first alerted head office to the alleged fraud. She is described as Sir Martin's "eyes and ears in Italy", and the pair had an affair and maintain a strong friendship. But Ms Weber has also worked with Mr Benatti for more than two decades.

Now Mr Benatti's friends profess themselves baffled by Sir Martin's motives in pursuing the issue publicly. Italy, after all, is a barely significant outpost of the great WPP empire, contributing only 2 per cent of revenues to what is now the world's second-largest advertising group with 72,000 people working in 1,700 offices in 104 countries. Sir Martin's friends say the personal issues are a red herring and that he has been bruised by their airing, just a few months after the publicity surrounding his £23.4m divorce settlement. He is simply, genuinely affronted by what has been revealed about Mediaclub, they say.

Sir Martin first donned Columbo's crumpled raincoat in December when Mr Benatti presented him with Mediaclub's demand for an €8.9m final earn-out payment. This was some €8.6m above the level WPP's head office was expecting. One item in particular raised concern: a payment from Banca Ifis headed by WPP's Italian chairman, Giovanni Bossi, which had taken over a bad debt owed to Mediaclub from one of Mr Benatti's other companies. There is no suggestion of wrongdoing by Mr Bossi or Ifis, but the payment had the effect of inflating the earn-out by €2m.

Investigation of Mediaclub's affairs led WPP to its discoveries about the company's ownership structure, but the most extraordinary developments and allegations have emerged since Mr Benatti was escorted from the premises last month.

There were break-ins at Mr Benatti's office on two consecutive weekends. WPP has alleged a financial relationship between Mr Benatti and the head of the security firm guarding the premises. And it has demanded to know why Mr Benatti made substantial payments overseas to several of his associates - including the security firm's boss, Claudio Noziglia - in 2000 and 2001.

Mind your own business, is Mr Benatti's response to that question. Without admitting that the payments were made, sources close to the former WPP man say that he is an entrepreneur of long standing with many business relationships and WPP is making allegations that pre-date his agreement to work for them as a consultant.

Sir Martin is having to contact six clients in Italy with regard to irregular payments made to employees and WPP is also concerned about a plush Milan flat it recently discovered it has been paying for, even though it is not available for use by the company. The rent on the flat is €75,000 (£50,000) a year. Until now, Mr Benatti has stonewalled inquiries on these issues, which he regards as unfair.

Meanwhile, a battle is being waged for control of FullSix, the marketing firm where Mr Benatti owns 41 per cent and where WPP is increasing its stake to nearly 30 per cent in order to stymie his takeover bid. WPP's allies, including Ms Weber, are trying to get the board of FullSix to discuss its allegations against Mr Benatti but they failed to get the matter on the agenda this week. A spokesman for FullSix said they would probably be discussed at next Tuesday's meeting.

Sir Martin is said to suspect that FullSix, which began life as an internet marketing firm, was being channelled business by Mr Benatti that should have been offered to WPP companies. Again, Mr Benatti denies any breach of his arrangement with WPP.

But does it amount to more than a storm in a cappuccino cup as far as WPP's global operations go? Simon Baker, an analyst at SG Cowen, says "it all seems very local" in nature and Sir Martin could win respect for taking a robust stand against irregularities. "At worst, it is a distraction, in that it takes management time away from the integration of acquisitions when WPP has taken some sizeable bites in recent years, including the acquisition of Grey Global," said Mr Baker. "But look at a global company's report and accounts. There is always some legal battle going on somewhere, it is just that this one is being played out in the media."

The word "local" is instructive. It might be that cynical Anglo-Saxon investors simply shrug the whole business off as a rather distasteful but inevitable side effect of doing business in Italy.