Graft inquiry a time-bomb for Socialists: Phil Davison in Madrid reports on a judge who has Spain's ruling party on the run

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WITH HIS thick-rimmed spectacles, quiet voice and shy smile, Marino Barbero, a 64- year-old Supreme Court judge, looks almost too timid to tap a gavel. But Spain's ruling Socialist Party (PSOE) must be rueing the day eight years ago when it nominated the veteran law professor to the country's highest tribunal.

Named two years ago to investigate the Filesa case, in which the PSOE, led by the Prime Minister, Felipe Gonzalez, is alleged to have received around pounds 6m in illegal funds from banks and big businesses, Judge Barbero has already 'raided' a major bank branch, the Socialist Party's headquarters and the mighty Central Bank building towering over Cibeles Square in Madrid.

He is investigating whether a consulting firm called Filesa, which employees said was run by Josep Maria Sala, a Socialist Party senator, and Carlos Navarro, a deputy who has since resigned, was a front for getting cash from banks and big business to finance the Socialist Party.

Judge Barbero had been due to announce some of his findings on 3 June last year, three days before general elections, but the PSOE persuaded him to hold off. He agreed, saying he did not want to 'distort' the election result. Many felt his decision had, in a sense, done just that, defusing a potential time-bomb for the Socialists, who were re-elected.

Now, the time-bomb is ticking again. This month, the judge is back in the headlines, calling in daily two or three senior bank officials or top businessmen, along with their lawyers, in an attempt to find out who paid how much to whom, for what and whether there was coercion.

So far, he has confirmed suspicious payments, but been faced with much buck-passing, collective amnesia and a tendency to place the blame conveniently on those who are no longer of this world. He has already said there are 'indications of criminal activity' by Senator Sala and Mr Navarro. Both deny wrongdoing, while admitting they owned shares in Filesa.

Among those called in this week to the Supreme Court building were two senior executives of the big Banco Central Hispano (BCH). The media quoted one of them, Epifanio Ridruejo, as telling the judge that the bank, then known as the Banco Central (BC), ordered the payment of 204m pesetas (then worth pounds 1.1m) to the Filesa holding company in return for two 'reports' in early 1989. The problem is that no such reports have been found and no one seriously believes they ever existed.

The case has taken on more sinister undertones since one of the big four banks, Banesto, was taken over by the Central Bank in December and its board, including the flamboyant chairman, Mario Conde, kicked out. Banesto reportedly had a shortfall of upwards of pounds 2.5bn, but Mr Conde insisted he had been tricked and not given time to put the bank in order. He implied the takeover had been a political move pushed by the PSOE and Mr Gonzalez for fear of the banker's political ambitions.

When stock-market trading in Banesto shares resumed this week, shares changed hands at more than twice the figure predicted by its caretaker chairman, suggesting the market may have considered its problems exaggerated. The Central Bank this week said it would investigate the ousted Banesto board's conduct, saying Mr Conde and his colleagues could face fines of up to 10m pesetas (pounds 50,000) and bans of up to 10 years from involvement in financial institutions.

The caretaker team picked by the Central Bank to run Banesto was largely weighted towards one of Banesto's main competitors, the Banco de Bilbao y Vizcaya (BBV), which would give it the inside track for any future takeover bid. Along with the Banco Central (which later became the Banco Central Hispano), the BBV was one of the two big banks that admitted paying Filesa huge sums for 'reports' no one can now trace.

On Tuesday, two senior BBV executives told Judge Barbero that the bank had paid 196m pesetas to Filesa between 1989 and 1991, but said the decision had been taken entirely by the bank's then chairman, Pedro de Toledo. Mr de Toledo is poorly placed to counter such claims, having since died.