The gigolo, the German heiress, and a £6m revenge for her Nazi legacy

"Nature, well-being and elegant relaxation await you at the Rifugio 'Valle Grande' Country House," promises the English version of the Abruzzo country hotel’s website, "?surrounded by a vast private forest at the foot of the beautiful historic Mount Queglia. According to tradition, this is the site where the Italic tribes swore their oath against Rome in 90 BC."

And according to the Italian police it is also the site where two of the most outrageous fraudsters in recent Italian history retired to count the millions in blackmail takings they had extorted from lonely German billionairesses, to bury at least €2m (£1.6m) in the hotel grounds, and to launder much of the rest into new luxury cars including a Ferrari, a Lamborghini and a Rolls-Royce.

The owner of the Valle Grande Country House, Ernano Barretta, 63, is in jail in Italy; his accomplice, gigolo par excellence Helg Sgarbi, 41, was arrested in Austria and is in prison in Germany facing trial for extortion. The story of their incredible swindle, and how greed got the better of them, first emerged in Italy in June with Mr Barretta’s arrest. At the time the name of their alleged victim was kept out of the media. But now that she has been revealed as BMW heiress Susanne Klatten, the richest woman in Germany, the story has taken on a new dimension.

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And not only because of the stratospheric wealth of Ms Klatten, and the hole the affair has punched in the privacy of one of Germany’s most discreet business dynasties. But also because Helg Sgarbi – if leaks from the interrogation of his partner are to be believed – was much more than just a staggeringly effective extortioner. He is also said to be a man bent on exacting revenge for the crimes of BMW against his father, a Polish Jew and, during the war, a slave labourer in a BMW factory. The group made munitions, aero engines and batteries for U-boats and V2 rockets. If it is true, as alleged, that Mr Sgarbi bedded Ms Klatten in posh hotels in Monte Carlo, Munich and elsewhere, he was sleeping with the enemy, with a cruel vendetta in mind.

Mrs Klatten, 46, is the great grand-daughter of Gunther Quandt, the founder of BMW who died in 1954 and whose first wife, Magda, later married the Nazi propaganda chief, Joseph Goebbels. The heiress has a degree in marketing and management from the University of Buckingham and worked with with Dresdner Bank and McKinsey, the consultants, before she was appointed to the supervisory board of BMW in 1997.

The fame of her name has dogged her – she narrowly avoided being kidnapped at the age of 16 – and led to her sometimes using a false one. Her husband, Jan Klatten, a BMW engineer, says when he first flirted with an attractive new trainee called "Susanne Kant", he had no idea that she owned 12.5 per cent of the company.

Mr Sgarbi is said to have met Mrs Klatten in 2006 and they became lovers. They met in Monte Carlo and elsewhere for sex, he said, but they were not alone. Every time they checked into a hotel room, Mr Barretta is said to have booked the room next door. When they walked on the street together, Mr Barretta was there with his video camera to record it. When they went to bed, he contrived to film those private moments, too.

During one of these trysts, Mr Sgarbi is said to have unloaded a terrifying personal problem on to his girlfriend: he told her that, while travelling in the United States, he had been involved in a car smash during which a child had died. The child's parents were members of the Italian-American mafia, they blamed him for the death and they wanted millions in compensation, or Mr Sgarbi was in trouble. Mrs Klatten gave him €7.5m "to get the mafia off his back".

But Mr Sgarbi, like the rest of the world, knew Mrs Klatten was worth far more than that. So in the autumn of 2007 he allegedly contacted her again and this time asked for €49m. The "dead Mafia child" was no longer an issue. Now he revealed that he had videos of them making love which he would make public if she did not pay up.

Ms Klatten is not a senior BMW executive on account of her name alone, and she succeeded in haggling down to €14m. Which she had no intention of paying. She arranged a rendezvous, but when Mr Sgarbi turned up to collect the money he met police, with a warrant for his arrest. Investigators learnt that Mr Sgarbi had been on the telephone all that morning with Mr Barretta, who became the investigation's next target. And slowly the story of the Valle Grande began to unfold.

Mr Barretta was a poverty-stricken Abruzzo boy who made good. As lord of the Valle Grande manor, he has told visiting journalists his rags-to-riches story: how as a child he walked 10 kilometres to school, how he was apprenticed as a stone-mason but threw it up to emigrate, finding work in Germany and elsewhere, before returning to his roots laden with riches to build his fine hotel.

The journalists may have believed him but for the locals, at least the way they tell it now, there was always something fishy about Mr Barretta and his money. But many in the valley, we are told, were also in thrall to him. This was a man "of great intelligence", said Gennaro Varone, the public prosecutor leading the investigation, "with the capacity to get many people to follow him, who were subsequently set to work on his estate" for poor wages. Information gleaned from telephone bugs has also convinced investigators that he made a name locally as a religious guru, a man with the ability to "induce belief" and "to speak with the voice of God". Exploiting these powers, he formed a sort of prayer group, composed mostly of women from the valley, with whom he enjoyed sexual relations in return putting them up for free in his hotel. Mr Barretta flatly denies all this.

At some point – how and when and why is not yet revealed – he made the acquaintance of the gigolo known as Helg Sgarbi. And perhaps as many as six or seven years ago, exploiting their respective talents and proclivities, they went to work. Investigators believe that at least three or four wealthy German women have been shaken down by Mr Sgarbi and Mr Barretta over the years, but Mrs Klatten is allegedly the only one who has been made public. And leaks from the investigation say that Mr Barretta has made an extraordinary claim on behalf of his partner, in an attempt to extenuate their crime.

Mr Sgarbi's original name, it appears, was Helg Russak, and while he describes himself as Italo-Swiss, his father (according to Mr Barretta) was a Polish Jew. During the Second World War this man was forced to work as a slave labourer in a BMW factory producing war materiel for the Third Reich. This personal history created the undying hatred of BMW, Mr Barretta claimed, which led his friend to seek an extraordinary type of revenge.

Claims that BMW, like many other still-prominent German firms, used slave labour during the war are well-established. The claims against BMW were most recently re-aired in a television documentary broadcast in Germany in October 2007. When Magda Quandt divorced BMW's founder and married Goebbels, Gunther's first son, Herbert – Mrs Klatten's great-uncle – was brought up by Goebbels and his new wife and eventually took control of the company in 1959. The Goebbels connection brought the company close to the Nazis.

After the documentary was aired, a BMW spokesman said that the allegations were "not incisively new", but previously the Quandt family have portrayed themselves as victims of the Third Reich. DPA, the German press agency, says that "when the German Forced Labour Compensation Programme was established, the [Quandt] family declined to make a contribution, claiming they had no reason to do so".

Yet knowledge of the BMW-Nazi collaboration goes back to the earliest days of the post-war era. Karl Sommer, an SS officer who headed its Economic and Administrative Main Office from 1944 on, told US interrogators about use of slave labourers by German companies, and BMW was at the top of his list. One source said BMW admitted using between 25,000 and 30,000 slave labourers, prisoners of war and concentration camp inmates, whose paltry earnings, it is said, went straight into the SS treasury "to fund their own annihilation".

Only one member of the Quandt family agreed to comment on the charges made in the programme. Sven Quandt, Mrs Klatten's cousin, said that children were not guilty of their fathers' actions.

Whether Mr Barretta's extenuating claims about his colleague have any basis, or are yet more fabulous inventions by a pair who clearly have the magic touch, remains to be seen.

A controversial entrepreneur Herbert Quandt

*Herbert Quandt, right, was one of Germany's most successful entrepreneurs whose reputation was blemished by his wartime activities.

As a child, Mr Quandt suffered from a retinal disease making him almost blind at the age of nine. As a result he was educated from home, but he eventually flew the nest by training with the family's companies in Germany and America.

By 1940 he was on the executive board of AFA (now known as VARTA AG). And when his father died in 1954, Mr Quandt – together with his half brother Harald – inherited VARTA, BMW and Altana AG.

Although the family were active in the First World War – supplying the German army with uniforms among other things – scandal arose from their involvement in the Second World War when Mr Quandt and his father are alleged to have worked closely with Hitler, supplying materials such as batteries and chemicals to his forces.

Conditions for workers in Quandt factories are said to have been poor, and female slave labourers were employed – activities now under investigation at the instruction of the family after a German TV expose.

When Mr Quandt died in 1982, he had been married three times, leaving his three children an inheritance of billions. They received stakes in pharmaceutical firm Altana and car company BMW.

Miranda Bryant