The Parmalat probe continued to widen last week, with reports indicating that the fraud at the Italian dairy giant could be as much as $16.8 billion (far more than WorldCom) and may have been the result of more than a decade of fraudulent accounting.
The scandal began on December 19, when Bank of America revealed that Bonlat, a Parmalat subsidiary in the Cayman Islands, was missing $4.9 billion in claimed assets (about 38% of all of Parmalat's assets). It now appears that bank statements had been forged.
Parmalat has filed for bankruptcy. Its CEO, Calisto Tanzi, has been arrested. A total of 20 company officials, including board members and lawyers, are being investigated. It is not clear yet how deep the fraud will run.
Parmalat had a complex web of more than 200 subsidiaries, many in offshore tax havens like the Cayman Islands and the Antilles. It appears that Parmalat was using an Enron-style accounting shell game to hide liabilities and move money around with these subsidiaries. Parmalat used a multi-layer ownership structure that is very common among Italian corporations.
Many big U.S. banks, including Bank of America, Citigroup and JP Morgan Chase, had business dealings with the company, including raising funds. It is unclear how much they knew what was going on, though Citigroup and JP Morgan both paid SEC fines for allegations that they helped Enron engage in misleading financial deals. One of the financial deals that Parmalat struck with Citigroup was called Bucerono, which means "black hole" in Italian.
Questions also surround the company's accounting firm, US-based Grant Thornton. Though Grant Thornton stopped auditing Parmalat's books in 1999, it continued to audit the books of Bonlat, the Cayman Islands subsidiary with the missing $4.9 billion. Grant Thornton has claimed that it was misled, had no role in illegal schemes, and was a "victim of grave fraud". Last week, the head of the Italian unit of Grant Thornton resigned and his partner were suspended after warrants were issued for their arrests. An Italian judge accused the auditors of suggesting "the fictitious operations necessary to achieve the fraudulent aims of the group."
There are also questions about how much executives profited. The company's founder, Calisto Tanzi, has admitted that he secretly moved $625 million of Parmalat's money into a money-losing travel business owned by his family.
The SEC has also charged Parmalat with fraudulently offering $100 million worth of unsecured notes to U.S. investors and inflating its assets by at least $5 billion. SEC regulators called this "one of the largest and most brazen corporate financial frauds in history."
However, it is not clear how swift Italian punishment will be for this accounting fraud. Last year, Italian Prime Minister Silvio Berlusconi (a media mogul) reduced false accounting from a felony to a misdemeanor. Italy also rewrote its bankruptcy laws to accommodate the failure of Parmalat.
For more, see:
"Layers of Ownership Conceal Trouble in Italy" by John Tagliabue of the New York Times: http://www.nytimes.com/2003/12/30/business/worldbusiness/30parma.html
"Prosecutors Turn up Parmalat Heat" by Jacopo Barigazzi of Reuters: http://www.reuters.com/newsArticle.jhtml?type=businessNews&storyID=4078979
"Auditor's Italian Chief Resigns in Parmalat Probe" by the Associated Press http://www.latimes.com/business/la-fi-parma2jan02,1,4871502.story?coll=la-headlines-business
"SEC Charges Parmalat" by Carrie Johnson of the Washington Post: http://www.washingtonpost.com/wp-dyn/articles/A39891-2003Dec29.html
"How Parmalat Went Sour" by Business Week: http://www.businessweek.com/magazine/content/04_02/b3865053_mz054.htm
"Parmalat: How Much did the bankers know?" by the London Telegraph: http://www.opinion.telegraph.co.uk/money/main.jhtml?xml=/money/2004/01/04/ccparm04.xml&sSheet=/opinion/2004/01/04/ixopright.html
For a look at other large corporations that use many offshore tax haven subsidiaries, check out Citizen Works' "25 Fortune 500 Corporations With the Most Offshore Tax-Haven Subsidiaries": http://www.citizenworks.org/corp/tax/top25.php.
El Paso tops the list with 244, followed by AES with 195 and Morgan Stanley with 99. There are 22 companies with 25 or more subsidiaries in offshore tax havens.
Related Article
Canadian Imperial Bank of Commerce pays $80 million to settle Enron charges
Adding to an already large list of banks that have paid to settle allegations that they had helped Enron engage in misleading transactions, Canadian Imperial Bank of Commerce has paid the SEC $80 million to settle Enron-related charges.
CIBC, like Citigroup, JP Morgan Chase, and Merrill Lynch, was charged with helping execute loans that were structured to look like asset sales, which allowed Enron to claim the loan as revenue, misleading investors. CIBC allegedly advanced $2.7 billion to Enron through off-the-books-partenerships.
The $80 million fine includes $37.5 million of ill-gotten gains, a $37.5 million fine, and $5 million in interest. The SEC also sued three current or former CIBC executives.
For more, see: "Canadian Bank to pay $80 million in Enron Investigation," http://www.washingtonpost.com/wp-dyn/articles/A23218-2003Dec22.html
Source: Citizen Works; http://www.citizenworks.org
The scandal began on December 19, when Bank of America revealed that Bonlat, a Parmalat subsidiary in the Cayman Islands, was missing $4.9 billion in claimed assets (about 38% of all of Parmalat's assets). It now appears that bank statements had been forged.
Parmalat has filed for bankruptcy. Its CEO, Calisto Tanzi, has been arrested. A total of 20 company officials, including board members and lawyers, are being investigated. It is not clear yet how deep the fraud will run.
Parmalat had a complex web of more than 200 subsidiaries, many in offshore tax havens like the Cayman Islands and the Antilles. It appears that Parmalat was using an Enron-style accounting shell game to hide liabilities and move money around with these subsidiaries. Parmalat used a multi-layer ownership structure that is very common among Italian corporations.
Many big U.S. banks, including Bank of America, Citigroup and JP Morgan Chase, had business dealings with the company, including raising funds. It is unclear how much they knew what was going on, though Citigroup and JP Morgan both paid SEC fines for allegations that they helped Enron engage in misleading financial deals. One of the financial deals that Parmalat struck with Citigroup was called Bucerono, which means "black hole" in Italian.
Questions also surround the company's accounting firm, US-based Grant Thornton. Though Grant Thornton stopped auditing Parmalat's books in 1999, it continued to audit the books of Bonlat, the Cayman Islands subsidiary with the missing $4.9 billion. Grant Thornton has claimed that it was misled, had no role in illegal schemes, and was a "victim of grave fraud". Last week, the head of the Italian unit of Grant Thornton resigned and his partner were suspended after warrants were issued for their arrests. An Italian judge accused the auditors of suggesting "the fictitious operations necessary to achieve the fraudulent aims of the group."
There are also questions about how much executives profited. The company's founder, Calisto Tanzi, has admitted that he secretly moved $625 million of Parmalat's money into a money-losing travel business owned by his family.
The SEC has also charged Parmalat with fraudulently offering $100 million worth of unsecured notes to U.S. investors and inflating its assets by at least $5 billion. SEC regulators called this "one of the largest and most brazen corporate financial frauds in history."
However, it is not clear how swift Italian punishment will be for this accounting fraud. Last year, Italian Prime Minister Silvio Berlusconi (a media mogul) reduced false accounting from a felony to a misdemeanor. Italy also rewrote its bankruptcy laws to accommodate the failure of Parmalat.
For more, see:
"Layers of Ownership Conceal Trouble in Italy" by John Tagliabue of the New York Times: http://www.nytimes.com/2003/12/30/business/worldbusiness/30parma.html
"Prosecutors Turn up Parmalat Heat" by Jacopo Barigazzi of Reuters: http://www.reuters.com/newsArticle.jhtml?type=businessNews&storyID=4078979
"Auditor's Italian Chief Resigns in Parmalat Probe" by the Associated Press http://www.latimes.com/business/la-fi-parma2jan02,1,4871502.story?coll=la-headlines-business
"SEC Charges Parmalat" by Carrie Johnson of the Washington Post: http://www.washingtonpost.com/wp-dyn/articles/A39891-2003Dec29.html
"How Parmalat Went Sour" by Business Week: http://www.businessweek.com/magazine/content/04_02/b3865053_mz054.htm
"Parmalat: How Much did the bankers know?" by the London Telegraph: http://www.opinion.telegraph.co.uk/money/main.jhtml?xml=/money/2004/01/04/ccparm04.xml&sSheet=/opinion/2004/01/04/ixopright.html
For a look at other large corporations that use many offshore tax haven subsidiaries, check out Citizen Works' "25 Fortune 500 Corporations With the Most Offshore Tax-Haven Subsidiaries": http://www.citizenworks.org/corp/tax/top25.php.
El Paso tops the list with 244, followed by AES with 195 and Morgan Stanley with 99. There are 22 companies with 25 or more subsidiaries in offshore tax havens.
Related Article
Canadian Imperial Bank of Commerce pays $80 million to settle Enron charges
Adding to an already large list of banks that have paid to settle allegations that they had helped Enron engage in misleading transactions, Canadian Imperial Bank of Commerce has paid the SEC $80 million to settle Enron-related charges.
CIBC, like Citigroup, JP Morgan Chase, and Merrill Lynch, was charged with helping execute loans that were structured to look like asset sales, which allowed Enron to claim the loan as revenue, misleading investors. CIBC allegedly advanced $2.7 billion to Enron through off-the-books-partenerships.
The $80 million fine includes $37.5 million of ill-gotten gains, a $37.5 million fine, and $5 million in interest. The SEC also sued three current or former CIBC executives.
For more, see: "Canadian Bank to pay $80 million in Enron Investigation," http://www.washingtonpost.com/wp-dyn/articles/A23218-2003Dec22.html
Source: Citizen Works; http://www.citizenworks.org