Sunday, February 26, 2006

And was Jerusalem builded here?

[Updated and edited 26/2]

In 1997 - shortly after Labour came to power - a London-based lawyer named David Mills received a sum of around half a million euro, which was paid into an off-shore account. It has been suggested to Mills that the money came from Silvio Berlusconi; Mills himself has referred in writing to his work for 'the B people' and a payment from 'the B organisation'. Mills, however, maintains that the money came from a southern Italian businessman called Attanasio, and that the stuff about 'the B people' was merely a hypothetical scenario, not a description of anything that had actually happened. Unhelpfully, Attanasio has denied being involved, claiming that he was in prison on corruption charges at the time the money was paid over. Berlusconi himself has expressed displeasure, effectively accusing Mills of trying to use his name to distract attention from his own fraudulent accounting - a charge which Mills rebutted with all the affronted dignity he could muster.

Oddly, you won't find much about the background to this case in David Lane's 2004 book Berlusconi's Shadow: Crime, justice and the pursuit of power. Lane writes for the Economist, and the book drew on the magazine's 2003 dossier on Berlusconi (reproduced here, among other places). In places, however, the book drew on the dossier rather selectively. Here's a passage from chapter 3 ('Corruption'), about an English court hearing at which Berlusconi's representatives attempted to block the transfer to Italy of potentially incriminating documents:
The court in London heard that the applicants and others were alleged by the Italian judicial authorities to have been involved in a huge fraud whereby at least 100 billion lire had been surreptitiously removed from [Berlusconi's company] Fininvest and used for criminal purposes. Prosecutions were already afoot against Berlusconi for bribing revenue inspectors ... and for making illicit donations of 10 billion lire to Bettino Craxi, the former prime minister and leader of the Italian Socialist Party.

At the heart of the four days of hearings in London were documents held by CMM Corporate Services at an address in Regent Street. (CMM stood for Carnelutti, a Milanese law firm, and MacKenzie Mills, the surname of a British solicitor who was a partner of the London arm of the Milanese firm.) The Serious Fraud Office ... had implemented a request for judicial assistance. A search warrant had been issued by the Bow Street Metropolitan Magistrate on 15 April 1996 and executed that same day.

The authorities in London believed that they needed to act quickly. ... The documents at the centre of the legal battle had previously been kept in Switzerland and evidence had come to light that one of CMM's directors had required those responsible for holding them in Switzerland to transfer them to CMM in London. The director of CMM had given the instructions at the beginning of April 1995, shortly after letters requesting judicial assistance had been sent to Switzerland from Italy. If there was an innocent explanation for this, observed the British judge, none had ever been provided.
(British judicial understatement - it's the best sort.)

No prizes for guessing the name of the "British solicitor". Here's how the same episode is covered in the Economist dossier:
Following leads from their investigation of bank accounts under Mr Craxi’s control, prosecutors eventually discovered a secret and substantial network of Fininvest companies, incorporated in the Bahamas, the British Virgin Islands (BVI) and the Channel Islands. Tens of billions of lire had flowed through bank accounts held in these companies’ names.

In their search for Fininvest’s black funds, magistrates sent requests to foreign authorities for assistance (known as rogatorie in Italian), especially to Switzerland where many of the secret bank accounts were. This was a long procedure, involving judiciaries, ministries and embassies of both countries, and the banks where evidence of the alleged wrongdoing lay.

On March 8th and 24th 1995, magistrates sent rogatorie to Switzerland. On April 10th 1995, Tanya Maynard, then a director of CMM Corporate Services (CMM), told those in Switzerland holding the records and papers for the network of Fininvest companies to transfer them to London. CMM was a British-registered company, incorporated in 1982 under the name of So.Ge.S International. The change of name took place in 1989, and CMM was dissolved in 1997.

According to company filings, the owner of CMM in April 1995 was Edsaco Holdings (UK) Ltd (Edsaco), a subsidiary of UBS, a Swiss bank, which had bought CMM in June 1994 for £750,000. One of Ms Maynard’s fellow CMM directors, Mr Mills, the husband of Tessa Jowell, had received £675,000 for his CMM stake. Two months earlier he had increased his stake in CMM to 90%, when he bought a 65% stake held in the name of a Milanese company, run by Studio Carnelutti, a Milan law firm. Mr Mills was a partner of Carnelutti & Co, the London affiliate of the Milan firm, until he left in 1988 to set up his own practice. Mr Mills and the Studio Carnelutti company in Milan had incorporated CMM as a company to provide services to administer other companies. In other words, it was partly a name-plate operation.

Italian magistrates asked the Serious Fraud Office (SFO) in London to obtain the records and papers moved from Switzerland. In October 1996 Berlusconi petitioned the High Court in London to stop them getting the documents obtained by the SFO. The magistrates needed these documents as evidence in the case of illegal donations to Mr Craxi, whereas Berlusconi claimed the alleged offence was political. “I just cannot see corrupt political contributors...as ‘political prisoners,’” concluded Lord Justice Simon Brown, a judge in the case, though he added at the end of his judgment that his words should not “raise the least presumption of guilt”.

Of Ms Maynard’s instructions to those holding the documents in Switzerland to transfer them to London, Lord Brown said: “ If there was innocent explanation for this, none has ever been provided.” In the SFO's application for a search warrant, a senior SFO official had stated: “Those persons running CMM/Edsaco must be aware that what they have done in managing the companies…is fraudulent and might render them liable to prosecution in Italy.” Mr Mills denies any wrongdoing.
That's not all the dossier has to say about Mills. He and Berlusconi go way back. The Guardian describes Mills' relationship with Berlusconi as beginning 'within six years' of his marriage to Tessa Jowell in 1979; the Economist suggests that it began rather earlier:
Mr Mills gave evidence on Berlusconi's behalf ... at a hearing in London in March 2003. Asked when his professional relationship with Fininvest began, Mr Mills replied in 1989 or 1990, and denied any relationship as early as 1981 or 1982.

Based on company filings in Britain, these statements were untrue. Mr Mills attributes this to “a failure of memory”. In March 1980 Mr Mills incorporated Reteitalia Ltd in Britain, as a 90% subsidiary of Reteitalia Srl, Berlusconi's film and TV rights company, set up in Italy that year. Fininvest Srl held the other 10%. In other words, Reteitalia Ltd was a Fininvest company. Between May 1981 and September 1983, Berlusconi was one of its four directors, all of whom were resident in Italy. Mr Mills was Reteitalia Ltd’s company secretary from incorporation until 1989, when CMM took over.

In 1985 Mr Mills also set up Publitalia International Ltd in Britain for Fininvest, and signed the form appointing Marcello Dell’Utri, Berlusconi's close friend, as a director. In 1986 Reteitalia Ltd changed its name to Reteeuropa Ltd. A few months later, Mr Mills set up another company in Britain called Reteitalia Ltd, of which he became a director. This company changed its name to Reteitalia (UK) Ltd in 1988 and back again to Reteitalia Ltd in 1990.

The first Reteitalia Ltd (ie, the one that became Reteeuropa Ltd) bought film rights from third parties, which it then sold to other Berlusconi companies. It was a tax wheeze. Between March 1980 and December 1987, Reteitalia/Reteeuropa Ltd made $75m in pre-tax profits, which escaped British tax as the firm was deemed to be non-resident in Britain for tax purposes. This was because, while registered in Britain, it did not trade in Britain, and its registered owner and directors were not resident in Britain. After changes in British tax rules in 1988 eliminated this type of tax-avoidance scheme, Reteeuropa Ltd sold all its films rights in 1989 and wound down its activity in 1990 to very small fraction of its previous level. It made total losses of $53m between 1989-90, after the tax law had changed.

The second Reteitalia Ltd also bought and sold film rights, but, unlike its former namesake, it did trade in Britain and had some British directors, including Mr Mills. It was therefore subject to British tax, but made only meagre profits, followed by a loss in 1990. It, too, sold all its film rights in 1989.
So Mills was simply the man on the spot in Britain, helping Berlusconi to exploit a loophole in British tax law. This wasn't, perhaps, the most seemly occupation for a lawyer - let alone a lawyer married to a rising politician - but it's not as if Mills was deeply involved in Berlusconi's money-laundering activities. Oh, wait a minute...
These [the two British 'Reteitalia's] were just two of 29 companies in Fininvest “Group B”. The expression Group B was used to “differentiate the official companies of Group A from those which, although also controlled by Fininvest, should not appear as group companies and thus be kept out of the consolidated accounts”, Mr Mills told magistrates. On CMM’s summary sheet for each of the companies in Group B, were the words “very discreet”, an aide-mémoire to keep secret the link with the Fininvest group.

None of the 29 companies had any employees or any administrative infrastructure of their own. Trust companies acted as the registered agents for the companies’ shares (which were mainly in bearer form) and leading financial institutions in the Bahamas, Britain, Jersey, Luxembourg and Switzerland acted as bankers. Mr Mills claimed to the registered agents that he was the beneficial owner of three of the 29 companies. Mr G Foscale, Berlusconi's cousin, was presented as the beneficial owner of All Iberian.

CMM served as company secretary to 17 of the 29 companies. Ms Maynard was a director of Century One Entertainment and Universal One, and also of All Iberian. Mr Mills told Milanese prosecutors that Fininvest managed, directed and financed the operations of the All Iberian group. In other words, CMM was an interlocutor for Fininvest with bankers and registered agents of the Group B companies.
And so it goes on. What the Economist (and Lane's book) describes is a mind-bogglingly complex network of business and accounting entities, operating on the outer limits of legality and devoted to money-laundering and bribery. And the Economist (although not Lane's book) gives rather more than a walk-on part to David Mills.

There's more from Dave here, here and here. But of course, we should bear in mind that Mr Mills denies any wrongdoing.

Update It appears that the money paid to Mills was on-shored, if that's the word, by the interesting device of raising an appropriately-sized loan on Mills' house and then immediately repaying it by emptying out the off-shore account. What's particularly interesting is that Mills didn't have sole ownership of the house in question. His co-owner - and co-signatory to the loan - was of course Tessa Jowell. Who says:
I signed a charge over our jointly-owned home to support a loan made to my husband alone by his bank. I am satisfied that no conflict of interest arose out of this transaction in relation to my ministerial duties.
So that's all right then.

1 Comments:

Blogger Clare said...

Hi Phil, nice to finally meet you at last!

I've finally posted a round-up of all the various accounts of the blogmeet here. Enjoy.

21/2/06 23:35  

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