Byline: Sara Gay Forden

MILAN--As the fashion bribery scandal here continues to spread, two tax officers have been arrested based on testimony by Krizia's Mariuccia Mandelli and Basile executives, police sources confirmed Tuesday.
Luigi Campi and Sebastiano Fichera, who worked in Milan's local income tax office, have been charged with corruption in connection with audits carried out at Krizia and Basile, the sources said.
The officers reportedly split
bribes with high-level officials of the Guardia di Finanza, Italy's paramilitary tax police, which is the focus of the anti-corruption probe by investigating magistrates here.
A third local tax official, Salvatore Morello, turned himself in to police late Tuesday after an arrest warrant was issued charging him with taking a $64,000 (100 million lire) bribe from Giorgio Armani SpA.
As reported, a Guardia marshal, Giacomo Giaminardi, was arrested last week for accepting a bribe of $100,000 (165 million lire) from the Versace fashion house.
Meanwhile, Basile chairman Gigi Monti was still being held in Milan's San Vittore jail late Tuesday, although his release was expected to be imminent after he admitted Monday that he had learned about a $254,000 (400 million lire) bribe his company paid to a tax officer.
Monti reportedly told magistrates he had given "carte blanche" to former Basile managing director Nicola Di Luccio, who later told Monti he had "taken care of the fiscal problem." Further interrogations of fashion executives, if any, weren't expected until today, as investigating magistrate Antonio Di Pietro, who is heading the questioning on this probe, was tied up Tuesday prosecuting the big Enimont political corruption trial. As reported, some of Italy's top designers--Giorgio Armani, Gianfranco Ferre, and Mariuccia Mandelli--and fashion executives Santo Versace and Monti and Di Luccio of Basile have confessed their houses bribed tax officials.
The extent and systematic nature of such illegal payoffs in Italy has apparently surprised even that determined group of Milan magistrates who started rooting out corruption two years ago in what has been dubbed the epic "Mani Pulite" or "Clean Hands" probe.
"Nobody imagined it was so diffuse, and we are continuing to discover things every day," said Gherardo Colombo, one of the Milan magistrates on the anti-corruption team, in an exclusive interview with WWD.
Sitting in his office off a long corridor in Milan's labyrinthine courthouse, surrounded by stacks of documents and silently working assistants, Colombo offered his view of the current cleanup campaign, which has targeted corrupt officers of the Guardia di Finanza and is now rocking the fashion community here.
"The first investigation, Mani Pulite, involved payments by industrialists to politicians or public officials to get them to behave in ways that were contrary to their duties of public office," explained Colombo, who handles the financial documentation for the investigations while his colleague Di Pietro does interrogations.
"This meant that if there was a bidding auction for a public contract that should have been assigned to the company with the most merit, it was assigned instead on the basis of a kickback," the magistrate went on.
"The probe of the Guardia di Finanza, in our view, is very similar to the first investigation--in these cases there is the industrialist who pays off the tax official to close an eye or not pursue a thorough audit," he said. "In both cases there is a payment to a public official to not carry out his duties."
The probe of the Guardia, which started in May, has implicated companies in all sectors of Italian industry, including such high-profile firms as Fininvest, the media empire of prime minister Silvio Berlusconi; Rinascente, the national department store chain; Gemina, the Fiat investment company, and leading publishing houses as well as local subsidiaries of multinational corporations. More than 180 cases of bribery have been exposed, accounting for billions of lire of illegal payments, and some 50 indictments have already been sought.
Just over a week ago the probe turned its spotlight on the fashion sector and almost immediately caught some of the top names in the industry. All the designers that have been interrogated to date are under investigation for corruption, a charge that applies to both the person making a payoff and the public official who accepts it.
However, all the designers have testified that they were forced to pay, and consider themselves victims of extortion. Although Colombo said he couldn't comment on this aspect of the investigation, legal experts said that the charges could be modified by a judge further along in the legal process. The sentence for corruption ranges from 2-5 years, while extortion carries a jail term from 4-12 years. But lawyers here said it is unlikely any of the designers will end up in jail if they cooperate with the magistrates.
"The choice of the corruption charge by the magistrates is one I don't agree with," said Alberto Moro Visconti, a leading Milan criminal lawyer who is also Santo Versace's defense attorney.
"We'll have to see at the end of the process if the judge decides to modify the charge to extortion, which would mean the designers were victims of a crime," Moro Visconti said.
The fashion community, stung by the news splashed all over the Italian press that its leading players have admitted to paying bribes, has vacillated between downplaying the seriousness of the allegations and accusing the judges of unfairly singling out the designers, whose business success is so closely linked to their image.
"This kind of corruption has been around since the days of Adam and Eve," said Giuseppe Della Schiava, president of the national Camera della Moda, which organizes the twice-yearly designer presentations.
"This system, which had to do with normal administrative procedures, has been prevalent in Italy for the past 20 years and is only now coming out. The companies were forced to bend and pay in order to be left alone," he said.
"The thing that bothers me is why this had to come out just a few days before fashion week," he added. "Why couldn't they have waited 15 days?"
"An investigation can't be influenced by external events," Colombo countered. "Once we start down a certain path, we have to go forward. The penal process has to determine if a crime was committed.
"We don't know, as people say, that everybody was doing it; that's irrelevant to the penal process. The laws were there and should have been observed," he added.
The magistrate also denied that the fashion sector had been singled out over any other.
"The fashion sector isn't any more or less significant than any other, and it wouldn't be correct for us to make a distinction," Colombo said. "Furthermore, I don't have any basis for believing that corruption in this area was any more or less diffuse than in any other."
So far the probe has nailed government officials ranging from local tax men in Milan to ranking members of the elite SECIT corps of tax controllers, who reside somewhere above the ordinary Guardia di Finanza units in Italy's convoluted tax enforcement structure.
The Guardia is an armed corps of tax officers that comes under the control of the Finance Ministry and, among other duties, is charged with carrying out tax audits on companies and individuals.
And there is very little that is more terrifying for an entrepreneur here than to see these pistol-carrying officials with their gray uniforms and yellow flame insignias suddenly arrive to conduct an audit.
"The use of a military corps for fiscal controls is a characteristically Italian thing," said Milan accountant Luca Marioli.
"Psychologically it isn't very pleasant to have these officers on your premises. They can slow the daily operations of a business to a standstill while they carry out their reviews. If the transactions are complex, it could take months," he added.
Marioli also pointed out that the extremely complex nature of Italy's tax system, which levies fines for fiscal as well as bureaucratic errors, makes it practically impossible for a business to file a perfect tax return.
"It's unusual that the tax controllers don't find mistakes," Marioli continued. "For a company to file a perfect tax return it would have to make that its primary objective and forget about being productive.
"That's another reason why the Guardia di Finanza strikes fear into people--they are very good at finding errors. Certainly we need to reclassify our fiscal norms." he added.
That some of Milan's top designers should be caught in this scandal doesn't shock fashion business consultant Carlo Pambianco, who said it inevitable that sooner or later the fashion industry would be implicated.
"This is an extremely profitable industry that generated extremely high cash flows," said Pambianco, chairman and founder of the Pambianco consulting firm.
"I'm not surprised to hear that there was an effort to take advantage of the situation--whether by the design houses or by the tax officials--and this kind of behavior certainly must be condemned," he said.
"Whether the design firm was a victim or a participant, it still benefited from paying less taxes," he added.
But Pambianco emphasized that the fiscal scandal probably wouldn't touch the capacity of these houses to continue to produce high-end designer fashions.
"Clearly the merits of the Made In Italy label aren't wiped out by something like this," he said. "And now everybody is being forced to take account of the new climate of morality that is sweeping this country."
Given the growing mountain of cases emerging from the combined "Mani Pulite" and Guardia di Finanza investigations, there is increasing debate here about developing a legislative solution to Italy's seemingly endemic corruption problem.
The judges have presented a proposal that would create incentives for confessions, including wiping out jail sentences for people who come forward voluntarily, and provisions for fast-track plea bargaining for those who confess within three months of the crime.
However, the judges have also called for stiffer sentences for the more serious corruption offenses.

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