EU reviews company controls after Parmalat fraud scandal

BRUSSELS/ROME – The European Union said on Tuesday it was looking to tighten accounting controls on publicly traded companies after dairy giant Parmalat’s plunge into insolvency, but Italy’s top regulator said the scandal would have escaped even the most attentive watchdog.

As investigators continued trying to piece together the puzzle of the multinational food group’s missing billions, EU finance ministers met in Brussels to discuss the implications of Parmalat’s near-collapse. Frits Bolkestein, the EU’s top financial regulator, said he would propose beefing up accounting rules within the European Union and wanted to ban more than one auditor being responsible for a company’s accounts.Parmalat’s books were audited by two separate firms, the Italian affiliate of global auditors Deloitte & Touche, and the recently expelled local unit of Grant Thornton.Four top auditors and the two units themselves are being investigated in the fraud probe, including the former chairman of Grant Thornton’s Italy office and a senior partner who were arrested on New Year’s Eve.All have denied any wrongdoing.But Bolkestein warned against rushing to introduce new laws.”The Commission’s view remains that hasty and ill-considered legislation could add to, rather than solve, regulatory problems highlighted by high-profile cases such as Enron and Parmalat,” he said after the finance ministers’ meeting.Parmalat stunned financial markets worldwide just over a month ago when it revealed a four billion-euro hole in the accounts of a Cayman Islands unit, forcing Italy’s eighth-biggest group to request bankruptcy protection.INVESTIGATIONEleven people, including Parmalat’s founder, have been arrested on suspicion of market-rigging, fraudulent bankruptcy and falsifying accounts and other possible crimes.Parmalat executive Franco Gorreri, jailed on Monday in the most recent arrest, said in a note that he had resigned as chairman of regional bank Monte Parma, which he had headed since 1992.The scandal has also touched banking giants.Citigroup said on Tuesday it took writedowns of US$351 million related to Parmalat and had US$302 million of remaining exposure to the company.That gave it the biggest single exposure to Parmalat announced by any bank worldwide.Italian prosecutors are looking at Citigroup’s ties to Parmalat, including its sale of the company’s bonds, and a former executive of Bank of America is under investigation.Market regulation has become the hot topic in Italy after Parmalat’s crisis came hard on the heels of other, smaller corporate collapses and the acquisition by domestic investors of 13 billion euros worth of now-defaulted Argentine bonds.But the head of Italy’s market watchdog said in Rome that agency was not to blame for the Parmalat scandal.”This type of fraud could escape detection even by those best placed to deal with it,” Consob Chairman Lamberto Cardia told a parliamentary hearing.WHO PROTECTS INVESTORS?Calling for more powers to investigate and issue fines, Cardia cast doubt on a proposal by Economy Minister Giulio Tremonti for a three-pillared system of market regulation in Italy, saying it would be “ineffective in the short-term”.Tremonti’s own deputy on Monday said Italy’s financial police – controlled by the Economy Ministry – should have investigated Parmalat years ago.”I’m glad I’m not the Italian finance minister,” Austria’s Karl-Heinz Grasser joked as he went into the Brussels meeting.Tremonti said he would propose a reform to clamp down on the use of tax havens, saying offshore units should be subject to the same rules as their parent companies back home.Prosecutors say Parmalat managers used shell companies in tax havens, fake documents and inflated invoices to cover a hole in the group’s accounts that could surpass 10 billion euros.Tremonti said his proposal would be made at a meeting of G7 industrialized countries in Florida on February 6-7.In Parma, investigators took Fausto Tonna, a former Parmalat finance director, and internal auditor Gianfranco Bocchi from prison to the group’s nearby head office for a second day of attempts to “reconstruct” the its financial workings.An investigative source said the two men had revealed “the key” for understanding the way the accounts were altered.Meanwhile, Bank of America dashed hopes of some investors that the missing cash had been found.A spokeswoman for the US bank said a supposedly secret account that was purported to hold nearly $8 billion of money belonging to Parmalat did not exist.Earlier this month, Carlo Zauli, an Italian lawyer for a group of Parmalat creditors, said he had traced that sum of money to a specific account with Bank of America.In Brazil, a court appointed an audit committee to ensure one of Parmalat’s oldest and largest overseas operations, Parmalat Brasil Industria de Alimentos, does not sell any assets.-Nampa-ReutersFrits Bolkestein, the EU’s top financial regulator, said he would propose beefing up accounting rules within the European Union and wanted to ban more than one auditor being responsible for a company’s accounts. Parmalat’s books were audited by two separate firms, the Italian affiliate of global auditors Deloitte & Touche, and the recently expelled local unit of Grant Thornton. Four top auditors and the two units themselves are being investigated in the fraud probe, including the former chairman of Grant Thornton’s Italy office and a senior partner who were arrested on New Year’s Eve. All have denied any wrongdoing. But Bolkestein warned against rushing to introduce new laws. “The Commission’s view remains that hasty and ill-considered legislation could add to, rather than solve, regulatory problems highlighted by high-profile cases such as Enron and Parmalat,” he said after the finance ministers’ meeting. Parmalat stunned financial markets worldwide just over a month ago when it revealed a four billion-euro hole in the accounts of a Cayman Islands unit, forcing Italy’s eighth-biggest group to request bankruptcy protection. INVESTIGATION Eleven people, including Parmalat’s founder, have been arrested on suspicion of market-rigging, fraudulent bankruptcy and falsifying accounts and other possible crimes. Parmalat executive Franco Gorreri, jailed on Monday in the most recent arrest, said in a note that he had resigned as chairman of regional bank Monte Parma, which he had headed since 1992. The scandal has also touched banking giants. Citigroup said on Tuesday it took writedowns of US$351 million related to Parmalat and had US$302 million of remaining exposure to the company. That gave it the biggest single exposure to Parmalat announced by any bank worldwide. Italian prosecutors are looking at Citigroup’s ties to Parmalat, including its sale of the company’s bonds, and a former executive of Bank of America is under investigation. Market regulation has become the hot topic in Italy after Parmalat’s crisis came hard on the heels of other, smaller corporate collapses and the acquisition by domestic investors of 13 billion euros worth of now-defaulted Argentine bonds. But the head of Italy’s market watchdog said in Rome that agency was not to blame for the Parmalat scandal. “This type of fraud could escape detection even by those best placed to deal with it,” Consob Chairman Lamberto Cardia told a parliamentary hearing. WHO PROTECTS INVESTORS? Calling for more powers to investigate and issue fines, Cardia cast doubt on a proposal by Economy Minister Giulio Tremonti for a three-pillared system of market regulation in Italy, saying it would be “ineffective in the short-term”. Tremonti’s own deputy on Monday said Italy’s financial police – controlled by the Economy Ministry – should have investigated Parmalat years ago. “I’m glad I’m not the Italian finance minister,” Austria’s Karl-Heinz Grasser joked as he went into the Brussels meeting. Tremonti said he would propose a reform to clamp down on the use of tax havens, saying offshore units should be subject to the same rules as their parent companies back home. Prosecutors say Parmalat managers used shell companies in tax havens, fake documents and inflated invoices
to cover a hole in the group’s accounts that could surpass 10 billion euros. Tremonti said his proposal would be made at a meeting of G7 industrialized countries in Florida on February 6-7. In Parma, investigators took Fausto Tonna, a former Parmalat finance director, and internal auditor Gianfranco Bocchi from prison to the group’s nearby head office for a second day of attempts to “reconstruct” the its financial workings. An investigative source said the two men had revealed “the key” for understanding the way the accounts were altered. Meanwhile, Bank of America dashed hopes of some investors that the missing cash had been found. A spokeswoman for the US bank said a supposedly secret account that was purported to hold nearly $8 billion of money belonging to Parmalat did not exist. Earlier this month, Carlo Zauli, an Italian lawyer for a group of Parmalat creditors, said he had traced that sum of money to a specific account with Bank of America. In Brazil, a court appointed an audit committee to ensure one of Parmalat’s oldest and largest overseas operations, Parmalat Brasil Industria de Alimentos, does not sell any assets.-Nampa-Reuters