Global Policy Forum

By John Hooper

A judge in Milan will today begin the first criminal proceedings to be triggered by the Parmalat scandal when he opens a hearing to decide on calls for the indictment of 32 individuals and institutions including the group's founder and former chairman, Calisto Tanzi. The global food conglomerate's devastating €14bn (£9.65bn) implosion at the end of last year was the result of one of the world's largest financial deceptions. A vast network of offshore subsidiaries covered up debts eventually totalling eight times those shown on Parmalat's balance sheet.

The scandal raised fears about corporate governance in Europe comparable to the worries prompted by the failure of Enron in the United States. It also revived speculation that investors in Italian companies courted special risks. So great is the interest in the proceedings that they are to be relayed to screens outside the court. Tens of thousands of Italian bond and shareholders saw the value of their investments slashed by Parmalat's near-collapse.

Prosecutors will strive to convince the judge that they have a solid case against Mr Tanzi and 28 other Parmalat directors, executives and advisers. They are also seeking the arraignment of the Italian units of the firm's accountants, Deloitte & Touche and Grant Thornton, and the Italian subsidiary of Bank of America, which was closely involved in Parmalat's financing. Bank of America, Deloitte & Touche and Grant Thornton's former Italian unit have all denied wrongdoing.

In separate civil actions, the company's administrator, Enrico Bondi, is trying to get back cash from international institutions he blames for underpinning the group's fantasy accounting. Several banks helped with - and profited from - a stream of bond issues that kept Parmalat afloat until last December. The hearing that begins today is expected to last several months. The accused have been charged with a variety of financial offences including market manipulation.

Among those at risk of indictment is Fausto Tonna, Parmalat's former chief financial officer. In an interview at the weekend, he strove to heap the blame for the company's downfall on to its founder. He painted a picture of a chairman who simply ignored repeated shortfalls between predicted and actual earnings. "For a decade, we went on drawing up budgets [on the basis of] forecast growth of 35 to 40% when sales were way below that," he said. "Lots of times, I warned the boss, but he would shrug. That's how he behaved when faced with bad news."

The former CFO also accused Mr Tanzi of keeping on incompetent executives despite their failure to meet the profit targets on which Parmalat's spending was based. His own department was "forced by Calisto Tanzi to cover [the] losses," he added. In separate actions, Parmalat's new managers are suing Deloitte & Touche and Grant Thornton for $10bn (£5.5bn) and seeking a further $10bn from banks including Citigroup, UBS, Deutsche Bank and Credit Suisse First Boston.

But financial institutions affected by the scandal have claimed they too were fooled by the vast fraud perpetrated at Parmalat. It came to light last December when Bank of America denied it was holding €4bn which the group claimed to have deposited with it. Today's hearing opens against a background of reports that prosecutors in Parma, near where the company is based, are investigating claims it paid €2m a year to political parties. The newspaper La Repubblica said at the weekend that it was not yet clear if the donations had been declared.

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