Vol 1 (2004) - Issue 2

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Parmalat: A Lesson for the Future?

The last known location of several billion US dollars is Ugland House, P.O Box 309 in the Cayman Islands.
Beginning at Collecchio near Parma in Italy, the seat of La Coloniale, the company through which Calisto Tanzi controlled Parmalat, the chronicle of these monies travels five thousand miles, reaching the palm-encircled resort of Georgetown, Grand Cayman Island, in the Caribbean, where the ‘investment fund’ Epicurum, was domiciled. According to the information available, US$ 6.9 billion have gone missing.
There are two networks of offshore companies. The first can be traced back to the Parmalat group, and the second is headed by Fausto Tonna, who has been the financial director of the Parmalat group for fifteen years. During this period, the Collecchio group has experienced an incredible increase in turnover, going from ITL 7 billion (equivalent to EUR 3.5 million) to EUR 7.5 billion. One would have thought that Tanzi would have needed to have access to colossal capital to sustain such development and maintain control; however, the controlling company, La Coloniale, has always maintained a modest capital of approximately EUR 190 million.
The transformation to multinational group must therefore have come about through different means - loan financing. According to the recent assessment by the analysis team of Enrico Bondi, who is currently drawing up a restructuring plan for the stricken company, the group’s debt to date would probably exceed EUR 14.3 billion and the total value of bonds on the market would amount to about EUR 7.2 billion.
The principal problem relates to the assets of the group, which seem to have almost completely disappeared in an amazing worldwide network of some 260 companies. These companies may have been used to hide questionable financial operations, infra-group acquisitions and cessions in relation to Parmalat’s budgetary requirements, using ‘back-to-back’ operations, showing non-existent assets in the accounts and then having them ‘disappear’ far from the control of the Bank of Italy. This type of financing is similar to the US concept of escrow financing.
Briefly, the operation of escrow consists of a company (Company A) obtaining credit from a bank and then depositing it in a foreign bank as a pledge. The foreign bank, holding the money as a guarantee, then sets up a trust in favour of one of the group’s offshore companies. The credit originally obtained will only appear in the balance sheet of Company A, creating an apparent liquidity that could be used to guarantee, for example, new bond issues. This can be made even more straightforward with the aid of well-known financial institutions, as occurred in the Parmalat situation with the Bank of America and Citigroup.
Tanzi controlled the Parmalat group through the family’s holding company, La Coloniale. The Tanzi family is the majority shareholder of La Coloniale through the limited liability company Utilitas srl, in turn owned by Acqua S.A. domiciled in Luxembourg and controlled by the Luxembourg management company group and by LM Consulting Company, in the Virgin Islands.
Parmalat Spa, controlled by Parmalat Finanziaria, owns Soparfi, a financial institution with its registered office at Place del La Contests 5, in Luxembourg. From an examination of the Registre de commerce et des sociétés of Luxembourg, it is clear that this company was the principal channel for the infra-group sales. From the documents, it appears that Parmalat Holding Malta Ltd, a Soparfi subsidiary having its registered office in Malta, controls not only Parmalat Trading Company, but also Parmalat Capital Finance, an off-shore company domiciled in Malta with its registered office in Georgetown, Grand Cayman.
Established in 2002, Parmalat Capital Finance Ltd has performed only two operations: first it purchased a Cayman company, Bonlat Financing Corporation, at a price of US$ 2; and second it transformed Bonlat into an asset container by transferring US$ 6.9 billion to Bonlat, shown in the Parmalat group’s balance sheet as ‘loan capital’. Bonlat then invested the whole sum in a currency swap with the Epicurum fund.