Below is an analysis of Fastweb’s governance which emerges out of the interrogations and the documents of the probe which highlight a chain of command made of various managerial levels, each with their own degree of operational and managerial independence, with the Internal Audit committee at the top.

The ways of “fraud” are infinite. “And we at Fastweb – as Scaglia stated many times – have been ripped off”. To be precise, this is a well-orchestrated fraud so much so that investigators and magistrates have taken three years to unbundle its mechanisms. “This is a well-orchestrated fraud” – insists Scaglia – as they fooled everybody, including the executive committee that carried out checks”.

During the interrogations, in particular during the interrogation of April 12, Scaglia explained in detail the way checks were carried out according to law and how checks were also run by professionals, external to the company. It’s an analysis of the mechanisms of the governance of a company where each department had its own responsibilities.

From this analysis it emerges that Scaglia, chairman of the Board of Directors, “looked after the strategies and not business contracts”.  That is, Fastweb’s chairman was aware of the business activities of the company but not of the content of single contracts which fell under the responsibility of hands-on managers and which were then submitted to other controlling committees. Every operation after being examined by managers was checked from a legal, tax and business point of view. Scaglia repeatedly explains to prosecutors “I have never personally dealt with business contracts. My role had to do with the Board of Directors”.

Therefore, despite what he has been charged with (tax fraud), the founder of Fastweb “could be unaware”. When in 2003, when tax, legal and management details about the Phuncards operation were requested by the Board of Directors, the Internal Audit committee carried out a full check. Only after these checks were carried out, which were confirmed by the lawyer Guido Rossi, did the committee decided to go ahead with the operation. This is a very sensitive point of the enquiry.

But let’s leave the floor to the transcripts, of which we have published some extracts, starting from the chapter dedicated to Scaglia’s role as chairman of Fastweb when the company counted over 3,000 employees.

Scaglia: “I looked after the strategy, not business contracts”

1.Interrogation of March 13 2007 (Prosecutors Passaniti and De Leo)

Silvio Scaglia: My point of contact at Fastweb was Manuele Angelidis who was appointed CEO in April 2003. There was a division of roles in the company so that every department was independent; I also looked after all e.Biscom companies”

2. Interrogation of March 2 2010 (Prosecutor Morgigni)

Morgigni: “Did you know any external consultants or did you know them according to the role they played?”

Silvio Scaglia: “I did not look after the contracts. Not all departments at Fastweb dealt with all contracts.” […]. I looked after the technology strategy and I made sure that processes in the company worked.”

Morgigni: “There’s something I don’t understand. If the goal was to check that the system was profitable month by month, I guess you gave managers some directions to make profits, right?”

Scaglia: “It was more than this. There was a business organization, there were business competencies. There was someone responsible for family sales, someone in charge of selling to businesses, someone in charge of selling to operators and there was an executive committee (Internal Audit)”.

3. Interrogation of April 12 2010 (Capaldo, Bombardieri, Di Leo and Passaniti prosecutors)

Di Leo: “At Fastweb, did you take part in meetings during which the progress of the business, the rise in the number of users, the profits etc were discussed in detail?

Scaglia: “At Fastweb I worked with the Board of Directors and Fastweb had an executive committee that dealt with the issues you’ve mentioned”.

Di Leo: “Ok. And did you ever take part in this executive committee?”

Scaglia: “I was not part of the executive committee and I did not take part in it”

Scaglia: “The Board of Directors started to deal with the Phuncard operation only in 2003”

Answering prosecutors’ questions, Scaglia explains how budget decisions to be communicated to the public were made: it was a bottom-up process which ended only when goals were agreed on. Here are the transcripts:

Di Leo: “Between 2001 and 2003, how were business plans and budgets, both internal and public, agreed on?”

Scaglia: “As for the budget, we followed a specific procedure and it is all documented […]. The process to decide on the budget worked this way. At the operational level, certain goals were set, these were submitted to the executive committee and if they did not get approved they were re-discussed at a lower level. This is how things work in every company. When an agreement is made, a proposal is submitted to the Board of Directors, it is discussed and generally approved. When we got to that stage, I had already had contacts with Angelidis and knew that the budget would be approved […]. One important thing is that the budget we approved was normally slightly lower.”

Di Leo: “Do you mean the budget you made public?”

Scaglia: “Yes. The official budget, that is the one that was communicated to the public, was a bit lower  compared with the budget goals set internally”.

Once these aspects were clarified, prosecutors asked Scaglia how the three main departments of the company worked: Retail, Corporate and Wholesale, in particular with relation to prepaid cards, that is the Phuncard operation.

Scaglia: “There’s a very important thing that I’d like to say”.

Bombardieri: “Please go ahead”.

Scaglia: “The Board of Directors at Fastweb started dealing with the Phuncards business, that is prepaid cards, in 2003 when the Internal Audit warned that the business was starting to grow…”

Bombardieri: “Exactly. You said yesterday that the Board of Directors started to take an interest in the operation in 2003”.

Scaglia: “Yes. In the summer of 2003, the Board of Directors started to deal with ….”

Bombardieri: “Wholesale”.

Scaglia: “No, with prepaid cards……then how does the Board of Directors work? There’s a controlling committee chaired by Carlo Micheli and it was him who was in charge of the Internal Audit …”

Summary

1.Scaglia looked after the strategy and did not deal with contracts.

2.The Board of Directors started to deal with the Phuncards operation only in 2003.

3. The Internal Audit was in charge of running checks on this business operation.

But what happened in the summer of 2003? Find out in the next blog post.

Transcripts confirm that Scaglia has nothing to do with the fraud. Extracts from the transcripts are below.

Well, could you tell me if you have ever heard of Silvio Scaglia?” This is the question that appears in transcripts of all interrogations relating to the Telecom Italia-Fastweb probe. This question appears when suspects external to the company were interrogated by prosecutors. These people were involved in the Phuncard and Phone Traffic operations but they had never had any direct business contact with Fastweb. None of them knew Scaglia personally. They only heard about him because he was well-known in the business. Nothing else.

Carlo Focarelli, who prosecutors consider the ‘mind’ behind both the operations, denies meeting Scaglia. When magistrate De Leo asks him about Scaglia, he replies “I have never met Scaglia. Let’s clear this up straight away […]

This was confirmed by Silvio Scaglia’s lawyers during his interrogation on March 2 2010 when prosecutors put into writing that “Focarelli was an external consultant who had contacts with some managers but not with Scaglia”.

Other suspects, like Antonio Ferreri, former CEO of Webwizard and Cmc that provided services to Fastweb, were asked whether they knew Scaglia, to which Ferreri replies: “I know him by name but by name only. I have never met him and have never spoken to him over the phone”. Then the prosecutor asks: “what do you mean when you say that you knew him by name?” Ferreri: “I knew him cause he was famous, he was one of Fastweb’s major shareholders”.

Also on the list there is Alessandro Cionco, the sole partner of New Success Hong Kong ltd, one of the companies where most of the illicit money ended. The magistrate says: “Since you were all staying at the Mandarin Hotel and this hotel is full of people who are on the list, have you ever met Silvio Scaglia? Did they tell you who he is? Cionco: “No, they didn’t.”

Maria Olga Francesca Carmine-Tessa, wife of Paolo Prinzi, the owner of Euram Finance, charged with money laundering, states the same. The woman is called by magistrates as she closed bank accounts with money referable to her relatives”.  Magistrate Aldo Morgigni asks her: “I’d like to understand something: have you ever heard of someone called Silvio Scaglia?” To which she replies: “No, I haven’t”.

Also Maurizio Laurenti, owner of Accord Pacific Limited in Hong Kong, charged with money laundering states when interrogated by magistrate Morgigni:

Morgigni: is it possible that Focarelli has never mentioned Scaglia, not even for a joke?

Laurenti: “Scaglia?”

Morgigni: “Right”

Laurenti: “But I have no idea who he is. I can guarantee you I have no idea who that is”. I have seen him on television. He’s the guy with a round face that has come back from ……where?”.

Lawyer: “The West Indies”

Laurenti: “But I have no idea who he is”[…]. He could have stayed where he was with all the money he’s got. Anyway, I have never met him, never spoken to him”.

Then, it’s Nathalie Madeleine Dumesnil’s turn, arrested for transferring millions of Euros from Europe to the Far East. Question: “Have you ever heard of someone called Silvio Scaglia? And what about Riccardo Scoponi? And Marco Toseroni? To which Dumesnil’s reply is cutting: “Yes I have heard of Marco Toseroni”.

Can Living in London be evidence of guilt? Apparently yes if your name is Silvio Scaglia and you end up being judged by magistrate Aldo Morgigni who justified Scaglia’s preventive incarceration right after his return to Italy with the fact that he lives abroad.

The arrest warrant says that “Scaglia resides in London (UK) where some of the companies involved in the probe are located along with subjects of British nationality that have been used as dummies. But there’s a substantial difference between this statement and the conclusion that there is a link between Scaglia’s residence in London and the fact that the illegal operations were set up in London. Also, because dates do not add up.

Looking at the facts, Silvio Scaglia moved to London on February 2007 as proved by the fact that he signed in to the AIRE, the register of Italian residents abroad. He did not move to London for tax reasons. Quite the opposite. The whole family moved to London to support their daughters who were attending universities in the UK. At that time, Fastweb was sold to Swisscom and that became public on March 12th. Scaglia at that time was already working on new projects and embarking on new business adventures such as Babelgum, convinced that London was an ideal platform for the launch of new multimedia initiatives at a global level.
Unfortunately, this does not seem to count for magistrate Morgigni who believes that London simply has a bad reputation.

While the chronometer of Scaglia’s preventive custody is hitting 200 days, we got news from the capital about the first hearing of the trial that will be held on November 2:

1. Some defense lawyers have filed a request to examine all the paperwork relating to the interrogations conducted by prosecutors. In other words, they ask for access not only to the electronic version of the material but also to transcripts of interrogations.

2. From September 15, the suspects will have 15 days to decide on plea bargaining.

3.   Magistrate Maria Luisa Paolicelli will go back to work on September 16, while September 27 might be an important day for many suspects as the Court of Review will have to  decide on requests for release filed by some lawyers, requests that were rejected by magistrate Aldo Morgigni in the past.

4. In the first week of October, all of the documentation relating to the Telecom Italia – Fastweb probe will land on the desks of judges from the Criminal Court of Rome, chaired by magistrate Bruno Costantini.

The records of the inquiry confirm that Scaglia has nothing to do with the Phuncard operation

“Silvio Scaglia? I have never met him” Carlo Focarelli told prosecutors on May 24. But there’s more to it. Focarelli added: “When Globestream was founded, I decided to thank Zito by paying 3M Euros in his account, that is, a part of the profits coming from the provision of content”.

Moreover, answering prosecutors’ questions about ‘’other beneficiaries of his thank-you’s”, Carlo Focarelli replies that nobody at Fastweb benefited from that money and no money has ever been paid in Fastweb’s accounts.

As we can see, the truth that has so far been distorted by rumours and speculation is finally coming out from the records of the inquiry. Any clarification is more than welcome as stated by Scaglia’s lawyers below.

Statements from Silvio Scaglia’s lawyers: the Phuncard business operation was not set up by Scaglia”

Milan – September 2010. With regards to what has been published by the press, Scaglia’s lawyers, Pier Maria Corso and Antonio Fiorella, would like to state that:

1)      The Phuncard operation was not set up by Silvio Scaglia. As stated by Scaglia himself during his interrogation by prosecutors on April 12: “Between 2001 and 2003 I have taken care of the stragegy. I have never personally dealt with business contracts”.

2)      Silvio Scaglia has never met Carlo Focarelli, as confirmed by Focarelli during his interrogation on May 24: “I have never met Scaglia in my life. I have only met Emanuele Angelidis, Bruno Zito and some other people from Fastweb”. Focarelli explains that he met Zito through Andrea Conte “who sent me to Zito in Milan”.

3)      The decision of taking up the business of prepaid cards was made after checks were carried out by an internal committee chaired by Carlo Micheli and after Prof. Guido Rossi gave the go ahead. This is confirmed by an email from Micheli dated 30 July 2003”I don’t see why we shouldn’t go ahead with these activities during the month of August within the limits set by Prof. Rossi while waiting for the Board meeting”.

4)      Therefore, the claim that “the decision was made by Scaglia has no grounds”.

We look forward to the trial where we will demonstrate that our client is totally innocent.

Expected legal developments

In response to the emails we have received from our readers, we have prepared a brief guide to the near-term developments we can expect in the Telecom Italia-Fastweb case, following the judge’s decision to approve prosecutors’ request for a fast-track trial (“giudizio immediato”):

1) The investigating judge’s office is preparing to transfer all of the documentation prepared by investigators to the Court of Rome, where the first hearing is scheduled for 2^nd November.

2) Defence lawyers are waiting to receive formal notification of the request for a fast-track trial (“giudizio immediato”). This is an important step as this notification will entitle defendants and their lawyers to finally review all of the documentation related to the investigation, including transcripts of all interrogations held after 24^th February 2010, the date in which arrest warrants were issued for 56 individuals (52 to be detained in jail and four under house arrest).

3) The request for a fast-track trial (“giudizio immediato”) has reset the clock for preventative detention. After 168 days in detention without charges, the suspects face another six months of preventative detention, with the possibility that this could even be extended. Detention will continue even though the term for preventative detention related to alleged tax fraud expired after three months for Silvio Scaglia (and others) and despite the fact that the term for preventative detention related to alleged conspiracy to commit tax fraud (maximum of six months) would have expired just days after the judge approved prosecutors’ request for a fast-track trial on 12^th August.

Lucia Annunziata, a well-known journalist and former president of Italian broadcaster RAI, comments on Silvio Scaglia and his paradoxical legal situation. Before joining RAI, Ms. Annunziata worked with Silvio Scaglia when she served as the executive editor of ApBiscom (now known as APCOM), the newswire that Scaglia’s e.Biscom group set up in 2000. In her remarks, Lucia Annunziata draws attention to the civility with which Silvio Scaglia is facing his situation, even under the most trying conditions, knowing he is completely innocent. Thank you Lucia for your precious words.

Silvio Scaglia is an exemplary suspect. After all, how many suspects would willingly return home from a comfortable overseas reside, chartering a private jet to save time and (above all) without first coming to a deal with investigators before stepping foot in Italy, knowing that jail awaited him?

It is pointless to ignore the fact that for decades Italy’s justice system has been the battlefield upon which our country has been fighting its fiercest, most painful and most unresolved of social and political battles. We have all had to navigate the vast sea of those investigations that have marked our post-war history – some worthy, others mistaken, some essential, others superfluous. We journalists have had to do this for professional reasons. Others have done this for political reasons, as occurs with those who write our laws. Finding one’s way through these treacherous waters has been a real challenge.

I for one trust and admire our magistrates. These men and women who, for the salary of a simple civil servant, carry on their shoulders the destiny of each and every one of us. The frequent attacks on these men and women have always saddened me, for a country that doesn’t trust those who administer justice loses all hope of being rewarded or punished in this world. Justice is above all a moral concept, and therefore divine, before it is a human, social or statutory notion.

That is why I have always thought that trusting in those who administer our justice is basically a self-serving act: it allows us to live with the certainty that there are principles of order that defend us and guide us.

For all of these reasons, one’s attitude towards judges has become a defining element for me. As a journalist, I consider the way in which a defendant responds to the law to be relevant. A defendant’s respect for the law, even in cases that seem paradoxical, can sometimes be the key with which I judge a person and a suspect. This is not a view to be taken lightly: think what you want, but an Andreotti who shakes the hands of the judges before his trial begins is one of the best lessons to come out of Italy’s First Republic.

Silvio Scaglia – for whom I worked during an exciting time when the Web believed in information, and who still today I believe to be one of the best minds in Italy – has been, as I said, an exemplary suspect. I share his faith in Justice. His behaviour alone defines him as a decent man. The rest will be decided by the judges.

Lucia Annunziata

By Giulia Segreti and Guy Dinmore.

Seven former managers and executives of broadband operators Sparkle and Fastweb are among 36 people who will go on trial in Rome on November 2 in what prosecutors allege to be Italy’s most serious case of tax fraud and money laundering.

Judge Maria Luisa Paolicelli, in fixing the start of the trial, accepted a request by prosecutors for a fast-track process for the 36 suspects on the grounds that they are all already being held in preventive custody or are under house arrest.

Both companies deny any involvement in the alleged tax fraud scam and allege that they were also the victims of fraud.

Among the 36 accused are Silvio Scaglia, billionaire founder of Fastweb, four other former Fastweb managers and two from Sparkle, a unit of Telecom Italia.

Gennaro Mokbel, head of a fringe rightwing party, and his wife Giorgia Ricci, both accused of money laundering, will also go on trial using the fast-track process.

Not all of the 36 names are immediately available. When police announced their operation in February, they issued warrants for 56 arrests, including for four UK businessmen.

“We think it is positive to go straight to trial because, finally, it will be possible to read the documentation gathered by the judges,” Mr Scaglia’s lawyers said in a statement. “All the charges against him are completely inappropriate, as not justified by any piece of evidence.”

They noted their client had been confined for nearly six months without hard evidence presented against him and before charges were brought.

Mr Scaglia founded Fastweb in 1999. The company, Italy’s second largest broadband provider, was sold in 2007 and is now 82 per cent-owned by Swisscom.

Mr Scaglia is charged with tax fraud and conspiracy to commit tax fraud. Under Italian law, he may be detained for a further six months. The handling of his case in particular has given rise to considerable concern in the Italian business community.

Mr Scaglia’s wife, Monica Aschei-Scaglia, wrote a letter to Corriere della Sera, an Italian daily, denouncing the severe conditions of his house arrest and what she called a “series of small and big abuses of power”.

Mr Scaglia hired a private jet to fly to Italy to respond to the accusations against him. He was arrested and after two months in Rome’s Rebibbia prison he was transferred to house arrest at his home in northern Italy, where he is only allowed visits by his immediate family and lawyers.
The tax evasion scam allegedly involved the creation of paper companies and invoices for €2bn ($2.6bn) of allegedly fictitious operations which were then used to evade tax. Police seized €300m of Sparkle’s assets and €38m from Fastweb.

Investigating judge Paolicelli approves Rome prosecutors’ request in 36 of 37 cases

Late yesterday evening, investigating judge Maria Luisa Paolicelli approved Rome prosecutors’ request for a fast-track trial (a so-called “giudizio immediato” or “immediate trial”) for 36 individuals under investigation in the Telecom Italia – Fastweb case. She also rejected a similar request in the case of Antonio Catanzariti, one of three former Telecom Italia executives named in the probe. Catanzariti, who headed Telecom Italia Sparkle’s “Carrier sales Italy” business at the time of the alleged fraud, will be tried under the normal penal procedure.
In the case of Scaglia and the other telecoms managers, Judge Paolicelli approved the requests on the basis that they are currently under preventative detention for tax fraud and conspiracy to commit tax fraud, and not on the basis of “obvious proof” foreseen by Art. 453 of the Italian penal code.

The first hearing has been scheduled for 2nd November at the Tribunal of Rome.

Statement from the lawyers of Silvio Scaglia: “There is no evidence against Scaglia. We will demonstrate in court that he is innocent. The sooner the case goes to trial the better. Mr Scaglia should be released immediately. He has already been detained for nearly six months as an innocent man without charge”.

Commenting on the request by Public Prosecutors for fast-track trial (a so-called ‘giudizio immediato’), Silvio Scaglia’s defence lawyers, Piermaria Corso and Antonio Fiorella, commented: “We welcome the request to go to trial, not least because we will at last gain unfettered access to all the documentation assembled by investigators and upon which they have based their arguments.”

“Silvio Scaglia is an innocent man and the accusations against him are completely unfounded. So far, these accusations have been based on circumstantial evidence without any hard facts to support them. A trial will enable us to demonstrate that he had absolutely nothing to do with the alleged fraud, and that he and Fastweb were the victims.”

“Now that the investigation is closed, Silvio Scaglia should be released immediately in order to prepare his defence under appropriate and civilised conditions. It is clear that none of the reasons that would justify his continued detention apply to his case: there is no risk of flight as he willingly and swiftly returned to Italy to make himself available to investigators; there is no risk of tampering with evidence as the investigation has closed; and there is no risk of repeating the crime as he has no role or interest in Fastweb.”

“Mr. Scaglia has the right to appear in Court as a free man and we cannot understand why he should be denied his fundamental right to liberty in the days prior to the trial.”