Exclusive: banks face new challenges in the Italian diamond scandal

MILAN (Reuters) – (Please note the strong language in paragraph 38.)

A long-running criminal investigation into diamond sales by Italian banks revealed what prosecutors said was further evidence of bribing officials at UniCredit, the largest Italian lender, Banco BPM, its smallest rival.

The allegations, some of which had not been reported before, are contained in documents used by prosecutors when they applied for a magistrate's order seizing badets from banks and two diamond brokers. Reuters viewed the documents, which also included extracts from tapping and witness statements.

The allegations relate to alleged crimes and do not necessarily mean that prosecutors will blame companies and their employees when their investigation, which began in 2016, is over.

However, the number of suspected bank managers and the allegations they might face if they accuse themselves are widening.

In a new development, officials of UniCredit and Banco BPM are also suspected of corruption, the broker Intermarket Diamond Business (IDB) having invested a part of its profits from the sale of diamonds in the shares of the bank, according to evidence gathered by prosecutors.

In addition to UniCredit and Banco BPM, Intesa Sanpaolo and Banca Monte dei Paschi di Siene are also under investigation.

In February, magistrates charged with the investigation ordered the seizure of more than 700 million euros of badets from the two brokers and five banks.

In a statement to Reuters, UniCredit said it cooperates closely with the authorities and does not comment on an ongoing investigation. It "would continue to provide appropriate customer support services to the customers concerned".

The lawyers of Banco BPM, Banca Aletti, Intesa Sanpaolo and IDB did not respond to requests for comment. The lawyers of Monte dei Paschi refused to comment.

In a long-running scandal in an already controversial sector, the biggest Italian banks are suspected of colluding with diamond brokers to defraud their own customers, selling diamonds at dramatically inflated prices while marketing them as solid financial investments.

All banks, as well as Banca Aletti, a subsidiary of Banco BPM, are suspected of fraud and money laundering for using the proceeds of the sale to increase their profits, according to the allegations in the documents used for the order input.

Prosecutors also claim that UniCredit and Banco BPM have reached an agreement with the IDB that, in exchange for banks selling IDB diamonds, the broker would inject money into their shares, thereby increasing their capital. -actions at a time when the pressure was rising. bad debts.

In Italian law, there is talk of corruption when a party abuses its commercial position to cause the counterpart to provide him favors – in this case, the alleged purchase of shares. The IDB officials involved are also under investigation.

According to a criminal lawyer interviewed by Reuters, under Italian law, if banks were accused and sentenced, they could be fined several million euros, risking losing the total amount of 161 million euros. Euros seized in February and could even be suspended temporarily. operating by court order.

They could also be ordered to compensate the victims, the amounts to be determined by a civil court.

According to judicial sources, more than 100,000 people have bought diamonds in Italian banks in the last 20 years.

A rifle in the head

Banks have been selling diamonds on behalf of brokers in Italy since the 1980s, but they have stepped up after the global financial crisis, prosecutors say, after a deep recession that left them struggling with impaired loans and search for alternative sources of income.

Italy's third largest bank, Banco BPM was known as Banco Popolare in 2016 as it sought to raise capital to finance its merger with Banca Popolare di Milano.

In a telephone conversation in early June 2016, which Reuters learned about a transcript, the former CEO of the IDB complained that Banco Popolare insists he invest in the bank's shares.

"Since we decided more or less voluntarily to subscribe very substantially to the capital increase of Banco Popolare, they arrived with a figure of 9 millimeters and they pointed it on my forehead and told me : "Sign here," said Claudio Giacobazzi in a call to his financial advisor in 2016.

Giacobazzi died last year. The IDB went bankrupt in January and is in liquidation.

The IDB has invested more than 7 million euros in shares and options on UniCredit in 2012 and a total of more than 950,000 euros in Banco Popolare shares in 2014 and 2016, in accordance with the February order authorizing the seizure of the badets of the bank. Reuters reviewed a copy of the order.

It is the diamond sales that have benefited Banco BPM the most, with a turnover of about 85 million euros, including Banca Aletti activity, between 2012 and 2016 – or more than the combined income of the other three banks combined, according to the order. Banco BPM also charged the biggest commissions, up to 24.5%, they say.

Milan prosecutors believe that banks have partnered with brokers to sell the blistered stones to their customers, often at more than double their market value, generating tens of millions of euros each in commissions. Their partners, the IDB and another broker, Diamond Private Investment (DPI), have made hundreds of millions of euros each.

An IPR lawyer declined to comment on what he called an ongoing preliminary investigation.

Prosecutors believe that the staff of UniCredit, Banco BPM and Monte dei Paschi accepted gifts, including hotel stays and antiques from brokers, as incentives for the sale .

The Italian television channel Rai3 has for the first time reported allegations of improper sales at the end of 2016.

Currently, 68 bank and broker officials are under investigation, as well as the banks themselves, but others are expected to be investigated before the end of the investigation in a few months , said two sources close to the case.

Prosecutors have been sued by more than 450 alleged victims, said one of the sources.

The Italian antitrust authorities fined the banks and brokers a total of 15 million euros in 2017 for selling the stones at inflated prices.

Since then, banks have begun to compensate their clients. All, with the exception of Banco BPM, offered to buy diamonds back at the purchase price. According to Banco BPM, last month, it would compensate customers but leave them the stone. In April, she reportedly received 18,400 claims.

amazing

Investigators allege that banks and diamond brokers have made diamonds a safe investment.

Customers who asked for the price they were paying were referred to the inflated diamond price listed in the leading Italian financial daily, Il Sole 24 Ore. The lists, which were supposed to be official market prices, were actually advertisements placed by brokers, prosecutors say.

A spokeswoman for the newspaper declined to comment.

A Banca Aletti brochure distributed to its clients describes diamonds as a "good hideaway" in the medium and long term, predicting returns 50 to 80% higher than inflation.

In May 2017, Pietro Gaspardo, Head of Planning and Marketing at Banco BPM, discusses the brochure with BPM CEO Maurizio Faroni.

"The things written on the inside are incredible. Unbelievable! Unbelievable! "Gaspardo tells Faroni" The expected returns … crazy stuff There are things written there that are really crazy.

"I do not think of myself now but at the bank. This thing is going to make us look totally. Make an investment and do not sell it as a jewel, with the expected return – shit! "

Gaspardo's lawyer, Maurizio Miculan, said that his client's comments showed his innocence because he was clearly surprised at what he had found in the brochure.

Faroni's lawyer declined to comment.

When customers wanted to cash diamonds, they resold them to banks through banks. Lenders realized commissions of 12 to 24.5% on the sale of diamonds and brokers, from 7 to 16%, on their redemption, in accordance with the court order that authorized the seizures of badets in February.

Gabriele Moggi was one of those clients. In 2016, he spent about 33,000 euros in diamonds, mainly due to the anticipated retirement benefits, on diamonds, on the advice of his bank, a unit of Banco Popolare. He had them evaluated independently six months later for about 8,000 euros.

Moggi told Reuters that he had finally settled with the bank in January of this year an indemnity of 15,000 euros, leaving him the stones and a net loss of 10,000 euros.

"I was asking for 20,000," said Moggi, who was fed up and wanted to go out. "In the end, I accepted 15,000 euros because there was no other way out of it."

A spokeswoman for Banco BPM said the bank could not comment on individual cases.