Italy's banks face more graft probes in wake of diamond scandal

Milan

A LONG-RUNNING criminal probe into diamond sales by Italian banks has uncovered what prosecutors say is further evidence of corruption by officials at UniCredit, Italy's largest lender, and smaller rival Banco BPM.

The allegations, some previously unreported, are laid out in documents used by prosecutors when they sought a magistrate's order seizing assets from the banks and two diamond brokers.

In a new development, officials from UniCredit and Banco BPM are also suspected of corruption because broker Intermarket Diamond Business (IDB) invested some of its profits from the diamond sales in the banks' shares, according to evidence gathered by prosecutors.

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

In February, magistrates guiding the probe ordered the seizure of more than 700 million euros (S$1.07 billion) in assets from the two brokers and five banks.

In a long-running scandal in a sector already tarnished by controversy, Italy's biggest banks are suspected of colluding with diamond brokers to scam their own customers - allegedly selling them diamonds at vastly inflated prices while marketing them as sound financial investments.

All of the banks, along with a Banco BPM subsidiary, Banca Aletti, are suspected of fraud and money-laundering for using the proceeds to boost profits, according to allegations laid out in the documents used for the seizure order.

Prosecutors also allege that UniCredit and Banco BPM worked out a deal with IDB where, in return for the banks selling IDB's diamonds, the broker would channel money into their stock, boosting their share capital at a time when it was under pressure from a rising tide of bad debts.

According to a criminal lawyer when asked by Reuters, under Italian law, if the banks are charged and convicted, they could be fined millions of euros, risk forfeiting millions in euros seized from them in February and could even be temporarily suspended from operating by court order.

They could also be ordered to pay compensation to victims, with sums to be decided by a civil court.

More than 100,000 people are estimated to have bought diamonds at Italian banks over the last 20 years, judicial sources say.

Banks have been selling diamonds on behalf of brokers in Italy since the 1980s but they ramped up the business after the global financial crisis, according to prosecutors, when a deep recession left them saddled with soured loans and looking for alternative revenue sources.

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

In a telephone conversation in early June 2016, a transcript of which was seen by Reuters, the former CEO of IDB complained that Banco Popolare insisted - at gunpoint - that he invest in the bank's shares.

"They arrived with a 9mm and they pointed it at my forehead and told me, 'sign here'," Claudio Giacobazzi said in a call to his financial adviser in 2016.

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