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From Milan boardrooms to Parma dairy farms, Calisto Tanzi has long been viewed as the model Italian entrepreneur: hardworking, successful, modest, pious and, above all, generous. Over the past four decades, as he built dairy company Parmalat into a worldwide giant with annual sales of €7.6 billion, he showered his hometown of Parma with his philanthropy. Tanzi helped pay for a major restoration of Parma's theater and 11th century basilica. He poured cash into the local soccer team, making it one of Europe's best, and financed programs for the poor, aids patients and drug addicts. Last February, when the Catholic Church was looking for funds to renovate a mountain clinic for asthmatic children, Monsignor Franco Grisenti only needed to ask, and his old friend Tanzi, 65, immediately made an interest-free loan of €400,000. "He's got that impulse in him to just say yes," the prelate marvels.
Not all of Tanzi's impulses may have been so noble. On Dec. 27, Tanzi was arrested and later charged with fraudulent bankruptcy and false accounting. He is confined to a Milan jail while prosecutors probe an alleged fraud that already totals €7 billion and may turn out to be far larger. Seven other executives were arrested last week, and Tanzi's son Stefano was questioned by prosecutors. The size of the alleged fraud could make Parmalat the biggest corporate scandal ever in Europe, easily on a par with Enron or WorldCom in the U.S.
Parmalat filed for bankruptcy on Christmas Eve, and corporate-turnaround expert Enrico Bondi is trying to salvage what he can of the firm, which has 36,000 employees in 30 countries and top-selling brands including Parmalat uht milk and Archway cookies. On Friday, dozens of company workers and small shareholders in Collecchio — Parmalat's headquarters and Tanzi's birthplace just outside Parma — stormed local banks demanding refunds on their original investment. Investors, creditors and regulators are on the warpath too: last week, the U.S. Securities and Exchange Commission (sec) filed suit against Parmalat in New York district court. But who is Calisto Tanzi, and how did he become embroiled in what the sec claims is "one of the largest and most brazen corporate financial frauds in history"?
Prosecutors allege that over the past decade Parmalat created an elaborate house of cards, including opaque subsidiaries in tax havens such as the Cayman Islands and Luxembourg, to hide the true state of its finances. Tanzi has admitted siphoning off around €500 million from the company to finance other family businesses, but insists that some of his underlings are to blame — they were the ones who devised the accounting fraud, he has told prosecutors, although he accepts ultimate responsibility. One key witness has already emerged: former chief financial officer Fausto Tonna, who has given prosecutors crucial details about the firm's labyrinthine accounting, but insists Tanzi was calling the shots.
The scandal burst into the open in November, when Parmalat had trouble meeting a routine bond payment, prompting tougher scrutiny of its books by its own auditors and Italian regulators. In early December the Tanzis held talks with the U.S. buy-out firm Blackstone Group about a possible sale — and mentioned that Parmalat's published accounts didn't tell the whole story, according to the sec lawsuit.
The Blackstone talks led nowhere, but the result of the new audit was breathtaking: a Parmalat account at Bank of America in New York City that supposedly contained €3.95 billion turned out not to exist. All the paperwork, including written confirmation of the balance from the bank to Parmalat's auditors, was forged, Bank of America said — apparently using a simple computer scanner. Parmalat has acknowledged that it falsely told investors it used excess cash to buy back €2.9 billion of debt securities during 2003. "What is shocking is that it appears the assets were fabricated," says Evan D. Flaschen, an attorney at U.S. law firm Bingham McCutchen, which represents institutional holders of Parmalat bonds.
Public companies have safeguards against such egregious fraud, but in this case they seemed to have failed. "They were doctoring documents in the most amateurish fashion, and yet got away with it for a decade," says Mel Weiss, a leading U.S. class-action lawyer. "The auditors just accepted it willy-nilly." Grant Thornton, Parmalat's primary auditor for most of the 1990s and still auditor to some of its subsidiaries, initially said it too had been duped. But on New Year's Eve, Grant Thornton suspended the head of its Italian member firm and another partner after the two men were arrested as part of the widening investigation. Both deny any wrongdoing.
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The delay in detecting the fraud can be attributed partly to Italy's notoriously weak financial regulators. But many Italians were reluctant to suspect someone of Tanzi's reputation. "Calisto has a profound Christian faith," muses Monsignor Grisenti, who has known him since the late 1960s. But, if involved in this scandal, "somewhere he must have developed a double personality." Others close to Tanzi also describe him as "aggressive," "ambitious," "a born risk taker." "He was always looking ahead to the next thing," says a prominent Parma business leader and Tanzi friend. Tanzi got his start in business as a 21-year-old, when his father died and he took over the family's small prosciutto factory. While visiting Sweden, he saw milk packaged in paper carton boxes, and decided to bring the idea to Italy, where most milk was still home-delivered in glass bottles. The packaging and new methods of pasteurization led to the UHT milk that drove Parmalat's global expansion. "He began with the sprint of an entrepreneur, and never looked back," says Sergio Sacchi, 68, a priest and Tanzi schoolmate who has remained close to the Parmalat founder.
While Tanzi may own a 30-m yacht and used to make regular pleasure trips to the Maldives on the corporate jet, he generally eschewed the flashy lifestyles enjoyed by some self-made Italian millionaires. He usually insisted on driving his own car, a Lexus, and has lived for years in the same big but by no means lavish house on the outskirts of Parma. "The impression he makes is of a kind and generous man, I would even say shy," says Bruno Zanardi, an art restorer and Parma native. Religion is an important element in his life: Tanzi says grace and crosses himself before each meal, and attends Mass regularly and has several clerics as close friends. On his arrival at San Vittore prison in Milan, one of the first things he did was attend a prison Mass and take Communion.
Parmalat grew in part because Tanzi understood early on the power of sports marketing. He began in the 1970s by sponsoring Italy's World Cup ski team, then went on to sponsor Formula One, top-level baseball and volleyball teams as well as the soccer squad. In doing so, Parmalat transformed milk from a commodity into a brand. But following the bankruptcy, Bondi is already looking for a buyer for the soccer team, according to Italian press reports.
According to Tonna's testimony and bankers familiar with the company's operations, Parmalat started running into trouble after costly international expansion in the 1990s into the U.S. and Latin America. The company failed to sell a sufficient number of consumers on its UHT milk, and was further battered by the economic and currency crises in countries such as Argentina and Brazil. To keep the company running, Bondi is currently negotiating fresh bank credit lines and trying to sweet-talk key suppliers into continuing deliveries. Longer term, analysts expect he'll have to sell off or shut down some operations.
Tanzi was in Ecuador shortly before his arrest, perhaps a last-ditch attempt to salvage the company. On the way, he and his wife stopped off in Fátima, the Portuguese town where Catholics make pilgrimages seeking miraculous interventions. It will take something of a miracle to extricate Parmalat from the mess it's in.
- PETER GUMBEL
- Calisto Tanzi is accused of masterminding Europe's biggest-ever corporate fraud