US embassy cable - 03ROME4032

UNCLAS  ROME 004032 
 
SIPDIS 
 
 
E.O. 12958: N/A 
TAGS: PINR, PREL, PGOV, SR, IT, EUN 
SUBJECT:  TELEKOM SERBIA SCANDAL GROWS, IMPLICATING EU 
COMMISSION PRESIDENT PRODI AND ITALIAN DIPLOMATS 
 
 
1.  Summary: Over the past several weeks, pro-Government 
daily "Il Giornale" published numerous articles on the 
1997 sale by Telekom Serbia of a stake to Telecom Italy - 
- a ruinous financial speculation that helped keep 
Milosevic in power and allegedly involved kickbacks to 
several members of Italy's then-governing center-left 
majority, including current EU Commission President 
Prodi.  Although Prodi and the others rejected the 
allegations as rightist propaganda, the rest of the press 
has recently picked up the story and calls for 
clarification are rising from Prodi's own political 
allies.  Prodi and others have confirmed their 
willingness to testify before a parliamentary commission 
-- and maybe even judicial authorities -- investigating 
the scandal.  End summary. 
 
Igor Marini is arrested and talks 
--------------------------------- 
 
2.  The "Il Giornale" stories stem from the arrest in 
Switzerland in May on charges of illegal financial 
dealings of an ex-financier, Igor Marini, who -- by his 
own account -- was materially involved in money 
laundering activities and the consignment of bribes in 
connection with the Telekom Serbia affair.  Prior to his 
arrest, he was called to testify before the Italian 
parliamentary commission investigating the deal and the 
arrest occurred when Marini and four commission members 
traveled to Lugano to pick up some documents that he 
claimed would back his statements. 
 
3.  Marini has since been transferred to a Turin jail and 
is now also being questioned by Turin judicial 
authorities.  According to "Il Giornale," and recently to 
the rest of the press, he is revealing an enormous amount 
of facts regarding alleged underhand dealings in 
connection with what was a secret agreement signed in 
June 1997 between Italy's then-public telecommunications 
company, Telecom Italy, and Telekom Serbia.  Under that 
agreement, Telecom Italy bought 29 percent of the Telekom 
Serbia shares for 900 billion lire (roughly 450 million 
dollars).  It then reportedly sold them back in February 
2003 for less than half their original cost.  Calculating 
an annual interest rate of 12 percent on the total sum, 
the parliamentary commission gauged a net loss for 
Telecom Italy of exactly 900 billion lire -- equal to the 
total cost of the original deal. 
 
Igor says the left got kickbacks 
-------------------------------- 
 
4.  According to "Il Giornale," the agreement with 
Telekom Serbia served to supply Milosevic's regime with 
direly needed fresh cash, at a moment when Italy's 
international allies were preparing to clamp down on 
Milosevic because of Kosovo.  Reportedly, Marini told the 
judicial authorities and the parliamentary commission 
that bribes were paid in connection with the deal to, 
among others, then-PM Romano Prodi (an expected 
challenger to PM Silvio Berlusconi in the next national 
elections), then-FM (and current Senate Vice President) 
Lamberto Dini, and then-MFA Under Secretary for the 
Balkans (now head of the largest center-left opposition 
party, Democrats of the Left, DS) Piero Fassino. 
 
Bascone said "watch out" 
------------------------ 
 
5.  "Il Giornale" cited one of fourteen letters and 
cables by the then-Italian Ambassador to Belgrade and 
current Deputy Director of the MFA Europe Bureau 
Francesco Bascone to then-MFA U/S Fassino, in which 
Bascone underscored his strong concerns over the deal. 
Bascone reportedly cautioned against possibly getting 
involved in money laundering activities, highlighted the 
"illegitimacy of the acquisition," and warned against 
"scandals on the improper use of fresh moneys from 
Italy."  He also noted that the funds "would be at the 
direct disposal of Milosevic and of his power group" and 
"the danger cannot be ignored."  He said, "the government 
must assess if the economic and political benefits are 
greater than the dangers."  Bascone repeated much the 
same statements when he was heard by a parliamentary 
commission several months ago. 
 
Sannino said Bascone said 
------------------------- 
 
6.  In addition, "Il Giornale" reported the involvement 
of another Italian diplomat, Counselor Stefano Sannino. 
Prior to the events, Sannino was First Secretary in 
Belgrade, and during them he was Chief of Secretariat to 
then U/S Fassino.  Sannino is at present EU Commission 
President Prodi's Personal Representative to the G8 and 
his cabinet adviser on external relations, foreign trade, 
and security and defense.  Sannino reportedly stated 
before the parliamentary commission that Bascone had 
fully informed Fassino of the deal before the contract 
was signed and that Fassino had fully briefed then-FM 
Dini.  Sannino specifically said he was not aware of 
Prodi's ever having been informed. 
 
Vattani did not know? 
--------------------- 
 
7.  The press did not dwell on a third diplomat who was 
also questioned by the commission some months ago, 
Umberto Vattani, then Dini's Chief of Cabinet, later MFA 
Secretary General, and currently Italy's Ambassador to 
 
SIPDIS 
the EU.  However, Vattani was cited in the Italian news 
agency ANSA as denying ever having been informed of the 
affair, saying he had learned about it later in the 
press, and claiming that Bascone's statements were 
"totally false." 
 
The story is old 
---------------- 
 
8.  The Italian public first became aware of the deal in 
February 2001, when center-left, independent daily "La 
Repubblica" disclosed the story.  Then-FM Dini told 
Parliament at that time that neither the MFA nor the 
Treasury Ministry -- Telecom Italy's controller -- had 
been informed in advance that Telecom Italy was 
concluding the deal, nor were they provided information 
afterward.  According to Dini, there was no technical 
reason for Telecom Italy to inform the government, 
because Telecom Italy was buying minority shares and 
would have no control over the decisions of Telekom 
Serbia.  Telecom Italy could legally make its own 
decisions, in particular because it was not violating any 
sanctions, he said.  He said that, when the deal was 
signed, EU, U.S., and UN sanctions against Serbia had 
already been lifted and the general feeling following the 
November 1995 Dayton Agreements was that the 
international community had to prepare the groundwork for 
a normalization of relations with Serbia.  Milosevic had 
started a privatization plan and many foreign companies, 
including U.S. companies, had begun negotiating with 
Belgrade.  Dini remarked that the "Repubblica" 
allegations seemed to be the work of "CIA blue collar 
workers."  The story died there until the "Il Giornale" 
articles this summer, where Dini's reference to the CIA 
was put into context: he thought the previous U.S. 
Administration had passed the story to the press to get 
back at him for allegedly being pro-Serbian.  (Note: Some 
papers have reported that Dini's wife, an independent 
businesswoman, was a beneficiary of the kickbacks.) 
Former U/S Fassino now reportedly claims that the U.S. in 
1996-1997 was encouraging other nations to invest in 
Serbia. 
 
Bob Gelbard has something to say 
-------------------------------- 
 
9.  Robert Gelbard, the Clinton Administration's Special 
Envoy for the Balkans, refuted Fassino's claim as 
"ridiculous" and "totally false," in an interview in the 
wide-circulation, centrist news weekly "Panorama."  He 
remarked, "Washington had no reason in the world to 
encourage companies to give money to Milosevic: we wanted 
investments in Bosnia, certainly not in Serbia." 
According to Gelbard, the deal between Telecom Italy and 
Telekom Serbia negatively affected U.S.-Italy relations 
for a while, even though it did not dent their soundness. 
"That mountain of Italian money gave Milosevic a breath 
of air and allowed him to buy new loyalties and continue 
to pay the military's wages," he said.  He added, "The 
news of the Italian investment, in fact, was received 
with serious concern by the U.S. government.  We had 
reasons to believe that the agreement contained some 
illegal elements." 
 
Prodi and the others want to testify 
 
 
------------------------------------ 
 
10.  Prodi, Fassino, and the other individuals involved 
initially reacted with heated indignation, characterizing 
financier Igor Marini as a "lying imbecile" and a 
"braggart."  But the scandal is not going away this time 
and denying involvement seems not to have helped those 
fingered.  Some of the leftist press and even some 
leftist politicians are beginning to doubt the innocence 
of those allegedly involved and are beginning to demand 
public explanations.  In an open letter to the press 
August 27, Prodi said he wants to be heard by the 
commission as soon as possible and will tell the 
commission he had never been -- as there was no reason he 
should have been -- informed of the deal until after it 
happened.  In press statements the same day, all the 
others named in the press stated their intention to 
testify before the commission.  Some have even indicated 
their availability to be heard by the Turin magistrates. 
 
European Parliament also interested in Prodi's activities 
--------------------------------------------- ------------ 
 
11.  In addition, "Il Giornale" reported that Prodi is 
coming under fire at the European Parliament, where he 
has been asked to answer formal queries about his 
involvement in the Telekom Serbia affair, as well as in 
the EUROSTAT scandal, in which two high-level EUROSTAT 
officials are under judicial investigation in a French 
court on charges of having taken approximately 900 
million euros from EUROSTAT funds.  (Note:  EUROSTAT is 
the EU Commission's statistics agency.  End note.) 
Instead of firing the officials, Prodi has reportedly 
reassigned them to other positions within the Commission. 
 
12.  Comment: Accusations and denials of wrong-doing by 
politicians played out in the Italian press are everyday 
occurrences in Italy, and it is unlikely that the current 
resurgence of interest in the Telekom Serbia deal will 
keep Prodi from completing his mandate and term as EU 
Commission President.  He has promised to return to Rome 
when his current tenure is finished, in November 2004, 
and is considered a virtual shoe-in as the center-left's 
candidate to run against Berlusconi as Prime Minister in 
the next national elections.  It is at that time that 
these most recent allegations may return to haunt him. 
 
Sembler 
 
 
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 2003ROME04032 - Classification: UNCLASSIFIED