All were exceptional events. But hardly less exceptional, in its own abstruse way, was the Bank of Italy's report on Banco Ambrosiano. Its language was dull and bureaucratic, and its length, including 26 appendices, ran to over 500 pages. What was exceptional was the quality of its financial detective work—and the conclusions it reached.
The report identified every basic ingredient of the future disaster, as well as providing the groundwork for the charges on which Calvi was to be convicted in July of 1981. Given Ambrosiano's refusal to come clean about its foreign subsidiaries, the inspector's findings could only be couched as heavily underlined suspicions. Suspicions, though, which proved uncannily exact. For that reason the document should be studied in detail.
The overall verdict on Ambrosiano was "Not at all satisfactory". The report then explained why. Ambrosiano had expanded with extraordinary speed in the last few years. True, results were there to show for it, but they had been achieved thanks to frequent infringement of the supervisory department's regulations. The bank had constructed a foreign network which allowed it to move large sums around, free of scrutiny by the Italian currency authorities. Any technical judgement on the soundness of Ambrosiano was impossible without greater detail of the operations in Luxembourg and Nassau, the nature of whose assets remained a mystery. These assets in turn were so substantial that any discrepancy might make a large difference.
Given a central bank's taste for caution and understatement, it was a harsh assessment. Even more damning was the recommendation of the inspectors: "There is a clear need to cut back the network of subsidiaries which Ambrosiano has created abroad. They must also be forced to provide more information and figures about their real assets, to avoid the risk that a possible liquidity crisis on their part might also affect the Italian banks, with all the unfavourable consequences that might entail." The circumstances of the collapse four years later could hardly have been set out more clearly.
The report then went on to point a heavy finger at the mechanism of the fraud Calvi was elaborating. It identified the crucial chain of command, from Milan, through the Banca del Gottardo in Lugano, to the key—Cisalpine Overseas in Nassau. Now Cisalpine had borrowed more than $200 million from Banco Ambrosiano in Milan. On the other side of its balance sheet were $183 million of assets, described only as unspecified "financings". But where had they gone? The inspectors recorded other clues. On the board of the Nassau bank sat not only Calvi, but Archbishop Paul Marcinkus, chairman of the IOR, which Carlo Olgiati, Ambrosiano's general manager, had told them was the owner of Suprafin. Now Suprafin had been the mysterious buyer of fifteen per cent of Banco Ambrosiano's shares between 1974 and 1977. These shares had in turn been despatched, on buying orders placed by Cisalpine through Banca del Gottardo, to that clutch of Liechtenstein and Panamanian companies, with names like Cascadilla and Orfeo.
What the inspectors could not prove was that these fanciful creatures were the property of either Ambrosiano, or of the IOR. But they certainly had their suspicions. The growth of the mysterious assets in Nassau "might not be unconnected with the massive purchases of Ambrosiano shares"—in other words, that Banco Ambrosiano had lent the money to Cisalpine to buy, in effect, control of itself. At another point, the report remarks that "it cannot be excluded" that the Liechtenstein and Panamanian companies were part of the Ambrosiano group. As for the IOR, the Vatican bank said it had only 1.37 per cent of Banco Ambrosiano. But again, it "could not be excluded" that it owned more, in the person of the Panaman- nian companies which had bought such large blocks of Banco Ambrosiano, with the express blessing of Cisalpine. And on Cisalpine's board, of course, sat Archbishop Marcinkus of the IOR.
Nor, the report illustrates, was Ambrosiano a bank whose shares were innocently spread among tens of thousands of small shareholders. In fact 32 per cent of its capital was in the hands of 22 large shareholders—all of them in one way or another "friendly" to Ambrosiano.* If Calvi and the IOR were behind the offshore companies, then he had succeeded in making Ambrosiano takeover-proof.
But there was more. The inspectors judged Ambrosiano to be undercapitalized. They found breaches of the banking law, and severe organizational shortcoming—principally that Calvi was running Ambrosiano as he pleased. Board meetings did take place once a month, as prescribed by Ambrosiano's statute; but mainly to endorse decisions which Calvi had taken, and often implemented beforehand.
They must have been remarkable occasions, rather like a priest celebrating mass. Calvi would deliver a brief sermon, to which the other directors would reply with a respectful Amen. A twenty-minute monologue by the chairman would typically be followed by a rapid run-through of the major credits extended by the bank in the previous month. Calvi routinely would enquire if there were any questions. Invariably there were none, and proceedings were over. The report condemned the board for its "supine acquiescence", while Ambrosiano's official auditors were described as "superficial and unquestioning".
As both chairman and managing director, Calvi enjoyed unfettered control. On his own he could authorize major loans, allowing the relationship with important borrowers like Rizzoli to be conducted as he wanted. The system was also ideal for Licio Gelli, in that financial operations within the orbit of the P-2 could be carried out without query. Already one of Ambrosiano's biggest borrowers, the inspectors had found out, was the Genghini construction group in Rome, later to collapse in a 450 billion lire scandal. Its founder, Mario Genghini, had made a spectacular career as a property magnate, with links to the politicians. He was also a member of the P-2.
*See Appendix A.
The central bank's conclusion was that Ambrosiano's internal organization was in some respects "patently inadequate" for a bank of its size and ambition. The inspectors suggested that "a first step" might be to withdraw authorizations so far granted, and thus force a restructuring of Calvi's bank, "so that the real destination of every single financial transaction abroad can be followed". The restructuring, of course, never took place.
In October 1978 Padalino discussed the report's findings with Calvi. And although he did not show it, the banker was more than a little alarmed. Yet again he pleaded his good faith in his foreign operations. The trouble was, he maintained, that the accounts of both the Luxembourg and Bahamas affiliates had been drawn up in accordance with local rules, which prevented him from providing more details to the Italian authorities. But the crocodile tears were still wet as Calvi was strengthening his defences.
There were a number of reasons why he decided to reduce the role of Cisalpine Overseas in Nassau. Siegenthaler was probably getting pangs of unease, especially after the creation of four Panamanian shell companies (with himself as chairman of one of them) to hold Ambrosiano shares. Coopers and Lybrand, the Nassau bank's accountants, were worried about the size of its lending to the IOR, and probably to those mysterious little companies sheltering behind the legal ownership of the Vatican bank, including Manic S.A. in Luxembourg, and the United Trading Corporation, set up on its behalf in Panama four years earlier. Graham Garner, of Cooper and Lybrand's office in Nassau, asked Siegenthaler to ensure that the lending did not grow further. He also intimated that changes in accounting standards might force his firm to disclose the relationship between Cisalpine and the IOR.
Above all, however, Calvi realized that Padalino and his inspectors had grasped the function of Cisalpine in his elaborate device for despatching control of his bank abroad. But contingency plans were ready. For on September 29,1977 Ambrosiano Luxembourg had set up in the even remoter haven of Managua, the capital of Nicaragua, a new bank called Ambrosiano Group Banco Comercial. It was capitalized at $20 million, and had the bland-sounding purpose of "conducting international commercial transactions".
During 1978 and 1979, a good part of the unspecified "financings" by Cisalpine was transferred to the books of the new bank in Managua. The arrangement seemed if anything better. Ambrosiano was exempt from tax, apart from a nomin
al contribution to the Nicaraguan treasury. The new bank was in effect run from Nassau by Cisalpine. Calvi (probably with Gelli's intercession) was on good terms not only with the then dictator Anastasio Somoza, but also with the ever more menacing Sandinista opposition. To the end of his life he retained a Nicaraguan diplomatic passport, and in 1979 Calvi attempted to lobby the Rome Government for an increase in coffee imports from Nicaragua. To the Sandinistas, he would later confide, he had given large sums to buy seed grain on international markets.
Curiously, of the foreign banks in Managua at the time of the left-wing takeover in early 1979, Ambrosiano's subsidiary was the only one not to be nationalized by the new revolutionary regime. By the end of that year, Calvi was to transfer his most delicate business again, from Managua to Lima, Peru. But in those anxious months, while the Bank of Italy's inspectors were swarming over his bank in Milan, Nicaragua looked an ideally safe hideaway. However, even these considerations were quickly to become secondary. The Bank of Italy report expressed the reservations we have seen. But it also identified what appeared to be two clear breaches of currency regulations. Since 1976, these had been criminal offences.
Sarcinelli and Padalino must have suspected they would make some interesting discoveries at Ambrosiano. But the cupboard was even fuller of skeletons than they could have expected. For failure to report those secret share dealings involving La Centrale, Credito Varesino and Toro between 1973 and 1976 looked to be a prima facie violation of currency regulations by Calvi, in his capacity as chairman of La Centrale.
The special internal procedures of the Bank of Italy then took over. Although the supervisory department was in the business of banking, not of police work, it was bound from time to time to come across breaches of the law, particularly after the 1976 currency legislation, and its retroactive penal provisions. But the central bank had equally to avoid provoking public panic among savers and depositors. For that reason, cases which looked as if they might lead to criminal charges were first examined by an internal committee of experts and lawyers, whose conclusions would be automatically endorsed by the Governor.
This committee met in late 1978. It decided that there was indeed a prima facie case against Calvi. It was also agreed that, given the location of Ambrosiano's headquarters, the case should be entrusted to Milan, rather than Rome, where the risk of political interference was in any case greater. The task of submitting the report to the Milan judiciary fell to Padalino, as the senior inspector directly involved.
By coincidence, the day Padalino did so, Calvi came down from Milan to talk over the report with Sarcinelli. The Ambrosiano chairman was as evasive as ever—as with so many others at different times who dealt with Calvi, Sarcinelli could not understand what he was getting at. But Sarcinelli made himself perfectly clear: Ambrosiano should provide the missing information on its foreign subsidiaries, and the Bank of Italy would press him until he did. Calvi astonishingly protested that he already was supplying the facts, adding rather mysteriously that he travelled a great deal, but was always reachable through his secretary in Milan.
The two were not to meet again. Sarcinelli showed Calvi out of his office with the hardening suspicion that something was very badly wrong at'Ambrosiano; and Calvi must have been more alarmed than ever at the central bank's determination to establish the truth. A day or so later, those apprehensions grew greater. Sarcinelli had not mentioned that the Milan magistrates were now about to look into those murky share dealings. But the following issue of L'Espresso weekly magazine reported that the matter had indeed been passed over to the judiciary. Although the leak almost certainly originated in Milan, Calvi sent a telex to Baffi to protest bitterly at this apparent breach of confidence.
In fact Calvi need not have worried unduly. For within a few months Sarcinelli, not he, would be in prison, while the magistrate to whom the case first fell, would be dead.
Emilio Alessandrini was one of the most promising and esteemed of the younger generation of Milan magistrates. He was a specialist not only in financial investigations, but also in the left- and right-wing terrorism plaguing the country in those years. On the morning of January 29,1979, Alessandrini had just dropped his son off at school when his orange Renault 5 was ambushed by a commando of gunmen from the left-wing Prima Linea ("Front Line") terrorist group, a sister organization of the Red Brigades. He was killed instantly. Luca Mucci, the magistrate who took over the Calvi case, had to start again from scratch. Both a precious life, and time, had been lost. Calvi and the P-2, it must be presumed, had nothing to do with the Alessandrini murder. The same could not be said with such certainty about the events about to unfold at the Bank of Italy.
CHAPTER ELEVEN The Bank of Italy Affair
Italy's wondrous capacity to absorb the most grievous of setbacks, self-inflicted or otherwise, is well known. But it was tested as rarely as before on Saturday March 24, 1979. At dawn that day Ugo La Malfa, the old foe of Calvi and Sindona, was struck down by a massive cerebral haemorrhage from which he was to die two days later. With La Malfa vanished what small hopes remained that a new-born government, one of whose few distinctions was his presence within it, could survive and elections be avoided.
But while La Malfa's political friends and enemies alike were arriving to pay their last respects, calamity of a different kind was overtaking the Bank of Italy. In the middle of the morning officers of the Carabinieri, the country's paramilitary police force, entered the central bank to arrest Sarcinelli. The deputy general manager of the Bank of Italy was taken to the Regina Coeli (Queen of Heaven) prison on the bank of the Tiber in central Rome, charged with deliberately concealing evidence from Rome magistrates investigating the collapse of the now bankrupt SIR of Nino Rovelli. A similar charge was brought against the Governor himself, and Antonio Alibrandi, the magistrate conducting the inquiry, let it be known that only Baffi's advanced age had spared him too the indignity of prison. In the most astonishing manner, the "Bank of Italy Affair" had begun.
No episode before or since has illustrated more clearly the sinister side of public life in Italy, the contrast between the platitudes dispensed by the politicians in public, and the private, historical
reality of fiercely competing interest groups and factions.
Just who was behind the attack on the Bank of Italy, no-one to this day can say with certainty. The "smoking gun" in Italy is rarely found: despite Gelli's mania for files, photocopies and tape recordings, pressures and connivances are often undocumented, even unspoken. But the circumstantial evidence is overwhelming, that an attack it was—or rather a counter-attack, carefully framed to teach the central bank a lesson it would not forget.
Probably the investigation of Ambrosiano was not the only reason. Rather, the inspection of Calvi's bank in 1978 was but the latest of a series of challenges to the complicities and financial conveniences of the system, which could not go unanswered. Objectively the campaign of Baffi and Sarcinelli to throw light on the dark corners of Italian banking could not be faulted. Realistically, however, to have tried to do so without adequate political "cover" beforehand was perhaps naive and inviting reprisal. The Italian system implied a paradox: that even the central bank's power could only remain intact if wielded moderately.
On successive occasions the Bank of Italy had trodden on the toes of the politicians. Carlo Pesenti, that most Catholic of financiers, had been ordered to straighten out irregularities in his banks—with the result that in December 1978 he was forced to sell off one of them to pay his debts. Then it had exposed the existence of Italcasse's "black" funds (to have most eyecatching consequences in 1980). Even more serious, the central bank had blocked efforts by the Christian Democrats to secure the "technical" solution to the problems of Michele Sindona, which would have allowed that notable benefactor of the party to return to Italy unmolested. All this, and now the assault on Calvi's Ambrosiano, linked to the P-2 and also another prime source of largesse for the parties—not only the Christian Democrat
s.
It is too much to believe that the issue of warrants against Sarcinelli and Baffi by the magistrate Alibrandi so soon afterwards was a coincidence. Not just its timing, but the sheer disproportion between the imprisonment order and the dubious, highly technical nature of the supposed offence suggested that Sarcinelli was being deliberately punished.
Italy's postwar constitution had given the judiciary both independence and great discretionary powers. But that absence of control presupposed that magistrates would use their authority to investigate and arrest with responsibility, and remain free from political conditioning. Instead, and inevitably, the magistrature, too, was dragged into the thickening fray. So-called magistrati d'assalto, literally "assault judges", emerged, not averse to publicity, and liable on occasion to put political convictions, left-wing or right-wing, ahead of judicial neutrality. And it was Sarcinelli's misfortune that the Rome public prosecutor's office, which handled the Bank of Italy affair, was notoriously the most politically conditioned of any. If the Bank of Italy had entrusted Milan with the penal investigation against Ambrosiano, it was fitting that the banker or his protectors should fight back through Rome.
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