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Fraud, TotalErg executives under investigation

Rome - They would have “rigged” the accounts of the subsidiary TotalErg, filing invoices from two companies with offshore headquarters in Bermuda for non-existent transactions totalling 904 million euro, officially for the purchase of petrol

Rome - They would have “rigged” the accounts of the subsidiary TotalErg, filing invoices from two companies with offshore headquarters in Bermuda for non-existent transactions totalling 904 million euro, officially for the purchase of petrol.

All this to inflate costs, reduce profits and thereby the taxable income used to calculate VAT and corporation tax intended for the Italian tax authorities. These are the allegations that led prosecutors from Rome - citing “fraudulent declaration through the use of invoices for non-existent transactions” - to charge those under investigation: executive vice president of Erg Alessandro Garrone, CEO Luca Bettonte, TotalErg CEO Claudio Spinaci and two others.

The news was leaked yesterday morning, right after the raids conducted under the delegation of Public Prosecutors Mario Palazzi and Paolo Ielo, in the Genoa, Rome and Milan offices of the companies involved.

Searches were also conducted in the Raffineria di Roma SpA, a TotalErg subsidiary, as well as in Milan the Rothschild headquarters and the accountancy practice of Francesco Novelli.

An instant response from those involved followed, with Erg explaining: “Our involvement in the enquiries refers exclusively to the participation of TotalErg, a joint venture (51% ERG and 49% Total) created from the merger on 1 October 2010 between Total Italia and ERG Petroli in the ERG Group’s domestic tax consolidation.” “We have always operated in full observance of the prevailing laws and regulations” and “therefore we are confident that our total lack of involvement with the facts forming the object of the enquiry will be ascertained.”

The statement was reinforced by TotalErg: “Our company has always used correct management and ensured compliance with the laws,” and has “from the outset assured its full and complete cooperation” to the court.

The investigators also invite caution, as the investigation is still in its initial phase and the charges relate only to the fiscal year 2010. It all started with a tax audit initiated a few months ago.

TotalErg’s documentation contained one detail that immediately raised suspicion on the part of financiers (auditors). In 2010 the company, instead of buying the petrol directly from the manufacturer, used the intermediary belonging to two companies of the Total Group, Total International Ltd and Socap International Ltd., headquartered in Bermuda, a country that is on the black list of tax havens.

In technical jargon this is called “triangulation” and the Guardia di Finanza, Italy’s tax police, almost always considers it synonymous with tax evasion. So that is why the investigation was launched.

In their search warrant the Public Prosecutors write that Erg’s CEO at the time, Alessandro Garrone, along with Bettonte “as signatories of the income declaration for the consolidating company Erg for the 2010 fiscal year”, Spinaci “as signatory of TotalErg’s tax declarations” and Alessandro Della Casa, then Trading Manager at TotalErg, have “inserted invoices in TotalErg’s accounts relating to transactions that are subjectively and objectively non-existent” for a total of 904 million, 842 million of which were invoiced by Total International and 62.2 million by Socap International.

The same executives would then have “used these tax documents in TotalErg SpA’s income tax and VAT declarations to have them signed by Spinaci, and thereafter filed them in the consolidating company Erg SpA’s income statement to be signed by Bettonte for the fiscal year 2010.”

According to the magistrates the defendants acted “in competition with each other and others who are yet to be identified.” This suggests a potential widening of the investigation. For the time being a fifth suspect has already been identified: Francois Xavier Dumont De Chassart, at the time of the events Deputy DG of Total Italia.

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