Chief of Italian aerospace company held in inquiry

Paris: Italy awoke Tuesday to yet another corporate scandal with political overtones when prosecutors in Milan arrested the head of the state-controlled aerospace company Finmeccanica in an investigation related to the sale of 12 helicopters to India in 2010.

The Finmeccanica chairman and chief executive, Giuseppe Orsi, was taken in for questioning by prosecutors. Bruno Spagnolini, head of the AgustaWestland helicopter unit of Finmeccanica, was placed under house arrest. The authorities also raided the AgustaWestland corporate offices in Milan.

The investigation is focused on whether company executives violated bribery and corruption laws in seeking the 560 million euro, or about $750 million, helicopter deal with the Indian military.

Prime Minister Mario Monti said Tuesday that the government, which owns a 30 per cent stake in Finmeccanica, was prepared to do whatever was necessary to clean up the company, the second-largest industrial group in Italy after Fiat.

"There is a problem with the governance of Finmeccanica at the moment, and we will face up to it," Monti said on RAI television.

The Italian economy ministry issued a statement saying that, despite the government's stake in the company, it is not involved in Finmeccanica's day-to-day operations. But it said the government would cooperate with the prosecutors' investigation and ensure that a management was put in place to ensure "transparency in its decision-making."

With national elections just two weeks away, the Italian establishment has been unnerved by a series of corporate investigations. In one, Monte dei Paschi di Siena, a bank in Tuscany, has acknowledged using secret derivatives deals to mask hundreds of millions of euros in losses.

In another case, Eni, the country's biggest oil company, said last week that Milan prosecutors had expanded an investigation into suspected corruption at one of its subsidiaries, Saipem, to include the parent company and its chief executive, Paolo Scaroni.

Some observers say the spate of scandals suggests that prosecutors are taking advantage of a political vacuum before the election to move on cases for partisan ends.

But James Walston, a professor of political science at The American University of Rome, said it was unlikely that the cases had been timed to the elections.

"Someone might have moved some papers a little faster with that in mind," he said, but "it won't make a huge difference" to voters.

Finmeccanica said Tuesday that "the operating activities and on-going projects of the company will continue as usual." In addition, the company expressed "support for its chairman and CEO, with the hope that clarity is established quickly."

The Indian Defence Ministry said in a statement that in response to media reports linking it with AgustaWestland in Britain, it was seeking information from the Italian and British governments but had not learned of any evidence to substantiate the allegations. The ministry said it was referring the case to the India's Central Bureau of Investigation.

News of the investigation was first reported by the Italian newspaper Corriere della Sera.

Italian press reports said two other people, residents of Switzerland, were being sought by Milan prosecutors on suspicion that they had acted as middlemen.

A spokeswoman for Finmeccanica in London, Clare Roberts, declined to comment beyond the company's statement. Prosecutors could not immediately be reached for comment.

The case puts the company, which is in the middle of a restructuring, in a difficult position. A board meeting is expected to be called soon to discuss whether to appoint an interim chief.

The various corporate investigations are creating a political stir. In the case of the bank Monte dei Paschi di Siena, known as MPS, the investigation has focused attention on the role played by the Bank of Italy and its former chairman, Mario Draghi, who is now president of the European Central Bank. Draghi asserted last week that the Bank of Italy had "done everything it should" with respect to MPS, adding that much of the criticism was "part of the regular noise that elections produce."

The MPS imbroglio has also given the former prime minister, Silvio Berlusconi, an issue with which to attack his political enemies as he angles for a comeback. The bank is based in Siena, in a part of northern Italy that is a stronghold of the leftist Democratic Party. Berlusconi, a conservative who hopes to be a spoiler in the elections this month, has been trying to place blame for the scandal on Democratic Party.

But Orsi, the Finmeccanica chief, is said to be connected to a conservative party, the Northern League. And Tuesday, Berlusconi denounced the recent actions by prosecutors, including the inquiry into the helicopter deals with India, which were made when he was prime minister.

The Italian news agency ANSA quoted Berlusconi as saying "everyone knows" that the deal involved agreements between governments.

"The fact that there is the risk of magistrates intervening I consider to be economic suicide," he said, referring to the local investigation in Milan.

Gianfranco Pasquino, a professor at the Bologna Centre of Johns Hopkins University, said that individual politicians, like Berlusconi, might choose to employ the news for their own ends but that the cases were essentially different.

The Monte dei Paschi case, he said, was an example of a local scandal with national implications. But the Eni and Finmeccanica cases appeared to involve wrongdoing on an international scale.

In a country that is rarely held up as a technological leader, Finmeccanica's trendsetting AgustaWestland helicopters and its Alenia Aermacchi aeronautics unit are sources of national pride.

Finmeccanica is among the world's largest aerospace, military and security companies, employing 70,000 people worldwide and reporting first-half 2012 revenue of about 8 billion euros, or about $11 billion.

Since taking over in May 2011, Orsi has sought to restore investor confidence by cutting debt and selling nonstrategic operations, but the restructuring has lagged behind market hopes.

On Jan. 18, Standard & Poor's cut Finmeccanica's credit rating to below investment grade and said the outlook was negative, citing the company's failure to reduce its debt more quickly.

Orsi's problems are the latest troubling chapter for Finmeccanica. He took over in May 2011 after his predecessor, Pier Francesco Guarguaglini, was hit by allegations involving the role of his wife, Marina Grossi, while she was chief executive of Finmeccanica's Selex unit.