Parmalat's Problems

This is Bob Doughty with the VOA Special English ECONOMICS REPORT.

In December, the Italian food company Parmalat admitted that almost five-thousand-million dollars the company said it had in a bank did not exist. The value of the company's debt investments, called bonds, fell by about seventy-five percent. Within one week, the company sought protection from its creditors. The company had failed and was bankrupt.

Company Chairman Calisto Tanzi was arrested in December. So far, eleven people have been arrested and at least twenty-five people are under investigation.

Mr. Tanzi has admitted to taking at least six-hundred-million dollars from Parmalat. Investigators are now looking for at least seven-thousand-million dollars that the company claimed it had.

Parmalat's creditors appointed Enrico Bondi as administrator of the company while it is in bankruptcy. The Italian Parliament has given Mr. Bondi wide powers to administer the company. The Financial Times newspaper says Mr. Bondi can cancel deals made by Parmalat up to two year ago.

A lawyer for a group of Parmalat's creditors said some of the missing money may have been placed in a Bank of America office in New York City. Carlo Zauli says private investigators have linked the money at the bank to Mr. Tanzi. But the Bank of America says it has investigated and found no record of so much money.

Fausto Tonna, a financial director and advisor at the company has also been arrested. So has his wife. One of Parmalat's financial officials, Gianfranco Bocchi, has admitted to creating false documents. One claimed that a Parmalat company, called Bonlat Financing, had five-thousand-million dollars. The company was in the Cayman Islands.

Bonlat is similar to other companies created by Parmalat in the Netherlands. These companies exist only on paper. They do not sell anything. They serve to create the appearance of business activity.

Yet, these companies permitted Parmalat to raise huge amounts of money. Parmalat sold bonds thirty five times between nineteen-ninety-five and two-thousand-three. These sales also created a huge amount of debt.

Parmalat is based in Parma, Italy. It has more than thirty-six-thousand employees and one-hundred-thirty-nine production centers all over the world.

This VOA Special English ECONOMICS REPORT was written by Mario Ritter. This is Bob Doughty.