Mar.11, 2010

ROME, (Reuters) - A former Italian senator jailed in connection with a money-laundering probe involving Fastweb (FWB.MI), Italy's No. 2 telecoms operator, and Telecom Italia Sparkle has told prosecutors the two companies knew about the illegal operations being investigated, judicial sources said on Thursday.

Prosecutors allege the companies had ties to a more than 2 billion euro ($2.7 billion) ring that laundered money via fake sales and purchases of phone services from 2003 to 2006.

Nicola Di Girolamo, a former centre-right senator who was arrested as part of the probe, was questioned on Tuesday.

"There were executives at Fastweb and Telecom Italia Sparkle who were aware of the illegality of the operations designed to accumulate big sums of money through VAT fraud," one of the sources said, quoting Di Girolamo's words in his interrogation.

Fastweb said in a statement that Di Girolamo told magistrates that inside the company only two former employers knew of the illegal nature of the operation under investigation.

Fastweb and its CEO, Stefano Parisi, are being investigated as part of the probe, which has led to the arrest of its founder Silvio Scaglia. It is controlled by Swiss phone company Swisscom (SCMN.VX). The judicial sources said Di Girolamo did not mention Scaglia as one of the people involved in the illicit operations.

Sparkle, a unit of Telecom Italia (TLIT.MI), is also being investigated. Both companies have denied any wrongdoing and say they are victims in the case.

A lawyer for Telecom Italia Sparkle, Paola Severino, told Reuters: "We have no comment to make, nor an interest in doing so."

The wide-ranging probe has sent shockwaves through Italy's telecoms sector and business circles, but the top government official for telecoms said on Thursday the investigation would not hurt foreign investment in the country.

Deputy Communications Minister Paolo Romani also said he did not think the probe was having an impact on potential merger talks between Telecom Italia and Spain's Telefonica (TEF.MC).

"I do not have the impression that these events caused the breakdown of a possible merger between Telecom and Telefonica, of which I do not know the specifics," he told reporters in Rome.

Telecom Italia shares closed down 0.37 percent at 1.082 euros while Fastweb was unchanged at 14.41 euros. The STOXX telecoms index .SXKP was up 0.12 percent.