Jul.03, 2010

ROME—An investigation into an alleged €2 billion ($2.52 billion) money laundering and tax fraud scheme involving telecommunications operator Fastweb SpA and Telecom Italia SpA's cable unit Sparkle is months away from reaching a conclusion, according to a person familiar with the matter.

Prosecutors had planned to wrap up the probe by the end of June, paving the way for the filing of formal charges and the start of a trial. However, the investigation has expanded to include more than 80 suspects since the probe was disclosed in February, according to prosecutors. Investigators are now taking more time to track the flow of the funds that were allegedly laundered through the transactions and shifted to off-shore accounts, the person said.

"The investigation is wide and complicated and needs more time to be wrapped up," the person said, adding that the probe could conclude at the end of the summer at the earliest.

Spokesmen for Fastweb and Telecom Italia declined to comment on the delay.

Prosecutors allege that between 2003 and 2006 executives from Fastweb and Telecom Italia SpA's cable unit, Sparkle, were aware of the purchase and sale of €2 billion in services, such as Internet bandwidth, to phony companies backed by the 'Ndrangheta mob of Southern Italy. The alleged practice let the two firms reap as much as €400 million in tax credits, some of which are documented in the companies' internal-audit reports, according to prosecutors.

Fastweb and Telecom Italia have denied any wrongdoing and said they are victims of the fraud, not perpetrators.

The investigation's delay will prolong the legal limbo facing current and former executives at Fastweb and Sparkle. Under Italian law, authorities can arrest and detain people for months without formally charging them.

Fastweb founder Silvio Scaglia spent months in jail and now remains under house arrest in the Italian Alps awaiting formal charges. Prosecutors have formally placed Mr. Scaglia under investigation on allegations that he was part of a criminal association to commit tax fraud. Mr. Scaglia, who sold the company to Swisscom AG in 2007, resigned from Fastweb's board in March following his arrest.

Mr. "Scaglia has nothing to be afraid of and is confident that deeper investigation will demonstrate his innocence," said his lawyer, Piermaria Corso.

Stefano Parisi agreed to suspend himself as CEO of Fastweb in early April after prosecutors placed him under investigation for alleged tax fraud in connection with the scheme. The suspension, Fastweb said, was part of an agreement with prosecutors to avoid placing the company under court-administration. Fastweb's chairman and Swisscom Chief Executive Carsten Schloter is filling in as CEO of Fastweb while the investigation is underway.

Fastweb has also has put aside €70 million as a provision to cover risks including legal costs and other possible liabilities connected with the investigation.

A Fastweb spokeswoman declined to comment on the delay and said Mr. Parisi wasn't available to discuss the matter. Mr. Parisi has repeatedly denied any wrongdoing.

Telecom Italia, Italy's largest telecoms operator, set aside a €507 million risk provision to pay for any potential costs stemming from the probe. The investigation of Sparkle has also forced Telecom Italia to restate the group's financial accounts from 2005 to 2008.