Written by Eric Jackson   

Panama takes in another fugitive, this time in a case involving extortion, prostitution, money laundering, possible illegal export subsidies and Silvio Berlusconi's incredibly crude insult

Phone call to a fugitive embarrasses Panama

Italian police have known since at least July 13 that fugitive newspaper editor and publisher, political and financial fixer and alleged extortionist and money launderer Valter Lavitola has been hiding out in Panama. That's when they intercepted a phone call from Italian Prime Minister Silvio Berlusconi to Lavitola, the latter talking on a cell phone in Panama. Then, in an interview published on September 8 in the pro-Berlusconi daily newspaper Libero, Lavitola acknowledged that he is in Panama.

Back in Italy, courts want to talk to Lavitola about what looks like a clear case of money laundering under Italian law, and what has been alleged to be extortion of Berlusconi. But the July phone call and other circumstances indicate that Lavitola's relationship with the prime minister is not the hostile one between a shakedown artist and his victim, but in the first instance the relationship between a crooked politician caught up in scandals and the bag man for his hush money. Specifically, it is said that at least €500,000 (about $692375) was paid by Berlusconi through Lavitola to maintain the silence of Giampaolo Tarantini and Angela Devenuto, who are a husband and wife alleged to have procured prostitutes for Berlusconi's now infamous "bunga bunga" parties.

(The most lurid tale of Berlusconi's sexual escapades has him on trial for allegedly paying for sex with then 17-year-old Karima El Mahroug, professionally known as "Ruby the Heart Stealer." Lavitola, Tarantini and Devenuto do not figure in that particular case, but they are involved in another case in which eight people are now on trial for the procurement of at least 30 prostitutes for Berlusconi's parties.)

It is alleged that the payments made by Berlusconi through Lavitola --- from which Lavitola allegedly took a cut --- were in cash and were not recorded anywhere. Under Italian law, an unrecorded cash transaction of more than €5,000 (just under $7,000 in US currency) constitutes the crime of money laundering. But Italy's DIGOS security police are reported to also be poring over bank records and other evidence of Lavitola's many complicated dealings with a number of companies and the Italian government. The warrant for Lavitola's arrest notes that:

"The forms of payment chosen to channel money to the Lavitola/Tarantini group --- off-the-books and in cash, in direct contravention of money-laundering regulations --- appear to be inspired by a desire to keep the payments confidential because they clearly lack a legitimate motive (business, sale, loan or similar) which, had there been one, would justify the transparent, documented forms of payment (cheques, bank transfers) typically used in ordinary economic transactions."

As the story develops it appears that Lavitola, who holds a job --- editor of the political newspaper L'Avanti --- that Benito Mussolini once held, played a far greater role in the Berlusconi operation than just an intermediary between the prime minister and his pimps. His center-right newspaper was paid much higher state publishing subsidies than were coming to it under Italy's formula for such payments, and there is also an unexplained money stream from the government to other companies owned or controlled by Lavitola.

These, prosecutors believe, were for a wide range of "other services" that Lavitola performed for Berlusconi. Of particular interest to Panama, he played a "fixer" role in the international sales operations of Finmeccanica, a partially state-owned Italian consortium whose business is in large part in the aviation and military systems fields. There are now allegations that in some of the Finmeccanica sales that Lavitola set up, there were bribes or concealed illegal government subsidies.

One of the Finmeccanica sales that Lavitola brokered was the sale of six AW-139 helicopters, 18 radar stations (one more was later added) and topographical mapping services to Panama. This $250 million (€180) no-bid deal was made in October of 2010 and its amount and details were declared state secrets by the Martinelli administration, but were largely published on the Finmeccanica website. Since then Panama's entire law enforcement budget has been declared secret, but it turns out that technical help to train the operators of those radar stations is funded by the US government as a part of its Merida Initiative "War on Drugs" program, while, according to a Panamanian law firm's website, the $250 million contract with the Italians has received $278 million (€200 million) in financing for the deal. As the Arias, Fabrega and Fabrega corporate law firm described the deal:

"200 million euro financing of Panamanian Government contracts with Finmeccanica entities for security and surveillance system

"ARIAS, FABREGA & FABREGA represented Citibank N.A. in connection with the financing of certain turnkey contracts between Finmeccanica entities (SELEX Sistemi Integrati, AgustaWestland and Telespazio) and the Panamanian Government.

"Under the agreement, Finmeccanica companies will develop a national security and surveillance system involving the implementation of a coastal monitoring and control system by SELEX Sistemi Integrati and the supply of six AgustaWestland AW139 helicopters in various configurations for the Panamanian National Aeronaval Service. In addition, Telespazio, through its subsidiary company Telespazio Argentina, will provide the digital cartography of the whole country for the Tommy Guardia National Geographic Institute.

"The orders are the result of a bilateral framework agreement for collaboration in the field of security associated with the fight against organised crime and drug-trafficking signed in June between the Italian prime minister, Silvio Berlusconi, and the President of the Republic of Panama, Ricardo Martinelli, at the summit of member countries of the Central American Integration System (SICA).

"The structure involved an international payee of Panamanian Government obligations and the sale of participations in such obligations pursuant to English law trust agreements."

Beyond the $28 million in excess financing for the deal, the Italian weekly newspaper L'Espresso has reported the Italian government paid a subsidy to Panama to secure the deal. Such a subsidy would probably be illegal under European Union and World Trade Organization rules, but one would generally need a complaint by an aggrieved competitor or government to make a court case over it. However, such a subsidy would be highly controversial and embarrassing in European politics, given the bitter court battle that the Europeans are waging with the United States over EU allegations that US defense and space contracts with Boeing amount to not so well hidden subsidies in that company's battle for market share with Airbus in the civilian passenger jet market.

If there is an Italian government subsidy in the Finmeccanica contract, this raises other questions. It is widely believed in business and banking circles that the winning bid for the design and construction of the new locks in the Panama Canal expansion project was a lowball offer, about $1 billion less than the next bidder's offer. That led to speculation in US Embassy cables that there might have been an illegal subsidy involved and the suspicion immediately centered on Spain and the Spanish company Sacyr Vallehermoso, the leader of the winning GUPC consortium. But also among the major partners in that consortium is Italy's leading engineering and construction firm, Impregilo. If the Berlusconi government of Italy has given a subsidy for one Italian company to get a Panamanian public contract, might it have given another subsidy to another Italian company for a different Panamanian public contract?

There is an ongoing and accelerating European media feeding frenzy about many aspects of the Berlusconi government. Controversial austerity measures that have set off rioting in the streets add to the bawdy tales of the prime minister's lifestyle in aggravating the crisis. Berlusconi is near the end of his political career, but how it ends might affect Panama. Were the prime minister to leave soon, with his allies in a good position to succeed him, then the furor might die down and history's Cliff Notes on his downfall might be the abbreviated tale of a dirty old man who got caught up in a European financial crisis. But if Berlusconi lingers on, or if he is succeeded by political enemies, then there would be an increased chance of his administration's arcane financial machinations being more closely scrutinized and continuing to gather headlines, and some of the journalists' and magistrates' further investigations might lead to Panama.

Lavitola, meanwhile, adds to Berlusconi's problems from Panama. In one interview, for example, he said that he recorded certain of his telephone conversations with the prime minister, during the course of which he claims that Berlusconi called German Chancellor Angela Merkel "an unfuckable lard-ass." Leave it to a British newspaper, The Independent, to break that story.

With talk about free trade agreements with the United States and Canada that are pending possible ratification, one might think that the North American press would take an interest in Panama once again playing host to a notorious fugitive accused of financial crimes. So far, this has not been the case.
by Eric Jackson