Felberbaum himself explained to us that this was done to prevent rival fund selling organizations from tempting the salesmen away. It is a little hard to see why he should have needed to protect himself from temptation in this way. His general manager in Milan, Roberto Alazraki, in an unguarded moment, put forward what sounds a more likely explanation. 'We started using false names as a precaution after Brazil, when the operation there blew.'
In an even more unguarded moment, another of Harvey Felberbaum's gm's, Charlie Freeman, gave the whole game away in a letter.
'As to the question of legality,' Freeman wrote early in 1967, months before the establishment of Fonditalia first made it legal for IOS to sell to Italian citizens and residents in Italy, 'there are very few large investors who would invest legally. They prefer to go through a Swiss bank. We are, however, establishing a legal operation here in Italy, with the participation of one of the major banks of the iri group. This will enable us to have a vast new development, opening up the market of the small investor who doesn't know about Swiss banks and prefers to have his capital remain in Italy.'
The truth is that long before Fonditalia was set up, the IOS sales force was selling the Fund of Funds and HT illegally in Italy to Italians who wanted to get their capital out of the lira. This was done with the cooperation of one Swiss bank in particular, the Finter Bank, through its branch in Chiasso, which is just across the frontier into Switzerland, less than an hour's drive on the autostrada north from Milan.
The Finter Bank had been involved in similar business before. As we shall see, it had been implicated in one of the most celebrated of Italian financial scandals before IOS came in contact with it. But between them, the Finter Bank's Chiasso branch and the IOS managers in Italy helped to smuggle out millions of dollars' worth of currency by an ingenious method which we will describe, in detail and on the basis of precise documents, below. And they went on illegally exporting currency out of Italy in this way into the IOS dollar funds in Switzerland, long after Fonditalia had been set up with the Italian government's blessing.
The Italian operation, in other words, is a warning against misinterpreting the change that came over IOS after the crises of 1966-7. What the IOS men in Italy learned from the Brazilian debacle was not that they must stop illegal sales: but that they must cover them up, with tighter security and a more respectable facade.
For many years, some wealthy Italians have been shipping their capital across the frontier to Switzerland. This traffic accelerated sharply in the early 1960s after the so-called 'opening to the Left' in Italian politics. This was IOS's opportunity in Italy, and it was equal to it. Once again, IOS's contribution was to make available to a broader share of the middle class the possibilities for capital flight that were the traditional prerogative of the rich. It is, we suppose, a kind of democracy.
Long after we started doing research for this book, we were taken in by the facade of the IOS operation in Italy ourselves. We had no reason not to believe the official line as it was given to us in Rome and in Geneva. This version can be summarized as follows:
There had been a very small sales force in Italy from the late 1950s since the ubiquitous Jack Himes began selling Dreyfus programmes to us Navy personnel at the big nato support base in Naples. Naturally IOS sold only to foreigners and to the small number of Italians who for some reason had funds abroad which they were at liberty to invest in IOS. This meant, besides us naval and military personnel, the expatriate community, including the embassies and the United Nations agencies, in Rome: the us business community in Milan; and the considerable number of Italians who had returned with their savings from South America (where there are large Italian communities in Argentina and Venezuela, as well as in Brazil).
IOS was naturally anxious to get permission to sell in Italy, but this permission was not forthcoming, and sales to Italians were not made, until Fonditalia was established.
This, with variations and obbligati, was the story we were told, and we believed it, at first. The first serious indication that all might not be quite so boy-scoutish in Italy did not come until September 7, 1970. And it came from the most unexpected of sources. Two of us were talking to a director of IOS Ltd in his office in Geneva. Abruptly, he picked up a sheaf of papers from his desk. Waving them at us, he said, in paraphrase: 'And there's another thing you don't know! The operation in Italy has been "black" for years, and what's more according to these figures it's still black!' 11% of the sales Felberbaum's men were making in Italy even then, he assured us, were not sales of Fonditalia at all: they consisted of sales of Fund of Funds or IIT made to people who had no business having external funds, and the money came out 'in suitcases' through Chiasso and Lugano. The same day another main board IOS director confirmed the story: he said that 11-13% sales in Italy were still illegal. There seemed to be a point here to be checked, one way or the other.
It was not until a month later that a former IOS salesman told us bluntly that it was quite notorious that the selhng in Italy was illegal on a large scale in 1965, 1966 and in 1967 before Fonditalia was set up later that year. He told us that at a time when all selling to Italians was illegal, there were 'five thousand clients, all clandestine'. And he mentioned the name of the Finter Bank, IOS managers had continued to use it to change lire into dollars until the spring of 1970, he said, when relations had been severed at Felberbaum's request.
By the end of the same week we had found three IOS managers in different parts of Italy who confirmed the essentials of this story: namely that to their certain knowledge illegal sales of the Fund of Funds (known in Italy as 'la Fof to rhyme with cough), and IIT had been going on for years; that such sales had been a very important part of the operation in Italy before Fonditalia was set up: and that the Finter Bank had been involved in the necessary clandestine currency exchange. One of them also spelled out exactly how it was done, down to the way postal boxes were used for reasons of security in Chiasso and two of the neighbouring villages.
We then visited Dr Chiomenti in his sumptuous office in the
Palazzo Orsini. He explained to us that he had resigned from the board of IOS Ltd, the main company, 'because I didn't know enough of what was going on.' It seemed, however, that he knew less than everything about what was going on in Italy, where he remained president of Fideuram.
Had there been any illegal selling in Italy before Fonditalia was set up? Dr Chiomenti said it had never occurred to him to inquire.
Had he ever heard of the Finter Bank? He professed complete ignorance.
He was, he explained, 'the constitutional monarch' of IOS in Italy. Harvey Felberbaum was the 'operational chief.
We accepted Dr Chiomenti's repeated statement that he knew nothing of any illegal selling. But it seemed to be time to have a word with Harvey Felberbaum.
The operational chief of IOS in Italy - 'regional vice-president in charge of Italian sales operations' was his official title - is one of the most attractive, as well as one of the ablest, of the IOS inner circle. He is strikingly good looking, dark, slight, with a disarming grin. He looks a good deal younger than forty, which is what he was in 1970.
He joined IOS in 1957, and started out as one of Allen Cantor's personal trainees around the us Air Force bases in France. For the next five years or so, before he settled down in Italy, he was one of the most successful of the peripatetic salesmen, clocking up thousands of miles round Asia and the Pacific. One catches fleeting glimpses of a man always in motion in the dashing little items about him in Bernie Cornfeld and Bert Cantor's monthly bulletin.
In February 1960, for example: 'When Eileen Felberbaum required an operation recently, Harvey spent hours in the hospital waiting until he could go in and see his wife. As soon as the medics let him in and Harvey made sure that Eileen was perfectly all right, he sold the patient in the next bed a programme.'
In September 1961: 'Harvey Felberbaum, roaming the South Seas, has crossed the International Dateline so often that he isn't sure whether it's today, tomorrow, or the day before yesterday.
On one of his stopovers on dry land, Harvey managed a spot of duck shooting with an Asian prince.'
In June 1962: 'Harvey Felberbaum, driving a friend's Mk II Gilby Climax, placed third in the Naples Grand Prix. Just to give an idea of the class Harvey was up against, the first and second place cars were factory Ferraris…'
We met Felberbaum in London, in one of IOS's apartments in Park Lane. He was affability itself. His general position was that while there might have been a little illegal selling, it was insignificant in volume, and had all stopped before Fonditalia was formed. He himself had given strict orders that it must stop, and he had in fact fired any salesmen who were caught doing it. It was, he conceded, possible that individual clients might have been changing money illegally, but IOS knew nothing about that.
What about the Finter Bank? we asked. Yes, he said, he had heard of it, but neither he nor IOS had ever had any formal arrangement with it. In a telephone conversation a few days later, he restated this position: there had never been anything like a formal arrangement with the Finter Bank.
A few days later, one of us was going through a file of Brazilian newspaper clippings. A reference to the Finter Bank jumped out of the page.
It was in the Jornal da Tarde of Sao Paulo for November 18, 1966. That was a week after the Brazilian police cracked down on IOS, and the name of the company was in the headlines. So when a boy of ten found a pile of letters and papers with the letters 'IOS' all over them on a vacant lot in the Street of the Begonias in the Sao Paulo suburb of Morumbi, he took them straight to the nearest policeman. The cop was not interested so the boy took them to the newspaper, which was very interested indeed. And a few days later the same boy, rummaging around the same lot, found another and larger pile of papers.
The newspaper established that they had belonged to an IOS associate called Daniel Aharony, who had either jettisoned them in his haste after the police raid, or had been using the vacant lot as a hiding-place. There were letters, reports and documents dealing with many aspects of IOS business. And among them there were several papers which mentioned the Finter Bank.
One of them read: 'Cheques in lire. Make them out in any name you like. Should be crossed for greater security. Do not put the name of the place. Send cheque to Harvey Felberbaum, care of the Finter Bank.'
Just why Aharony should have needed instructions about lire payments from Brazil is not clear-though there is, of course, a large Italian colony in Sao Paulo.
Two thoughts, in any case, struck us. The first was that it was rather unlikely that anyone - let alone a man with a reputation for running a tight ship - would have had indefinite sums of money sent to him 'care of a bank with which he had no kind of formal arrangement.
And the second was that we would like to know more about the Finter Bank.
The history of the Finter Bank is linked with the story of one of the most mysterious financial scandals of post war Europe, the affair of the Balzan Foundation. It is also inextricably connected with the flight from the lira.
Eugenio Balzan was an Italian journalist who became in the 1920s, and remained until he was beaten up and driven i
nto exile by the Fascists, the business manager of the greatest newspaper in Italy, the
Corriere della Sera.
The job was enormously lucrative. Balzan negotiated a percentage of the paper's net profits for himself which enabled him to go into exile across the Swiss border in Lugano with a fortune of some 47 million Swiss francs, or say $12 million, in the money of 1934.
When Balzan died in 1953 in Lugano, he left his money to a daughter, Lina, whom he had scarcely seen. Shortly before her own death, only four years later in 1957, Lina Balzan wrote a will in which the greater part of the Balzan millions were left to endow a
foundation whose main purpose would be to award prizes, in the manner of the Nobel Foundation, for services to world peace, and to learning and the sciences.
It is clear that Lina Balzan was encouraged in this design by the two remarkable men who were to be the principal actors in the Balzan affair. One was a lawyer of Italian descent and Venezuelan nationality called Ulisse Mazzolini. The second was Padre Enrico Zucca, who must be one of the most improbable of all the followers of the Franciscan rule of poverty.
Zucca first appeared in the headlines when he reburied Mussolini's body in 1946. He then established a Catholic cultural centre in Milan known as the Angelicum, which operates on the most lavish scale, with its own orchestra, theatre, cinema and classical recording company.
Zucca and Mazzolini were not shy about the Balzan Foundation and its prizes. The first year they had the neat idea of awarding their own peace prize to the Nobel Foundation. Next year they had an even bolder idea: they gave the prize to Pope John XXIII. Their third attempt, which was frustrated by the outbreak of the scandal, was to give the prize to the United Nations. A cheque was actually handed to U Thant at a ceremony in New York. Unfortunately, it was signed by an unauthorized person, it was undated, and the amount in figures and the amount in words differed by 50,000 Swiss francs. U Thant sent it back.
That was the beginning of the end. The Swiss and Italian Presidents, who had been made honorary presidents of the Foundation, hastily withdrew. The Swiss government moved in and appointed a new board of directors to look after the Foundation's funds, which were naturally kept in Switzerland. The Italian government appointed a special commissioner to look into the Italian end. And in 1965 the Zurich authorities opened a criminal investigation. For four years they delved into the Foundation's convoluted dealings in Venezuelan land, on the Zurich bourse, and in Italy. Zucca, Mazzolini and their associates were eventually cleared of criminal embezzlement. But they were officially declared to have been 'negligent' in their management of the Foundation's money, and had to pay costs.
The name 'Finter' comes into the story of the Balzan Foundation at every turn. It started as a company in Caracas, Venezuela, with the non-committal name of Continuous Metalcast ca. In 1957 Mazzolini changed its name to Finter Inc. ca. And later, according to one of Mazzolini's fellow directors, half the Balzan millions were actually held to the account of the Finter company.
The Finter Bank started as the 'Westbank' in Lugano, but had become the Finter Bank by 1958. Though it later moved its head office to Zurich, it kept branches both in Lugano and Chiasso, conveniently poised to do business across the Italian frontier.
The Swiss investigations showed that in some cases, at least, the gifts made to the Balzan Foundation were 'donations' of a very special kind. The donors were paid back - sometimes in Swiss francs - a substantial proportion of the land or money they gave to the Foundation in Italy. Both in Switzerland and in Italy, the press pointed out that this looked very much like a way of enabling wealthy Italians to get their capital out of the lira into good hard Swiss francs, while at the same time avoiding death duty and other taxes.
On July 27, 1960, for example, two sisters in Bologna who had 'donated' a plot of land to the Foundation received a letter from Finter Inc ca. It informed them that almost six million Swiss francs would be placed to their credit, earning interest at 5%. At the same time the Balzan Foundation would be debited an equivalent amount. They had given in lire: their reward was not only in heaven, but in Swiss francs.
The letter was signed by one Beltraminelli and another employee of Finter Inc ca, with Mazzolini's authority.
A few days after discovering the reference to the Finter Bank in the Brazilian newspaper, we visited Chiasso. There was no difficulty in crossing the frontier with a bulging briefcase which could have been jammed with ten thousand lire notes for all either the Italian or the Swiss frontier guards would have known. Chiasso has 8,554 inhabitants, and there are fourteen banks listed in the phone book. All the banks list rates of exchange prominently in the window and quote the latest market price of leading stocks and of gold. Chiasso is in the capital flight business the way Detroit is in automobiles, and people can even joke about it. When a fifteenth bank opened there recently, the head of the local Italian customs was invited to drink to its success.
There was no difficulty in finding the Finter Bank. It inhabits a handsome new building less than two hundred yards from the customs post in the main street. Nor was there any difficulty in obtaining access to the bank's executive offices: with a bulging briefcase and a muttered word about 'a delicate matter' we were ushered in. We were received by none other than Stelio Beltraminelli, who had signed the letter on behalf of Finter Inc. in the days of the Balzan Foundation.
Mr Beltraminelli readily confirmed that the Finter Bank had been used by the IOS managers in Italy for channelling funds out of Italy and into IOS funds in Geneva. The only subject on which he seemed sensitive was the use of postal boxes: 'it was a simple precautionary measure,' he explained. Some of the money arrived in cash, physically brought over the frontier, he said: but the larger proportion arrived in the form of 'bank transfers'. He was, in short, vague about the mechanisms of the business the Finter Bank had been doing with IOS: he was absolutely open in admitting that it had indeed been doing such business.
Beltraminelli also told us that, since the Balzan scandal, a stake in the Finter Bank had been bought by the Pesenti group. Carlo Pesenti is one of the wealthiest and most powerful industrialists in Italy. From his power base in Bergamo, not far from Chiasso, the Pesenti family controls Italcementi, one of the largest industrial corporations in Italy, and extensive interests in paper-making, banking and real estate. Pesenti recently sold the Lancia automobile company to Fiat.
Later, in a two hour interview in his enormous villa high above the lake of Lugano, Pesenti's representative on the board of the Finter Bank, a courtly old Swiss gentleman whose wife comes from Bergamo, refused to tell us just how large the Pesenti group's holding in the bank is, or who the other shareholders are. He would tell us only that the Pesenti holding is a minority, that it was bought in 1967, and that there might have been other changes in the shareholding since the scandal. There are two representatives of the Credit Suisse on the Finter Bank's board, and one representative of each of the other two major Swiss banks. (The Credit Suisse has informed us that it has no shareholding in the Finter Bank, however.) Nevertheless, both before and after the eruption of the Balzan affair, the Finter Bank has been connected with some of the most influential figures in the social and economic life of Switzerland and northern Italy.
Harvey Felberbaum told us that he had forbidden the key people in his organization to talk to us. But, double checking, we had no difficulty in finding several more managers who were quite willing to explain to us more exactly than Mr Beltraminelli how the illegal selling worked, and to give us an idea of the enormous magnitude of the operation.
They also supplied us with documents which establish three points beyond any doubt:
1. Fund of Funds and IIT were sold illegally in Italy on a massive scale before Fonditalia was set up, and senior IOS management in Italy knew this perfectly well.
2.
Illegal sales continued long after Fonditalia had come into existence, and this, too was known to top managers.