Gazprom und die italienische Mafia/Gazprom and the Italian Mafia

Nov. 21 (Bloomberg) -- When police captured Mafia boss Bernardo Provenzano in a two-room shepherd's cottage in Sicily last April, he had a blue sleeping bag, a Bible and, stashed in his incontinence diapers, 1,000 euros in cash. Provenzano's hideout, a mile outside his hometown of Corleone, also contained evidence of the 73-year- old don's global business dealings.

Provenzano, who never finished the second grade, oversaw the construction of a Sicilian gas pipeline that an alleged Mafia frontman sold to Spain's Gas Natural SDG SA in 2004 for 116 million euro ($147 million), according to depositions by mob turncoats and copies of letters police found in the boss's hideout.

The mob proxies allegedly used proceeds from the sale to finance a company that tried to buy gas from Kazakhstan and sell it to BG Group Plc, the U.K.'s third-biggest oil and gas producer, using pipelines owned by OAO Gazprom, the world's biggest natural gas producer, according to court documents, interviews and a copy of an authenticated bank guarantee for the sale.

The attempted sale to BG Group of 1 billion cubic meters (35 billion cubic feet) would have been worth $146 million, according to the architect of the agreement, and is part of the largest money laundering case ever pursued by the Palermo court.

The Sicilian company's aim was to sell 6 billion cubic meters of gas annually -- a plan those involved valued at $876 million a year.

The deal -- which was thwarted by Italian investigators -- highlights the changes in the Sicilian Mafia over the past few years. The Sicilian mob, known as Cosa Nostra, has had a stranglehold on the island's economy since the organized crime families first rose to prominence in the mid-1800s.

Waves of Immigration

During the waves of Italian immigration in the early 1900s, the mob expanded internationally, to North and South America, inspiring popular crime novels and films like The Godfather, which recounts the tale of a fictional Don Vito Corleone.

It's only recently that the Mafia has been in contact with people capable of putting together a legitimate transaction of the scale and sophistication of the Kazakh gas deal -- involving some of the biggest companies in Europe and one of the world's most- sought-after commodities. It's the kind of deal that would make television's Tony Soprano sit back and light up a cigar.

``Today's mobsters try to create their own businesses,'' says Pietro Grasso, Italy's chief Mafia prosecutor. Grasso formerly was the top prosecutor in Palermo, Sicily, where he spent seven years hunting Provenzano.

``It's more and more common that when we seize a mobster's holdings, 40 percent of what we take is either a business or a commercial activity,'' Grasso says.

Economic Sophistication

As its economic sophistication grows, Cosa Nostra is relying increasingly on civilian allies, says Umberto Santino, a sociologist and the author of 14 books on the mob. They may be politicians or businessmen with no criminal record and often aren't initiated members of the mob, Santino says.

No Mafia leader has relied more heavily on such consultants, or consiglieri, than Provenzano, who was captured after spending four decades in hiding. A native of Corleone -- the town of 11,355 about 35 miles (56 kilometers) inland from Palermo that was made famous by Mario Puzo in The Godfather -- Provenzano, like other Corleone Mafia family members, was referred to in the 1970s as a ``peasant.'' Provenzano farmed the rocky fields with his father as a young boy.

Provenzano selected another Corleone native, Vito Ciancimino, to be his consigliere. Ciancimino, who became the first politician to be convicted of being a member of Cosa Nostra in 1993, was no peasant. A member of the Christian Democratic Party that ruled Italy for 47 years after World War II, Ciancimino studied engineering at Palermo University without obtaining a degree and became Palermo's alderman for public works from 1959 to '64. He was briefly mayor in 1970.

`Sack of Palermo'

As alderman, Ciancimino awarded mob frontmen thousands of contracts to build concrete apartment blocks in place of the citrus groves and turn-of-the-century villas that characterized Palermo, according to a 1976 report from Parliament's anti-Mafia committee. That building spree became known as the ``sack of Palermo.''

As Provenzano's Corleone Mafia family established its dominance of Cosa Nostra in a bloody killing spree from 1981 to '83 that left an estimated 1,000 people dead, the city couldn't be run without the support of Ciancimino, three former Palermo mayors told prosecutors in 1984.

Amassed a Fortune

Ciancimino used his power to amass a formidable fortune, according to the late investigating magistrate Giovanni Falcone, who charged the former mayor with Mafia conspiracy and corruption. (Ciancimino died in 2002 at age 78 of natural causes while under house arrest in Rome.)

Falcone confiscated 10 billion lire -- which today would be worth about 5 million euros, according to trial documents. At the time, Ciancimino said in court that it was less than half of his fortune. ``In private, he said, 'The court has sequestered only a single hair from my balls,''' says Francesco La Licata, the author of a biography of Falcone and a crime reporter in Palermo for 20 years.

Falcone, who was setting up a Rome office to coordinate the fight against organized crime in Italy, the position Grasso now holds, was murdered in 1992 when the Mafia detonated a bomb under the highway his motorcade was traveling on outside Palermo. In 2002, Provenzano was found guilty in absentia of the attack, along with 18 others, and was sentenced to life in prison.

Falcone's successors, who kept up the search for Ciancimino's assets, finally got a break when Antonino Giuffre, one of Provenzano's underbosses, was captured and turned state's witness.

Tracing the Loot

Giuffre helped investigators trace Ciancimino's loot to a Palermo gas company called Gasdotti Azienda Siciliana SpA, or GAS SpA.

Founded in 1981, GAS and a group of holding companies linked to it became the largest privately held natural gas distributor in Sicily. The GAS group owned pipelines that supplied 93,000 residential and commercial clients in 73 Sicilian towns with gas for cooking and heating.

The official owners of about half of the company were Gianni Lapis, Ciancimino's former tax lawyer, and Lapis's family members and friends.

In reality, the GAS group was held directly by Provenzano, Giuffre says in a 2005 deposition. ``Not a leaf was moved without the approval of Provenzano,'' he says.

Palermo prosecutors say it was Provenzano's consigliere, Ciancimino, who was managing the GAS group. In a 568-page arrest warrant issued on June 8, 2006, prosecutors Roberta Buzzolani, Michele Prestipino and Lia Sava say Lapis's GAS holdings were part of Ciancimino's hidden treasure, citing turncoat testimony, bank records, seized documents and transcriptions of telephone wiretaps.

Indictments Sought

They've asked a preliminary court to indict Lapis; Massimo Ciancimino, 43, Vito's youngest son; Epifania Scardino, 75, Vito's widow; and Giorgio Ghiron, Vito's longtime lawyer. Prosecutors accuse the defendants of laundering and investing the politician's illegal fortune. Prosecutors are also asking that Lapis be charged for colluding with Cosa Nostra. The others aren't accused of colluding with the Mafia.

Lapis, 63, denies all of the accusations in an interview in his Palermo office, the former headquarters of the GAS group, located in the part of town built under Vito Ciancimino's reign.

``I'm indignant,'' Lapis says. ``I'm an honest businessman.''

House Arrest

Massimo Ciancimino and Ghiron were put under house arrest in June because they are accused of hiding some of the assets the court was trying to sequester. Ghiron has been released. In an interview, he denies wrongdoing. ``Massimo Ciancimino was a client like any other,'' he says. ``When my client is clean, I don't see why I can't help him.''

Roberto Mangano, a Palermo lawyer representing Ciancimino and his mother, says his clients weren't the owners of GAS and did nothing illegal. Ciancimino cannot be interviewed while he's under house arrest, Mangano says.

So far, Palermo prosecutors have sequestered 60 million euros in cash and assets from Massimo Ciancimino, Ghiron and Lapis, making it the largest money laundering case the Palermo court has ever tried to prosecute. ``The money ties together the past and the present,'' La Licata says.

From 1981 to 2003, the GAS group built the gas distribution pipeline, often by winning contracts from the regional government, according to the arrest warrant, Grasso and Lapis.

Prison Suicide

Provenzano funneled the subcontracts to a company called SI.LA Srl, according to testimony from four separate Cosa Nostra turncoats included in the arrest warrant. SI.LA was controlled by Francesco Pastoia, a mobster close to Provenzano, Palermo prosecutors said in the document. Pastoia hung himself in prison in 2005 after newspapers said he was double-crossing the boss of bosses.

After Vito's death in 2002, Massimo Ciancimino started managing his father's money, the Palermo court alleges. The younger Ciancimino had already been handling business for his father, according to the letters found in Provenzano's hideout.

The letters, known as pizzini, demonstrate that Provenzano was protecting Massimo Ciancimino during the construction of the gas network, Grasso says. Provenzano had developed a Mafia mail service to avoid using telephones and computers that could be monitored by police.

He typed the letters, folded them into small squares, sealed them with tape and numbered them. Each number corresponded to a different member of Cosa Nostra, Grasso says. The letters were passed from hand to hand among Mafia members and collaborators until delivery.

Boss's Complaint

In one of the pizzini that Provenzano received, Matteo Messina Denaro, a high-ranking boss in western Sicily, complains to Provenzano that the younger Ciancimino had refused to pay off a local Mafia family while building the gas pipeline in Alcamo, Sicily, in the early 1990s.

``This son of your dead fellow townsman knows he stole money,'' Messina Denaro wrote in a letter dated Oct. 1, 2003, according to a court transcript of the letter.

A few months later, on Jan. 13, 2004, Lapis and his partners sold GAS to Spain's Gas Natural for 116 million euros. Alberto Toca, general director of international business at Gas Natural in Barcelona, told Palermo prosecutors in a deposition that he and his staff negotiated with Monia Brancato, a partner of Lapis whose family controlled the other half of GAS's shares. The Brancato family isn't accused of any wrongdoing.

Wiretaps

Toca said in the deposition that he met Lapis only on the day the sale closed in a Milan notary's office. Brancato and another Gas Natural employee confirmed Toca's testimony. Toca says he doesn't remember meeting Ciancimino.

According to transcripts of police wiretaps included in the arrest warrant, Ciancimino was present the day of the sale in Milan, though he left the notary's office to return to his hotel just before the sale was closed. Gas Natural and its executives aren't accused of any wrongdoing.

The proceeds from the sale would help bankroll the Sicilians in their bid to enter the international commodities market. First, Ciancimino went on a spending spree with the booty that officially belonged to Lapis and was managed by Ghiron, according to bank records, documents confiscated from Ghiron's office and transcripts of phone wiretaps included in the arrest warrant.

The warrant says Ghiron paid 223,000 euros to buy Ciancimino a Ferrari 612 Scaglietti, a sports car with a 540-horsepower engine that goes from zero to 62 miles per hour in 4.2 seconds and reaches a top speed of 196 mph.

Crocodile Skin Purse

It says he also bought Ciancimino two luxury motor yachts, including a 1.3 million euros, 60-foot Itama 55 that he named after his son, who in turn is named Vito Andrea, after Massimo's father. At about the same time, Ciancimino bought his wife, Carlotta, a crocodile skin purse, the warrant says. The price: More than 100,000 euros.

``He got enjoyment from the sins of his father,'' Grasso says. ``Sins, or the devil, can deliver something that is temporarily positive, but then the sword of justice arrives.''

The Ferrari, the boat, a condominium in Rome, a beach house near Palermo and several other assets officially owned by Ghiron and Lapis -- including a Romanian garbage hauling company -- have been sequestered by the court, which says Ciancimino is the true owner. Mangano, Ciancimino's lawyer, denies the accusation. ``Not a cent is his,'' he says.

Judging by his tax returns, it would have taken Massimo Ciancimino three years to save up by himself for just the crocodile purse. He declared an average annual income of only 36,623 euros from 1999 through 2003.

The income came from a franchised leather furniture shop, Chateau D'Ax, which occupies two floors on palm- and magnolia- lined Liberty Street, one of Palermo's main thoroughfares. The store, which is now being managed by a state-appointed administrator, is located across the street from Lapis's office.

Energy Business

Ciancimino wanted to go into business on a much bigger scale, according to the court documents. He told prosecutors he wanted to become a player in the international gas market. ``I've always been obsessed with energy and natural gas,'' he told the Palermo prosecutors in a deposition on March 3, 2005.

Because of rising demand, the sale price of natural gas is 25 times the cost of producing it, says Davide Tabarelli, a professor of economics and energy at the University of Bologna. ``The margins are enormous,'' he says.

European Union countries burned 17 percent of the world's gas sold last year, while producing just 7 percent, according to the BP Statistical Review of World Energy.

Dolomite Connection

Ciancimino says he was the sales manager for a company called Fingas SpA, which was created in 1987. Fingas, controlled by Lapis, received 500,000 euros from the sale of the GAS group, according to bank records cited in the arrest warrant.

Ciancimino found an opportunity to expand his line of business while vacationing at his wife's family's house in Cortina d'Ampezzo, a ski resort in the Dolomites. Cortina is where Italy's political elite -- including seven-time Prime Minister Giulio Andreotti -- mingle with wealthy foreigners during the Christmas holidays.

Italy's highest appeals court said in 2004 that Andreotti, 87, had ties to Cosa Nostra until 1980. The court absolved him because the statute of limitations had expired.

In the 2005 deposition, Ciancimino said he met Igor Makarov, chairman of Itera Group, Russia's third-largest natural gas supplier, at Cortina without saying which year. Makarov was looking to do business with a more ``streamlined'' company than Europe's major gas companies, Ciancimino said.

Russian Denial

In an e-mail to Bloomberg News, Makarov denied ever meeting Ciancimino and helping him set up a gas sale. ``I did visit Cortina d'Ampezzo during Christmas holidays in 2004-'05 with my family and friends,'' he said.

``Being a private and independent company, we have contacts with both Russian and foreign companies of various size, building our relationships on the basis of good faith, viability and profit.''

Ciancimino said in his deposition that he also met Dariga Nazarbayev, the daughter of Kazakhstan's president, at Cortina. Based on the connection, Ciancimino said, he planned to make a deal to import gas from Kazakhstan using Gazprom's pipelines.

Kazakhstan, which has the 11th-largest reserves of gas in the world, is notoriously corrupt, according to Berlin-based Transparency International, which publishes an annual ranking of perceived corruption. Kazakhstan scored 2.6 on the organization's scale of 1 to 10.

Haiti, the most corrupt country, scored 1.8.

Lapis and Ciancimino had been exploring the idea of buying and selling gas since 2002. The only way to transport gas from Kazakhstan to Western Europe is through Gazprom pipelines.

Better Price

Initially, Fingas sought to buy the gas directly from Gazprom. Lapis sent a letter to Gazprom Chief Executive Officer Alexei Miller on Oct. 13, 2003, seeking permission to buy up to 10 billion cubic meters of natural gas, according to a copy of the letter. A Gazprom spokesman who asked not to be named said the company had never heard of Fingas.

President Nursultan Nazarbayev was looking to sell Kazakh gas for a better price than Gazprom was offering, and Fingas was willing to offer a little more, says Romano Tronci, whom Ciancimino describes as a friend of his father's.

Tronci, who says he was a consultant to Fingas, is on trial in Palermo for conspiring with Cosa Nostra and fixing government contracts for trash collection in several Sicilian towns in the 1990s. Interviewed in the Rome train station as he prepared to board a train for his hometown in central Italy, Tronci denied any wrongdoing.

Shadowy Italian-American

To negotiate the Kazakh deal, the Italians turned to Ottavio Angotti, a shadowy figure who was convicted of bank fraud in California and who Ghiron and Lapis say has links to the U.S. government. Angotti himself was reached via an Italian cell phone number, but he cut the call off.

When a reporter called back, the same person answered but said he was not Angotti and didn't know who Angotti was. The Palermo court, seeking Angotti's deposition, failed to track him down.

An Italian with an American passport, Angotti was a convicted felon in the U.S., where a federal jury found that he falsified the records of Consolidated Savings Bank of Irvine, California, a savings and loan shut down by federal regulators in 1986. The lender had run up a debt of $43 million.

Bank Fraud

Angotti was chief executive officer of the bank from 1984 to '86. He disappeared in June 1993 as sentencing for his bank fraud conviction approached and as a separate grand jury indictment for conspiracy and loan fraud was handed down.

In 1996, Angotti turned up in Hong Kong, where he spent five months in jail before being extradited to the U.S. He had been teaching finance and accounting at Shenzhen University in China, according to the school.

Angotti faced a maximum sentence of 25 years for bank fraud, 165 years for the pending federal indictments and up to $7 million in fines when Judge Manuel L. Real of the U.S. District Court in Los Angeles, on May 5, 1997, gave Angotti a suspended sentence of five years.

Giving him 3,000 hours of community service, the judge waived all fines, dismissed the indictments and the bail jumping charge and had Angotti released from custody, according to a copy of the court docket.

Assistant U.S. Attorney Richard Robinson says he cut a deal with Angotti, taking into account the time he had spent in jail in Hong Kong, according to an e-mail from Thom Mrozek, a spokesman for the U.S. Attorney's office in Los Angeles.Michael Artan, Angotti's Los Angeles-based former lawyer, says that had Angotti not fled in 1993, he would have been sentenced to probation.

USAID Links

In 1999, Angotti was working for the U.S. government as a professor of accounting at the Kazakhstan Institute of Management, Economics and Strategic Research in Almaty.

Angotti's $100,000 annual salary was paid by the government from July 2000 to June '02, according to USAID, or the U.S. Agency for International Development. The Washington-based federal agency coordinates U.S. foreign aid spending at the guidance of the State Department. One of Angotti's students was a daughter of Nazarbayev's, Lapis says.

``It's all about having the right contacts,'' Ghiron, the Ciancimino family lawyer, says in an interview in his office in Rome's wealthy Parioli neighborhood. Ghiron says Ciancimino knew Angotti and brought him to the gas sale project. Lapis and Ciancimino both say Tronci, the consultant to Fingas on trial for Mafia ties, introduced them to Angotti.

Angotti seemed to be just the person the Italians needed for the gas deal. He took Ciancimino to meet Gazprom officials in 2003 and claimed to be a representative of the Kazakh government, Ciancimino said in an interview in May 2006 with Italian television station RAINews24.

Using the Contacts

Thanks to Angotti's contacts, Nazarbayev agreed to sell 6 billion cubic meters of gas per year to Fingas, and Gazprom agreed to transport it, Ciancimino said in the interview.

Lapis and Angotti set up a company in Zug, Switzerland, called Pure Energy, using 250,000 euros from the sale of the GAS network, according to the arrest warrant and interviews with Ghiron, Lapis and Tronci. Lapis says Nazarbayev's family had a stake in Pure Energy.

Mukhtar Kul-Mukhammed, Nazarbayev's spokesman, wasn't available for comment and didn't respond to faxed questions. Almaz Khamzayev, the Kazakh ambassador to Italy, didn't respond to e-mail and telephone requests for an interview. Leila Alimzhanova, a spokeswoman for Kaztransgaz, the gas-pumping unit of the state oil and gas monopoly KazMunaiGaz, said it never sold anything to Fingas.

HSBC Guarantee

It did come close, according to a bank guarantee in favor of Fingas that was set up by HSBC Bank Plc in London, on behalf of BG International, a unit of BG Group. A copy of the document was obtained by Bloomberg News. BG International was the end purchaser of the gas, the guarantee says. Neil Burrows, a spokesman for BG Group in London, authenticated the guarantee, which was worth $7.1 million.

The amount to be delivered by Fingas to BG Group storage facilities in Eynatten, Belgium, and Stolberg, Germany, was 1 billion cubic meters, Ciancimino, Ghiron and Lapis say. Without putting up any money of its own, Fingas would have made $10 million per billion cubic meters sold, Ciancimino said in the RaiNews24 interview. The goal was to import 6 billion cubic meters of gas per year into Western Europe -- for $60 million in annual profit.

Two months before the Sept. 30, 2005, deadline for the gas delivery to BG Group by Fingas, the Palermo court sequestered the Italian company on orders of prosecutors Buzzolani, Prestipino and Sava. ``If Fingas hadn't been sequestered, we would have been able to sell the gas,'' Lapis says.

Kazakhstan ended up selling the gas on Oct. 3 of this year, to Gazprom. BG Group and Italy's Eni SpA, which operate Kazakhstan's Karachaganak field, agreed to supply 6 billion cubic meters of gas per year to Gazprom's Orenburg refinery, which is in Russia near the Kazakh border.

In his 2005 deposition, Massimo Ciancimino told the Palermo court, ``I've always wanted to broaden my business interests.'' Thanks to backing from his father's contacts, he almost did.

To contact the reporter on this story: Steve Scherer in Rome atsscherer@bloomberg.net.