It was with a heavy heart that Bob Drennan, a senior partner in the accountancy firm Rawlinson & Hunter, went to see his firm’s compliance officer in February 2004.
After a short meeting inside the firm’s plush offices in Jermyn Street, London, it was resolved that Drennan should report one of his most valued clients to the police.
For more than 15 years Drennan had acted for David Mills, a flamboyant and well connected London solicitor. The men were on first name terms but Drennan, like all British accountants, had a legal duty to report evidence of illegality on the part of his clients and Mills had just given him information which had alarmed him.
It concerned a mysterious cash “gift” that Mills said he had received from a close associate of Silvio Berlusconi, the Italian prime minister.
The £350,000 had travelled around the world through a mind-boggling series of off-shore accounts and ended up with Mills via a highly unusual mortgage arrangement.
Drennan was already under notice that the Italian authorities were taking a keen interest in Berlusconi’s business affairs. He knew, too, that a London company linked to Mills had been raided by the Serious Fraud Office (SFO) some years before in connection with that inquiry.
Worst of all, perhaps, the Inland Revenue was now investigating Mills’s tax affairs and Mills had not declared the Italian gift three years before.
The gift, resolved Drennan, could not be ignored.
“I realised I found myself in a situation I would rather have avoided,” Drennan later told the Italian authorities. “I had a duty to report the matter.”
The paperwork supplied by his firm has reignited an Italian corruption inquiry that has rumbled on for more than a decade.
Details of the accountant’s role and a series of other key documents relating to the investigation can be disclosed today by The Sunday Times.
According to Italian prosecutors, both Berlusconi and Mills are likely to face charges, despite denials of wrongdoing. This weekend the affair has embroiled Mills’s wife Tessa Jowell, the culture and media secretary.
Mills claimed last week that his wife had absolutely no financial role in the matters. “Our finances are totally separate,” he insisted. “She has no involvement in this of any kind at any level.”
However, it now seems that she was involved. Her signature appears on the mortgage document that helped to bring the suspicious gift onshore.
On September 27, 2000 — in the middle of the Labour party conference — both Mills and Jowell signed a document taking out a large mortgage on their £700,000 terraced home in Kentish Town, north London. This money was then placed in an obscure hedge fund.
The mortgage was paid off less than a month later with the Italian “gift”. The minister now faces questions from MPs when the Commons returns tomorrow.
“I’ll be querying whether these new revelations relate to matters that should be declared under the ministerial code,” said Theresa May, shadow leader of the house.
THOSE who know Mills describe him as a vivacious and confident man with a quick intellect who speaks four languages including Farsi, cooks like a gourmet and is a gifted clarinet player.
“The first thing you have to understand about David is that he is quite brilliant,” gushed one friend. “He is an exceptionally clever person, and he knows it.”
He is also a man with high connections. While he married a future cabinet minister, his brother wed Barbara Mills, the former director of public prosecutions.
After leaving Oxford, Mills qualified as a barrister. He met Jowell, then a social worker, in the mid-1970s when they were both councillors in Camden, north London. Both were married and Mills had three children by his first wife, Maggie Mills, but the new relationship bloomed and they were married in 1979.
“His airy confidence would have been a considerable social asset to the young politician as she ascended through the ranks of the Labour party,” noted one commentator.
Mills could have continued in his career as a barrister but just before his second marriage he retrained as a solicitor and moved into commercial law. He took a job with Carnelutti, a leading Italian law firm, establishing its London office while at the same time building his own firm, Mackenzie Mills.
He became an expert in off-shore tax avoidance vehicles. By the time Jowell was elected to parliament for the first time in 1992 he was running a profitable business with some 50 clients, including Benetton, the clothing manufacturer, and Fininvest, the firm at the heart of the Berlusconi media empire.
“At that point things could not have been better for David,” said a friend last week. “His business seemed secure and profitable and there was no controversy. What’s more, Tessa’s career was taking off.”
But as Jowell’s career progressed through the 1990s, Mills’s slipped badly.
Berlusconi, who had initially been just another rich Italian client, stood for high office and became prime minister of Italy for the first time in 1994. All of a sudden his labyrinthine business interests came under scrutiny like never before.
In particular, investigators were interested in the “archipelago” — the complex international network of trusts and offshore companies set up for the benefit of Fininvest by Mills.
A report by the accountants KPMG for the Italian authorities found that 3.5 trillion lire passed through 64 Fininvest companies, many of them offshore, between 1989 and 1996.
The proceeds were then recycled through accounts in Switzerland, Monaco and the Bahamas belonging to Berlusconi associates. “The purpose of the network was to avoid paying taxes in Italy and to generate huge profits that could be kept off the books,” allege the Italian judicial authorities.
MILLS has always denied any knowledge of any illegal activities but the offices of one of the companies he was linked to were raided by the SFO and the Italian police’s economic crime unit in London.
Mills was also required to appear as a prosecution witness at two trials at which Berlusconi was accused of corruption. While no case was brought against Mills, mud sticks and his career and professional reputation started to dip just when his wife’s were flourishing.
A firm Blairite, Jowell was given the role of public health minister when Labour swept to power in 1997 and later took over employment before being promoted to her current cabinet position in 2001.
Sources close to Mills say that throughout this period “David’s finances were always a closed book to Tessa”. But were they? The cat and mouse game with the Italian authorities may have remained just that, were it not for an intervention by the British taxman.
Shortly after lunch on Monday February 2, 2004, Drennan took a call from Mills.
The account of this conversation and subsequent events are contained in official statements leaked to The Sunday Times in Italy last week.
According to Italian investigators, Mills said he had an urgent question to put to Drennan and arranged a meeting within the hour.
When Mills arrived, Drennan was surprised to hear that his client wanted to talk about his personal tax affairs.
Drennan started writing but said that Mills stopped him. “Don’t bother taking notes, Bob,” Mills said. “I’ve explained everything in a letter for you which I have with me.”
It is this letter which is central to the Italian prosecutors’ case. They allege it is an admission that Mills was paid by Berlusconi to give false evidence on his behalf in two court cases in the late 1990s.
The letter also makes clear that Mills had been contacted days earlier by the Inland Revenue querying his 2002 earnings. But Mills said he was concerned that the Revenue would look further back, he told Drennan.
In particular he was concerned that inspectors might find a sum of £350,000 which, according to the letter, he had indirectly received from “the B organisation”.
There was little doubt in the accountant’s mind that “B” referred to Berlusconi, especially as the letter also discussed an earlier £1.5m dividend payment from “Mr B’s companies”.
This payment had already been the subject of a dispute between Mills and his law partners as he had reluctantly been forced to share the cash with them. The letter, addressed “Dear Bob”, continued: “I kept in close touch with the ‘B’ people and they knew my circumstances. They knew in particular how my partners had taken most of the dividend; they also knew quite how much the way in which I had been able to give my evidence (I told no lies, but I turned some very tricky corners, to put it mildly) had kept Mr B out of a great deal of trouble that I would have landed him in if I had said all I knew. “
At around the end of 1999, I was told I would receive money, which I could treat as a long-term loan or a gift. $600,000 (£350,000) was put in a hedge fund and I was told it would be there if I needed it.
“For obvious reasons of their own (I was still a prosecution witness, but my evidence had been given), it needed to be done discreetly.” Mills has since claimed that this letter was referring to a “hypothetical” transaction. But, according to the leaked documents, this is not the impression he gave Drennan. Nor is it the impression he gave Drennan’s colleagues three days later when they met with Mills to discuss the matter in detail. The minutes of that second meeting have also been leaked to The Sunday Times.
According to Drennan’s statement, Mills had explained he had been told about the gift during a meeting in Switzerland in late 1999 with Carlo Bernasconi, a senior executive of Fininvest. Bernasconi died, aged 57, two years later.
Drennan was surprised that Mills had received such a large payment and inquired whether Bernasconi was wealthy enough to give away so much.
He recalls: “He (Mills) said he did not know his situation but he doubted it. As a result we agreed to presume that the sum had arrived from some part of the companies or funds of Berlusconi.”
Drennan advised that Mills should declare the payment for tax as it had effectively arisen from his work for Berlusconi.
After the meeting, Drennan sought a second opinion from his colleague David Barker and they decided to call in the National Criminal Intelligence Service. In his statement to the Italian police, Barker says he was “surprised, not to say stunned” that a lawyer could have written the “Dear Bob” letter.
THE leaked information was sprung on Mills five months later by the Italian authorities. On July 18, 2004 he was interviewed by prosecutors Fabio De Pasquale and Alfredo Robledo in a fourth-floor room at the Palace of Justice in Milan.
Mills, flanked by his lawyer, sat opposite a contemporary painting — a large black ink splodge with tentacles, which investigators joked represented “the state of the investigation”.
It was a warm day and at one point the prosecutors sent for some mineral water for the Englishman.
They had started grilling him at 2.45pm but it was not until long after sunset that the prosecutors played what they saw as their master card. Casually asking for an explanation, they showed Mills a copy of the letter written to Drennan.
“Mills blanched when he realised what the letter was. It was a huge shock, he obviously had no idea this was coming,” a witness claimed.
Before the evening had ended, the prosecutors had persuaded Mills to sign a statement explaining the origin of the gift. A translation of the statement is disclosed here for the first time.
“I am shown the letter dated February 2, 2004, addressed to Bob Drennan . . . I declare that the letter was written by me and I am disturbed in re-reading it. I believe that at this stage, hard as it may be, the best thing to do is to explain the events as clearly as possible. After all, the letter itself is extremely explanatory and needs little clarification.
“I wrote this letter on the occasion of a tax dispute in the UK. In particular, I had to explain the reasons why I had received the sum of $600,000.
“I don’t think a lot of words are necessary: I have been heard several times during investigations and trials concerning Mr Silvio Berlusconi and the Fininvest Group. Even though I have never borne false testimony, I have tried to protect him as best as I could and I tried to maintain, where possible, a certain degree of privacy about the transactions I made for him.
“It is in such context that, during the autumn of 1999, Carlo Bernasconi, whom I am deeply sorry to involve in this story, because he was a true friend of mine, told me that Silvio Berlusconi had decided to assign a sum of money to me as a debt of gratitude for the way I had managed to protect him during the investigations and the trials.
“I’ll try to recall the actual words Carlo used to indicate who had made this decision within the family: I believe he used the word ‘Il Dottore’, which was the way he usually called Silvio Berlusconi.”
Again it seemed as if the police had strong evidence, but Mills would later retract this statement and change his story. On November 6, 2004, he wrote to the Milan prosecutors setting out a new version of events.
He said the gift had been from Diego Attanasio, a Neapolitan shipping magnate and client who was also a friend. His letter suggests that he lied to protect Attanasio’s identity and he continued this deceit during his interview in Milan because he feared the money might become liable for tax in the UK.
A few days after the Milan meeting, however, the British taxman ruled that the payment was subject to UK tax anyway.
Mills’s letter to the prosecutor adds: “Thus there was no longer any more reason for me to continue with a story that was not credible and I am now much more tranquil and at ease with my conscience as I only have to state the pure and simple truth with regard to the origin of the funds.”
Quite why Mills’s tax worries would have caused him to claim initially that the “gift” came from Berlusconi’s people rather than a less controversial source is not clear, but even the explanation that it came from Attanasio is problematic.
When the prosecutors interviewed Attanasio, he said he had never given authority for Mills to look after the money. In fact he was in prison at the time.
Prosecutors in Italy remain insistent that the gift originated from Berlusconi.
In a document sent by Italian prosecutors to the Home Office in January this year requesting a search of Mills’s home and office, they claim that the payment was related to two court cases.
In the first trial Berlusconi was convicted of bribing tax officials to obtain favourable audits for Fininvest companies. In the second he was convicted of paying Bettino Craxi, the former prime minister, through another company. Berlusconi has since been acquitted in both cases.
In both hearings Mills allegedly failed to declare what he knew about the ownership of the network he had set up — namely, that its beneficiaries were associates of Berlusconi. “It’s not up to me to say who is the owner and who isn’t,” Mills said in court.
WHAT of the “gift” itself — how did it arrive in Britain? Italian prosecutors have been tracking the funds across the globe — through what one investigator called “the craziest, most complex network I have seen”.
It ends in an offshore hedge fund called Torrey. In September 2000 Mills took out a Hambros mortgage on his house and invested the proceeds in another fund, Centurion. The mortgage was repaid with the sale of the Torrey units in October 2000.
Asked why Mills had found it necessary to take out a mortgage rather than simply use the gift, an investigator replied: “We don’t know.”
When the Metropolitan police called at the Mills family home in London on February 10, Jowell was away attending the Turin Winter Olympics. “The Met decided to carry out the raid when they knew she would not be at home,” a judicial source said.
Until now it had been thought that she had emerged without any connection to the affair. But her signature is on the mortgage papers.
Mike Warburton, a tax accountant with Grant Thorton, said: “The bank would not have agreed to a charge being put on the house without her active participation. As a minister of the crown one has to assume she knows what she is doing. ”
Jowell will have to explain her role in bringing the Italian gift on to British soil in parliament this week. Her husband, meanwhile, is fighting for his career and possibly his liberty, with Italian prosecutors claiming yesterday that he could be charged within 10 days.
With a general election in Italy in full swing and Berlusconi trailing in the polls, Mills could be forgiven for thinking the political winds are against him.
Already the world of international finance is closing down to him. In November the Dubai authorities rejected an application he had made for a licence to practice there. The request was rejected on the grounds he had replied “no” when asked if he had ever been the subject of an official investigation.
“Your answer to this question was not true,” the letter of rejection said. “You have a duty to provide full, true and plain answers . . . as a lawyer you must be aware of this.”
Insight: Jonathan Calvert, Gareth Walsh, John Follain
MILLS'S CAREER
1968 Mills called to bar
1978 Retrains as a solicitor and opens the London office of Italian law firm Carnelutti
1979 Mills leaves his first wife to marry Jowell
1982 Sets up his own commercial law firm, Mackenzie Mills
1990 Mills has more than 50 clients, including Berlusconi’s Fininvest
1994 Investigators start looking at Berlusconi’s offshore businesses
1996 Serious Fraud Office raids an office connected with Mills over Berlusconi’s companies
1997 Mills allegedly misleads Italian court trying Berlusconi
1997 Leaves his law firm
1998 Mills allegedly makes a false declaration during a second hearing
1999 A £350,000 “gift” is placed for Mills in an offshore hedge fund
September 2000 Mills and Jowell take out a £425,000 mortgage
October 2000 The “gift” is brought onshore to repay the mortgage
2004 Mills tells his accountants the gift is from “the B people”
July 2004 Mills tells Italian prosecutors the money was paid on behalf of Berlusconi, but later retracts statement
February 2006 Mills’s home and office raided by British police at request of Italians
