While Lawyers Argue, a City Chokes

Taranto in Italy. Choked. Picture from Italian newspaper La Stampa
Taranto in Italy. Choked. Picture from Italian newspaper La Stampa

JERSEY, C.I. – Taranto in Italy is so polluted that farming has become nigh-on impossible and cancer rates are sky high. Reportedly.

Local magistrates say the problem is the town’s steel plant, one of Europe’s biggest.

To pay for the clean-up, assuming a clean-up is even possible, authorities there are trying to seize €8 billion from the wealthy Riva family, which until recently owned the steelworks. They say they’ve done nothing wrong.

Officials have designated the whole sorry mess an environmental disaster. And it’s a legal mess with a paper-trail through Jersey.

SCRAP

Adriano Riva was a scrap metal merchant who started his steel company with his now-deceased brother Emilio in the 1950s.

By the 1990s, the brothers had come a long way.

Having made untold millions building one of Europe’s biggest steel producers, Gruppo Riva, Adriano set up four Jersey trusts* called Antares, Orion, Sirius and Venus. You don’t have to remember their names.


*A trust is no more than an agreement that someone (say, a Jersey trust provider) will look after something (money, castles, yachts) for someone (perhaps a wealthy industrialist) for the benefit of someone else (perhaps the children of wealthy industrialists). Apparently trusts were invented by knights of olde dashing off on crusades wanting to make sure their families were looked after if the crusade didn’t work out. A modern-day trust can also help mitigate tax liabilities. Generally speaking, there’s also normally no record of a trust outside the trust provider’s office, so trusts help keep things private. 


Adriano must have known Jersey is good at trusts.

These ones are run for the Riva family by UBS Trustees, a Jersey subsidiary of Swiss bank UBS.

They hold €990 million of “assets”, which Italy now wants to help pay for the clean-up in Taranto.

Complicating things, the actual money is at UBS headquarters in Zurich. Complicating things further, the Rivas say they haven’t been convicted of anything, and are fighting hard to keep the money. Here’s how…

SQUIRRELLED AWAY

Adriano set up the trusts to benefit his late brother’s children and….himself. Jersey Royal Court papers say it was in fact the late Emilio who put up the money for the trusts.

Whatever, it’s the family fortune.

And it’s not the first time the Riva fortune has been the subject of wrangling, which is relevant.

In 2009, the beneficiaries (Adriano, Emilio’s children, etc) took part in a tax amnesty whereby Italians with fortunes squirrelled away abroad could pay a one-off 5% tax rather than the normal full whack IF they brought it back to an Italian bank so it could work out the tax and pay the Italian treasury.

On paper, the money came back to Italy, but really it stayed in the Swiss accounts controlled by the Jersey trusts. Technically, though, it was henceforth held in the name of an Italian subsidiary of UBS: UBSF. All of this was above board, but the arrangement has now created a three-country legal nightmare. Mama mia!

That’s because now, the money in the trusts belongs to UBS in Jersey (which looks after it for the Rivas) while legal title to whatever’s in them belongs to UBS in Italy.

If you haven’t worked it out already, here’s why that’s a problem…especially for the Rivas.

CRIMINAL CHARGES 

In 2012, senior executives at Riva’s Taranto steel subsidiary Ilva S.p.A. – including members of the Riva family – were charged with criminal environmental offences.

The case is on-going and the Rivas deny wrong-doing, but the steel plant was put into administration by the Italian government and is now bankrupt.

A year later, in 2013, in an unexpected and separate turn of events, an investigation was launched into the Riva brothers and two accountants.

They were suspected of selling Ilva S.p.A. shares cheap to companies owned by Adriano with the proceeds being squirelled away… into the Jersey trusts. These allegations are also denied and to date no charges have been brought.

Not long after that, the State Attorney in Milan asked his Swiss counterpart in Zurich to freeze the Swiss UBS accounts belonging to the Rivas’ Jersey trusts while the environmental case is worked out.

The accounts remain frozen.

A decree issued by the Italian government now says the money should be handed over to help clean up Taranto, even though the Rivas have not been convicted of anything. The Rivas say this is unfair.

And to make things worse for them, the Italian government has also decreed that any money seized in any potential un-related prosecution (eg: suspect share deals) can also be seized for the same purpose, ie: cleaning up Taranto.

WORRIED

Worried about their fortune, the Rivas are appealing against all these rulings.

Initially, they were assisted by the Swiss authorities, which ruled that sending the cash to Italy broke Swiss law, but the Swiss have since changed their minds and ordered the accounts to be unfrozen.

Somewhat ironically, that has prompted the Rivas to instruct a Jersey law firm, Mourant Ozanne, to demand that the family fortune be re-frozen.

Various appeals are pending. It’s a quagmire, and all of it puts poor old UBS in a bind.

UBS Trustees (Jersey). Down here somewhere, past the Spar
UBS Trustees (Jersey). Down here somewhere, past the Spar

Like trustees everywhere, they’re duty-bound to do the best thing by the beneficiaries – while complying with the law. Doing both is not always possible.

Swiss and Italian authorities say that not releasing the money could result in criminal charges. Yet the trusts are with UBS in Jersey.

UBS in Jersey looks like it wants to comply but faces stiff opposition from the Rivas’ lawyers in the island, who have a big beef with how the Italian government’s going about all of this.

A temporary reprieve has been granted by an Italian court. It agreed with the Rivas who say the Italian government’s attempt to seize the money (officials want to use it to buy worthless bonds in the now-bankrupt steelworks to help fund the clean-up) amounts to illegal expropriation.

That might be alright if anyone had ever been convicted of anything, but the Rivas, they point out, haven’t been.  The Italian government’s appealing this one.

In the mean-time, UBS remains in a bind: comply with Italian and Swiss wishes and hand over the €990 million, or face the long arm of the law in its own backyard.

UBS in its Zurich home turf, where the bank DEFINITELY doesn't want to get in trouble
UBS in its Zurich home turf, where the bank DEFINITELY doesn’t want to get in trouble

A CUNNING PLAN

The Rivas’ attempted novel solution to all of this has been to simply change the trustees in Jersey: in effect, to take the conundrum out of UBS Trustees’ hands.

It hasn’t fully worked out though.

At Jersey’s Royal Court the Rivas’ lawyers have successfully applied for two completely different companies – one from Hong Kong and another from New Zealand – to become additional trustees alongside UBS in Jersey.

In theory, that gives them the power to over-rule UBS, and even send them packing, or at least order them to NOT hand over the money in Switzerland…. or Italy…or wherever it is.

A fly in that ointment, though, is that Jersey’s Financial Crime Unit (the police) does not approve of attempts to take the trusts out of UBS control. Nor, indeed, does UBS in Jersey, which fought the move.

Sir Michael Birt, a judge at Jersey’s Royal Court, met them halfway.

Allowing the new trustees to be appointed, he said there’s nothing irrational in trying to protect the family fortune. And confiscating it without a conviction, he pondered, may be in breach of European Human Rights.

So now the trusts are in the hands of those Hong Kong and New Zealand companies, a situation which Sir Michael backdated to September 2015.

But what’s inside the trusts remains tied up with UBS, which won’t play ball with the new trustees, not least because doing so would land it in hot water with the Jersey Financial Crime Unit. The JFCU suspects the contents of the trust could indeed be the proceeds of crime so won’t allow it to be shuffled about willy-nilly.

That means the new trustees, though now in charge, have to prove the money ISN’T the proceeds of crime if they want to do anything with it.

And it looks like that’s ultimately a call for the Italian courts, so don’t expect anything to happen quickly.

In the mean-time, Taranto festers.