09 Jul 2020 Bonds backed by ‘Ndrangheta criminal activities in the hands of international private investors
The interconnection between sound and the criminal economy is growing. We believe that a sound ESG Due Diligence can avoid it. This is why at SVI we offer our services to prevent reputational risks to investors and support a sound economy.
According to an article published by the Financial Times on July 7th, between 2015 and 2019, the ‘Ndrangheta criminal clan has been able to launder money through front companies that issued €1bn of private bonds sold to international investors. Almost all deals were operated privately and were not rated by any credit rating agency. Among the buyers, there are Banca Generali, one of the biggest private banks operating in Europe, hedge funds, family offices and pensions funds (one of which from South Korea).
Such mafia-backed companies operate in the healthcare sector and created the bonds by offloading unpaid invoiced owed to them by the Italian public health sector to intermediaries, who subsequently sold them to legitimate financial firms. Such invoices have then been placed into a large pool of assets, most of which were legal, and whose future cash flows served as a guarantee for the “exotic” and higher-yielding bonds that were issued by the special purpose vehicle (SPV).
The SPV used to sell the securities was constructed by CFE, a Swiss boutique investment bank based, who stated that all the assets were deemed to be legitimate when secured and that it also relied on the due diligence conducted by other regulated professionals who managed the invoices after they were created in the Calabria region, Italy.
Consulting services on the structuring of one of the vehicles acquired by Banca Generali were provided by EY, which however was not required to conduct any due diligence on the assets comprised in the transaction.
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