Shedding Light on Black Funds

Italy's giant complex for state ownership called the Institute for Industrial Reconstruction covers nearly half the country's manufacturing output--1,200 companies and 500,000 workers. But I.R.I, cannot control its top executives. At dawn one day last week in Rome, two former I.R.I, officials were arrested on charges of false financial disclosure and embezzling $125.4 million from state-owned companies.

Held were Fausto Calabria, 62, now chairman of Mediobanca, Italy's most powerful merchant bank, and Sergio De Amicis, 66, former president of Condotte, the state-controlled construction firm. Police said that between 1972 and 1982, when the two held top positions at I.R.I., they built up a cache of so-called black funds. This essentially loose corporate change can be spent at the discretion of top officials as bribes to gain foreign contracts, as political contributions or simply as untaxed executive bonuses. What happened to the I.R.I, money last week was a mystery. A total of $26 million was found by police later in the week in four Milan bank safe-deposit boxes, but the rest is still missing. The incident fueled government critics, who called for an investigation of I.R.I, and its methods.