EXCLUSIVE-BT executives knew of accounting fraud in Italy unit - prosecutors

A preliminary criminal investigation into an accounting scandal at the Italian unit of British telecom firm BT has alleged that three top executives of the group were aware of bookkeeping fraud at the unit, according to a document prepared by Italian prosecutors. The document, which wraps up the preliminary investigation, alleges that a network of people in BT Italy exaggerated revenues, faked contract renewals and invoices and invented bogus supplier transactions in order to meet bonus targets and disguise the unit's true financial performance.

The closing of the preliminary probe is the final step before prosecutors press charges against the suspects. Under Italian law those under investigation now have three weeks to show why they should not be charged. In the document, handed this week to parties involved in the investigation and seen by Reuters, prosecutors for the first time have named group executives as suspects in the case, though all three have left BT since the scandal surfaced. Two of them were based in London.

The document also lists BT Italy as a subject of the investigation, no longer as a damaged party. In an emailed statement, BT said: "It would be inappropriate to comment on an ongoing criminal investigation."

In the document, prosecutors name Luis Alvarez and Richard Cameron, respectively former chief executive and former chief financial officer of BT Global Services - one of the biggest divisions of BT Group - and Corrado Sciolla, formerly BT's head of continental Europe, among an expanded list of 23 suspects. Alvarez and Cameron were based in London, while Sciolla was in Milan. The three are accused of setting unrealistically high business targets and of complicity in false accounting at BT Italy, which formed part of the Global Services division, according to the document.

A lawyer acting for the three could not be immediately reached for comment. AUDITOR PROBE

The document also reveals that an Italian partner of BT's auditor, PricewaterhouseCoopers, is under investigation over the scandal, which erupted in 2017 and led the group to write off 530 million pounds ($685 million). In the document prosecutors allege Andrea Alessandri, who led the PwC team in charge of auditing BT Italia's accounts, falsified the audit.

Reuters could not immediately contact Alessandri for comment. A PwC spokeswoman said the company had no immediate comment. When the scandal broke in early 2017, BT's then chief executive, Gavin Patterson, said that the company could not have detected the problem sooner as top managers in London were unaware. BT filed its own criminal complaint against several of BT's Italian managers in 2017. It is contesting class-action lawsuits by shareholders who say the group misled investors and failed to promptly disclose the irregularities.

Prosecutors have also placed BT Italia under investigation. Under Italian law, a company can be deemed responsible for alleged crimes committed by its top executives. BT said in January 2017 that Sciolla was leaving the company and in May 2017 announced the replacement of Alvarez. The company said on Wednesday Cameron had also left in 2017.

Patterson, who is not under investigation, stepped down on Jan. 31 this year. BT said it would not be possible to get a comment from him on the probe. Britain's accounting regulator said in June 2017 it would investigate audits by PwC of BT Group in the wake of the Italian scandal. PwC said at the time the British regulator's annual review of its audit work, policies and procedures showed a continued trend of improvement in PwC's work.

($1 = 0.7753 pounds) (Additional reporting by Paul Sandle in London and Luca Trogni in Milan Writing by Silvia Aloisi Editing by Mark Bendeich and Pravin Char)

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