PROJECT TOKYO 9

Privileged - Attorney Work Product

•  Background

The second meeting with CR took place in Sao Paulo. CR began by confirming that the law suit between TSB and TIM was launched on 22 nd April 2004 at the 14 th Civil Court of Sao Paulo.

As previously stated, it is clear that CR is being 'economical with the truth' on many facts. Although he is frank on certain issues, it is clear that he is withholding details and that (unsurprisingly) he is presenting facts from the point of view which offers him maximum self justification and protection.

This was confirmed on several occasions when he was pressured on statements he made. CR is now being confronted with his inconsistencies and the lapses in logic of his statements. Direct confrontation over things he is known to be lying about is being avoided until documents have been safely handed over.

•  Escalating Law Suits against TI/TIM

CR explained that TSB already has 120 law suits from former employees, most of them asking for severance payments that were not made when they got fired. Brazilian law allows creditors to pursue TIM against claims of monies owed by TsB, if a near exclusive relationship can be established. CR said that up to another one hundred such claims were being planned. He maintains that he is planning to launch a similar claim against the company shortly.

During the past few weeks TIM was also been served with four law suits by major corporate creditors - mainly former suppliers. These creditors appear to be using the same legal claims as those used by TsB itself (i.e. that the company folded due to non payment by TIM. CR estimated the total amount of the four claims at R$ 8 MM and has undertaken to provide copies of two suits which he has in his possession. CR believes that further corporate creditors will follow suit although he excluded Zopone – the TSB creditor on whose behalf Bermudes lodged the detailed claim of fraud against TSB management – due to the fact that it is now an important direct supplier of TIM. The banks - notably Santander (loss R$40mn) - are the biggest creditors but have not acted until now and CR voiced some scepticism about whether they ever would. According to CR, Saturnia is TsB's biggest creditor after the banks.

•  Transferral of TsB Operations

According to CR, in March 2003 TIM announced to the local telecom market that services rendered by TsB would be transferred to a division of Olivetti. However, within two months of that announcement TIM had begun to fulfill the ongoing operational requirements of its roll-out by forming direct links with TsB's former suppliers and contractors, including Networker, Brasilsat and Zopone. These companies and others now enjoyed a close relationship with TIM.

CR confirmed that Braga Moro is effectively fulfilling Eudosia's role of constructing shelters. He was keen to stress that the company has no links with TSB, and that TsB had no dealings with either company. He cited the fact that they had been established at around the time that TsB's problems had started as proof that no such link existed! According to CR, Braga Moro is operated by a former TIM employee whose name he has undertaken to obtain - and has nothing to do with any former TsB management.

CR appeared not to recognize the name of Omibra, but referred instead to Omicron, the Italian parent. Nevertheless, he confirmed that the company is engaged in similar functions to those of Braga Moro and they arrived in Brazil together. He claimed to know nothing about the company's management but stated that it did not involved former TsB managers.

Whilst discussing shelters, CR mentioned that Eudosia still has R$13mn worth of stock held in its factory site, although he estimated that this would now be worth R$6mn.

CR maintains that Dionica has nothing to do with TIM and acts in another sector, selling portable credit card machines. He confirmed that both Stefano Plebani and Michele Panati are working at Dionica, respectively since 2002 and 2003. (Comment: Given his revelation that Plebani started work in the company prior to Panati, who openly appears as a shareholder, it seems more than likely that Plebani also holds equity in the company.

CR maintains that he now works as a director of SAI Brazil. He accepted that SAI had been named in the bankruptcy proceedings but maintains that this should not have been the case, as SAI's only link with the group was a 1% shareholding in Eudosia.

He confirmed that SAI was engaged in verifying electrical grids and indicated that there was no exposure to Telecommunications. CR claimed that the company was very small, with 4 employees. (Comment: CR did not volunteer that Dionica is currently based in the offices of SAI Brasil, and that therefore he must be in near daily contact with Panati and Plebani).

•  Payment of Bribes

CR again confirmed that TSB handled payments of bribes on behalf of TIM. CR reiterated that TsB hid the removal of funds by issuing false invoices. When later asked how these activities and other Balance sheet inconsistencies were not picked up in Grant Thornton's audits of the company, CR pointed out that the audits were never undertaken. He recalled that at the time of the first audit, Mauricio Bianchi, a senior employee from Grant Thornton's offices in Italy, arrived in Brazil to brief his colleagues. Shortly after this the audit was cancelled. He claimed not to know why.

CR reiterated that the overwhelming focus of the corruption scheme was to obtain permission from relevant Municipal Councils - mainly in Sao Paulo State. Interestingly, the amount in question was reduced from the estimated R$6mn to an estimated R$ 4mn. Later in the course of conversation he mentioned a specific sum of R$4.2mn. This sum was said to have been spent during 18 month period.

According to CR, the system worked in the following way. He or Michele Panati was advised in specific terms of who should be paid; how much and when. This was normally passed on by Mauro Marques, although on several occasions he was briefed directly by Firpo. CR has confirmed that he has a list of all of these payments which he has undertaken to make available next week. He described the list as an 'atomic bomb' and made it clear that he considers it to be very dangerous. He voiced his concern that he should not be caught in the 'fall out'.

Later in conversation, CR qualified this statement, pointing out that the payments were relatively small and that the names involved were mainly unknown middle ranking municipal officials. That said he conceded that certain names on the list would be know. Eventually he conceded that these names include one of the sons of the PT mayor of Sao Paulo, Marta Suplicy. He was said to have received a payment of around R$4mn.

CR confirmed that several payments had been made in Riberao Preto, although he claimed that these were delivered after the departure of Palocci.

CR also referred to the region called ABCD, located on the Grande Sao Paulo and consisting of the cities of Santo Andre (where a PT Mayor was murdered), Sao Bernardo do Campo (homeland of president Lula), Sao Caetano and Diadema. (Comment: Historically the City Halls of ABCD have been controlled by the PT). He confirmed that TIM made payments to these councils through a parallel channel which did not involve TsB. Instead, this relationship was handled only by Jose Carlos Brunoro, a former Parmalat employee who is known to be a very close associate of GG.

(Comment: Brunoro is well known as the former captain of the Brazilian Volleyball team in 1984 Olympic Games. He also played in various teams sponsored by Pirelli. Since then he has acted as a successful commercial manager in sports through his company Brunoro Assessoria Eventos Marketing Esportivo S/C Ltda, based in Santo Andre. He is known to have handled sponsorship, transfer and other deals for soccer teams, especially at Palmeiras, the Sao Paulo team sponsored by Parmalat).

CR agreed that the middle-men involved in both channels were personal contacts of GG and had been made available by him. However, he claimed that the activities were not the direct result of GG's influence. He maintained that the payments reflected operational demands, rather than any particular political agenda, and claimed that the payments extended beyond - and even accelerated after - the departure of GG from TIM. (Comment: There is a discrepancy in these comments. Asked specifically whether the majority of payments were made to PT Councils, CR agreed that 'ninety percent' were. He then added that in fact only two payments were allocated to other parties - one being to the PSDB in Campos do Jordao. This percentage is far in excess of the number of Municipal councils in the State of Sao Paulo controlled by the PT).

CR played down the payments made outside the obtaining of Council permission for the construction of masts. Once again he pointed out that overall, the payments made were insufficient to make any meaningful impact above the Councils. According to CR, TIM's real political lobbying and influence peddling was undertaken at a higher level. He referred to the long running and close friendship between Giorgio Della Setta and Luis Favre - husband of Marta Suplicy and one of the most important politicians within the PT party. He reiterated his belief that NN is also important in this respect, recalling that NN began to act as a consultant and lobbyist for TIM from the time when the company had problems with Regulators in launching its mobile service. CR named Ludgero Pattaro as another TI employee in charge of payments to politicians.

At this point CR stated that he had heard through his own sources, that last Monday four auditors from Pirelli SpA when to TIM's headquarters in Sao Paulo and requested a large number of documents from TSB and Eudosia.

•  Liran Transport

CR confirmed that Liran was introduced to him as a company controlled by GG and Mlaudio Monteiro. Carlos Monteiro was also the owner of a factoring company registered at the same address as Liran. He named Valdeci Sandrini the former head of Logistics at Parmalat, as another shareholder. (Comment: Subsequent research confirms that this company is called Sathis Factoring Fomento Mercantil Ltda, held through Elith Empreendimentos e Participacoes Ltda, incorporated in December 2000).

CR claimed that he was told by Mutti to use the company exclusively and had done what he was told without asking questions. Over an eighteen month period, Liran had invoiced between R$ 3,5-4mn. He claimed that the company operated as a vehicle for personal profit by the shareholders, rather than as part of a larger scheme, but could offer no reason for this opinion.

CR claimed that there were no other ventures of this nature operating within TsB. (Comment: I do not believe him). Apparently GG, Carlos Monteiro and Atilio Ortolani are also partners in a Ford Truck concession located in Campinas, Sao Paulo State. (Comment: Research indicates that this may be Carueme Caminhoes Ltda).

•  GG Relations with TIM

CR confirmed that GG had become involved in Italtel as a direct result of Mutti, an old and good friend of his. He was subsequently invited to join TIM after being pushed by Marco Benedetti.

He stated that shortly after joining TIM, GG had promoted the use of a travel agency and a advertising agency as suppliers to be used by TIM. The fact that he was the beneficial owner of both companies had caused a problem for GG with representatives of Pirelli's management.

According to CR, GG's fortunes at TIM began to decline after the change of ownership in TI. CR is unaware of the nature of the relationship between GG and MTP, however he is sure that GG had a very poor relationship with Pirelli, almost from the outset. (Comment: You will recall that in the first debrief, CR referred to Pirelli bugging GG's offices).

•  Accusations of Fraud in the Bankruptcy Process

CR maintains that the statements made by Judge Abrao in the bankruptcy process were simply wrong. He claims that instead of there being a large withdrawal of cash from TsB just prior to the process, in fact the company had received over $300,000 from Italy.

According to CR, the sole payments made by TsB to the exterior were the salaries of the fifty Italian technicians who worked in Brazil for TsB. CR estimated these payments - including living expenses - at R$17mn. CR refuted the possibility that these payments might have been part of a money laundering operation. He pointed out that the technicians all paid tax and that the payments were made through the Central Bank. Shortly after this CR admitted that it was possible that some of these funds might have been re-directed '…after they left Brazil'. (Comment: At this point intelligence of GG's and CM's use of income tax returns to launder Parmalat funds was not revealed).

CR was clearly uncomfortable from the outset when asked about Netsynergy and Servsite, the treatment of which were the subject of the Bermudes claim and much of Abroa's criticism. He explained that Servsite was established as a joint venture between TsB and Metalpark (a company with no direct links to TsB). The objective of the venture was the construction of a network of telephone masts along highways in the interior, after which the company would rent them to TIM. According to CR, TIM already signed a ten-year rental undertaking.

The complaint lodged by Bermudes claimed that Servsite had effectively been transferred out of TsB and into the hands of the company's management just prior to its collapse. According to records, much of TsB's holding in Servsite was transferred to Tecnosistemi SpA, and subsequently to a Sao Paulo incorporated company called Netsynergy. CR maintains that this was a vehicle used to hide the participation - through a side agreement - of Draja Mihalovic in the Servsite venture, whilst he was still president of TIM Sao Paulo. He later added that when Draja left TIM, his participation in the company became overt through Carvalho Consultoria Ltda.

CR also admitted that Mutti gave him and Michele Panati each a 2% equity stake in Servisite, which they both subsequently sold.

CR confirmed that Mutti was the sole ultimate beneficial owner of Telldor Investments, a Uruguayan company which also held shares in Netsynergie as well as SAI Brasil. CR admitted that the company documents show himself as the sole shareholder, although when pressed on the matter he almost immediately changed his story, admitting that Michele Panati appears with an equity stake of 50%. Despite this CR was clear that Mutti was the sole ultimate shareholder.

CR states that Telldor was created by Mutti in order to incorporate a stake at Mutti's insurance company in Brazil, called Iniassi International Insurance Brokers S.r.l.

According to CR Mutti gave up of his shares to him and Panati in July 2003. He claims that no money was paid for this transfer. (Comment: He seemed to by tying himself up in contradictions by this stage.)

(Comment: Research confirms that an insurance company called Iniassi does operate in Brazil. Information from the company's website indicates that the President of the company is Fabio Ongaro. It is not known whether this individual is a relation of Claudio Ongaro, a former manager of TSB and head of Technosson, according to CR.

CR maintains that GG is the sole beneficial shareholder of Roscomon SA, the Uruguayan company used to hold shares in Eudosia. CR confirmed that GG' had direct holdings in both Eudosia and TsB before transferring them to Acquasparta. CR admitted that Roscomon was subsequently used as a vehicle to hide GG's interest these holdings.

•  Rubens Pedroso

CR explained that the current TsB president - Rubens Pedroso - is a lawyer and a former employee of Banco Rural. He was introduced to CR by Rural, although CR claims that Pedroso never worked with TsB whilst at the bank. CR appears to have been involved in the interviewing process. CR claims to maintain an occasional dialogue with Pedroso who consults him on background issues.

Attachment A

As previously reported, on August 17 th 1997 a correspondence between Mariantonio Boschini Matera - former Eudosia Engineering founder – and Ruggiero Spadaro, from Eudosia SpA, and copying Mutti refers to Brasilsat. See Attachment A.