Mafia Inc.: The Long, Bloody Reign of Canada's Sicilian Clan - André Cédilot, André Noël (2011)
Chapter 10. THE MONEY TRAIL
JOE LAGANA WASN’T THE only one thrown into a panic upon learning that the RCMP had asked authorities in Switzerland to freeze the Rizzuto family’s accounts. He had immediately notified Vito, whose mother, Libertina, then aged sixty-eight, was on a plane to Switzerland within hours. The family had to act fast before other accounts were frozen. Libertina arrived in Lugano, in the canton of Ticino, on August 31, 1994. That evening, she met with Luca Giammarella, aged forty-seven, an acquaintance of her husband who lived across the street from the Rizzutos on Antoine-Berthelet Avenue. He too had rushed to Lugano. The next morning, Mrs. Rizzuto and Giammarella paid a visit to the local branch of Credit Suisse Trust, part of Credit Suisse Group and specializing in wealth-management services. There, they controlled an account with a balance of more than 800,000 Swiss francs (roughly the same amount in Canadian dollars at the time) since 1988. Elsewhere in Switzerland, the Rizzuto clan had parked millions of dollars away from the eyes of Canada’s taxman in accounts with financial institutions in Lugano, Geneva, Zurich and other Swiss cities.
Switzerland occupied a special square on the Rizzuto clan’s international chessboard, alongside Italy, the United States, Colombia, Venezuela and, as will be seen later, countries as distant from each other as Panama and the Philippines.
As clients of Credit Suisse, Libertina Rizzuto and Luca Giammarella were in lofty company. Swiss authorities had previously uncovered a slush fund in a branch of that financial institution in Chiasso, a small city twenty-five kilometres to the south of Lugano, right on the border with Italy. The fund contained the proceeds of Italian tax evasion schemes. Credit Suisse had also been home to part of the hidden assets of the former Philippine dictator Ferdinand Marcos and his wife, Imelda. In March 1986, the Swiss Federal Council had moved to freeze the Marcos’s assets in all of the country’s financial institutions but, as if by chance, the family’s deposits with Credit Suisse had been transferred just a day earlier to neighbouring Liechtenstein, another tax haven.
Credit Suisse Trust advertised a wide array of services to clients, including help with setting up companies in countries like Panama and Liechtenstein. In the eyes of many a critic, the Swiss banking system had a particular “behaviour failure.” Swiss Whitewash (La Suisse lave plus blanc) was the title of a book by writer, sociologist and politician Jean Ziegler that received a less-than-stellar welcome in his native country when it was published in 1990. The Alpine paradise, outwardly so clean and neat, was a haven not only for dirty money deposited by dictators and criminals of all stripes, but also assets that were confiscated by the Nazis from thousands of the Jews they persecuted during the Second World War.
The many advantages offered by Switzerland to the wealthiest of the wealthy are not recent inventions. More than two centuries ago, the Calvinists of Geneva provided a haven for French aristocrats fleeing the revolution, where they could bank their louis d’or. In 1934, the Swiss Parliament passed the Banking Law, which made it a crime for any individual or group to violate banking secrecy; offenders could be imprisoned or fined. Sixty years later, when Libertina Rizzuto travelled to Lugano, fully one-quarter of the world’s private asset portfolios, some $2.3 trillion, was held in Swiss banks.
Meyer Lansky, the American Cosa Nostra’s financial consultant par excellence, was just one of many gangsters to grasp the usefulness of banking secrecy. In 1931, Al Capone had famously been convicted of tax evasion. Swiss banks provided a way for the Mafia to avoid this type of predicament. Lansky opened an account and transferred the profits of his illicit activities to it, after first ensuring that they transited through a series of holdings and shell companies. Once that was done, it was child’s play to use the banked funds as collateral for securing loans as immaculate as the white snow of the Alps. When the Lanskys of the world wanted to withdraw or transfer money, the doors of the respectable institutions of Zurich, Geneva and Lugano opened wide before them.
Libertina Rizzuto and Luca Giammarella were no doubt expecting just that sort of royal treatment on September 1, 1994, when they stepped into the Credit Suisse Trust branch in Lugano. Things didn’t quite happen the way they hoped. When Giammarella explained that he wished to close his account and leave with the balance in cash—hundreds of thousands of Swiss francs that he planned to stuff into the handbag he held—the Credit Suisse employees asked him to wait in an adjoining room while they held a brief confab.
A few years earlier, Credit Suisse had been embroiled in a major scandal that ended up costing Swiss justice minister Elisabeth Kopp her job. Credit Suisse had been a favoured depository institution for two Lebanese brothers, Jean and Barkev Magharian, who had laundered hundreds of millions of dollars in profits from the Pizza Connection’s heroin trade. The Swiss Federal Banking Commission had published a twenty-eight-page report severely criticizing Credit Suisse for turning a blind eye to the transactions.
Libertina’s and Luca’s patience was not to be rewarded: instead of smiling bank employees returning to tell them they could proceed with the transaction, they found themselves face to face with the police. The officers asked them to accompany them to the local station, where they were questioned separately. Mrs. Rizzuto indicated that the funds in the account under Giammarella’s name actually belonged to her and her husband, Nicolò. She added that the hundreds of thousands of Swiss francs represented income from family businesses in Venezuela—among them a chicken farm—and that she wished to transfer the money to another bank, to be eventually withdrawn to pay income taxes owed by her husband in Canada. She explained that Nicolò had stayed behind in Montreal, unable to travel because of illness.
The Credit Suisse Trust staff’s call to the police was not motivated by ethical considerations. Swiss authorities had ordered the country’s banking institutions to freeze accounts belonging to the Rizzuto clan, and the Credit Suisse Lugano branch had been informed of an imminent investigation. Libertina Rizzuto’s convoluted explanation about a reserve fund to pay Canada’s taxman fooled no one. Both she and Luca Giammarella were taken into custody.
In addition to Joe Lagana, others in the Rizzutos’ orbit had been reaping the benefits of Swiss bank accounts: Sabatino “Sammy” Nicolucci, the cocaine trafficker who had been kidnapped by the Colombians; Beniamino Zappia of Milan; and Giuseppe LoPresti, murdered two years previously. In Lugano alone, fourteen accounts had been opened in the Rizzutos’ name, at branches of the Banca Privata Edmond de Rothschild, the Société de Banque Suisse, the Union Bank of Switzerland and Credit Suisse.
But suspicion did not constitute proof, and Fabrizio Eggenschwiler, the public prosecutor of the canton of Ticino, wanted to take his investigation as far as possible. Eggenschwiler was certain that the Rizzutos’ millions, which had been routed from one account to another over several years, represented the proceeds of criminal activity. He asked Canadian authorities to provide any and all information that might help him convict Libertina Rizzuto and Luca Giammarella for money laundering, Mafia associations and violation of the Swiss Narcotics Act. In his request, he specified that the pair could not be held in preventive custody for more than six months.
“I have asked Canadian police to send me the results of their investigation into the origin of the money that Mrs. Rizzuto had in her possession, as well as information about the Rizzuto family and how their money-laundering operations function,” Eggenschwiler told La Presse. The newspaper then broke the story of Vito’s mother’s Swiss adventures. “Without these documents from Canada, we will probably be forced to release [Libertina Rizzuto and Luca Giammarella], unless we invoke a special procedure to extend their preventive detention,” the public prosecutor added.
A public accountant with the Justice Ministry office in Lugano had compiled a list of the many transactions employed by the Rizzuto clan in laundering considerable sums of money. According to Eggenschwiler, tens of millions of dollars had been moved through their accounts.
The RCMP sent the information requested, but it was clearly insufficient in the eyes of Swiss authorities. Jean Salois, the Rizzutos’ lawyer, flew to Switzerland, where he attended two hearings and examined the dossier provided to the Swiss by Canadian authorities, whereupon he declared that it contained no information that could be used to justify his clients’ incarceration. The Lugano public prosecutor had no choice but to release Libertina Rizzuto and Luca Giammarella. They were freed after having paid bail amounts of 200,000 and 50,000 Swiss francs respectively.
The affair soon reached the floor of the Canadian Parliament. Michel Bellehumeur, a member of Parliament for the Bloc Québécois, the official opposition party at the time, stood in the House of Commons on March 2, 1995, and asked an embarrassing question for the governing Liberals: “Mr. Speaker, my question is directed to the prime minister,” he said. “This morning, La Presse reported that Libertina Rizzuto and Luca Giammarella, suspected by the Swiss authorities of trying to launder three million dollars through Swiss banks, were released, although the investigation continues. It seems their release came as a result of the half-hearted assistance the RCMP gave Swiss police authorities. Could the prime minister explain why the RCMP failed to give the Swiss authorities their full co-operation when they refused to provide information crucial to legal proceedings in Switzerland?”
Prime Minister Jean Chrétien let Patrick Gagnon, the parliamentary secretary to the Solicitor General, answer in his stead: “Mr. Speaker, I have just been advised of this case, and I will make a note of the opposition critic’s question,” he said. But Bellehumeur did not relent: “What explanation does the prime minister have for the fact that the only officer familiar with the case involving Mrs. Rizzuto and Mr. Giammarella was on holiday when the Swiss authorities had to release these two individuals, failing the co-operation of the RCMP?” The parliamentary secretary to the Solicitor General promised that a response would be forthcoming “in due time.”
The next day, March 3, Bellehumeur pressed his case: “Yesterday, we learned that the RCMP’s lack of co-operation with Swiss authorities had resulted in the release of two Canadian nationals who had been charged with money laundering and detained for six months in Switzerland,” he said. “Today, for the second time in a year, the U.S. State Department indicated that Canada is one of the countries where money laundering is most prevalent and easiest to do. Since Canada is truly a sieve when it comes to money laundering, what is the government waiting for to legislate and put an end to that illegal activity?”
Though the prime minister remained silent, his senior staff did not. “Mr. Speaker, with the ease of international money transfers, money laundering by the underworld is a concern for all industrialized nations,” replied Allan Rock, minister of justice and Attorney General of Canada. “Through the inference of the Solicitor General, Canada is collaborating with other nations around the world to form a united front against this insidious threat to our economic security and, frankly, to our laws against crime. The Solicitor General, through his collaboration with the United States of America and European nations, is working closely with authorities abroad to take effective steps to deal with money laundering in Canada,” he said.
“The Canadian government is certainly not co-operating with Swiss authorities,” Bellehumeur retorted. “I also urge the minister to read the U.S. State Department’s report. It has plenty to say about this issue. Does the minister realize that, because of the lack of legislation, each year ten billion dollars are being laundered in Canada, and does he realize that his failure to act only encourages such illegal activity?”
Rock closed the debate by reiterating that Canada was “collaborating with authorities abroad” and assured Parliament that current money-laundering legislation was “sufficient to meet the challenge.” The U.S. State Department report to which the Bloc Québécois member referred stated that Canada was not only a hub for narcotics trafficking, but a paradise for money launderers. Its authors listed Canada among the sixteen major money-laundering countries, alongside Switzerland, Italy, Venezuela, Panama and several small Caribbean states. The Canadian government had amended the Proceeds of Crime Act in 1995; it urged financial institutions to keep records of transactions in excess of $10,000 for five years.
The authors of one U.S. State Department International Narcotics Control Strategy Report, however, lamented the fact that the Canadian requirements did not extend to criminal prosecutions, as was possible under U.S. law. In its subsequent edition of the same report, the State Department remarked that there was no Canadian law requiring banks to report suspicious financial transactions to police; reporting was voluntary. Canadian banks were attractive to drug money launderers “because of branches located in traditional tax haven countries in the Caribbean,” the report added.
In that same month, March 1995, a group of Montreal police force, SQ and RCMP analysts stated in a report that the amount of money laundered in Canada each year was not ten billion dollars, as some sources had reported, but twenty billion. “For the Mafia, maintenance of banking secrecy is the key to the future of their money laundering,” the analysts wrote. “Governments in certain tax havens offer their clients banking secrecy in addition to tax shields. In Canada, the Mafia is currently working to infiltrate and control certain banking institutions.… There is indeed a serious money-laundering problem in Canada, and it is getting worse.”
In their report, “Is Canada Safe from Organized Crime?”, the police analysts expressed alarm at the colossal sums invested by the Mafia in the licit economy, as well as the organization’s potential political influence:
Our observations show that the Mafia is investing in real estate, the restaurant business, the automobile market, construction, the hotel trade, the food industry and several other areas of activity.… We are especially apprehensive about the possible duplication in Canada of the Italian model, whereby the Mafia has taken complete control of the Christian Democratic Party through such means as investing in its election fund. In Canada, certain decisions made by the various levels of government clearly demonstrate that those who contribute to parties’ electoral funds receive preferential treatment.
Whether for the awarding of public contracts, changes to zoning by-laws, the regulation of construction workers or the management of horse racing, numerous government decisions favour interests with links to organized crime. As the Italian experience has shown—and once again, this model has been observed here—the Mafia intercedes both upstream and downstream in the public-works contracting process. Upstream, it corrupts and bribes civil servants and politicians to win public contracts; downstream, it employs fraud and black-market labour to lower subcontracting costs. Though incontrovertible evidence is lacking, we believe that several billion dollars in proceeds from organized crime is invested each year in licit activities in Canada. We are also convinced that certain businessmen responsible for managing these activities are exerting undue influence on our governments, and in the process threatening the democratic underpinnings of our society.
The Quebec-based police analysts hoped to mobilize law enforcement agencies across Canada in an effort to persuade the federal government to amend the Criminal Code and make organized crime … a crime. They pointed out that several countries, including the United States, France and Italy, had moved to make criminal syndicates illegal. Their efforts were rewarded, up to a point: anti-gang legislation was eventually enacted in June 1997, but it didn’t have particularly sharp teeth.
After her release from custody in Switzerland in March 1995, Libertina Manno Rizzuto returned to Canada and her beloved Nicolò. The couple celebrated their fiftieth wedding anniversary in grand style at the Sheraton Montreal Centre-Ville, making their entrance into the hotel ballroom to the strains of the theme from The Godfather. More than three hundred guests attended, including the upper crust of the city’s Sicilian Mafia. Video recordings were made of the event—to the delight of investigators years later when they were seized during searches of the family’s sumptuous homes on Antoine-Berthelet Avenue.
Libertina Rizzuto and Luca Giammarella reached an out-of-court settlement with the Swiss authorities. The government of Switzerland agreed to withdraw its accusations in exchange for a payment of just over two million dollars. It remitted half the amount to the government of Canada.
The RCMP rejected accusations that the assistance it provided to the Swiss investigation was “half-hearted.” Insofar as they had no evidence to justify the arrest of Vito Rizzuto’s mother, the Mounties said they were surprised at the Swiss authorities’ behaviour. “Everyone was surprised by that,” said Sergeant-Major Yves Roy, the officer in charge of the RCMP’s Integrated Anti-Drug Profiteering Section. “We didn’t ask the Swiss authorities to proceed with that arrest; they did so of their own accord. We provided information to Switzerland, but they didn’t appear to be satisfied,” he concluded.
The results of the CIMM sting operation, however, gave Swiss investigators a boost. They began probing suspicious bank accounts that had been opened by Canadians in their country. Two bank managers were suspected of having helped Montreal mobster Vincenzo “Jimmy” Di Maulo and his associates wash six million dollars in drug money; one of them was arrested on May 19, 1995, and charged with laundering three million dollars through the RCMP’s fake currency exchange.
The story of the Swiss accounts came back to haunt the Rizzuto family fifteen years later. In February 2010, Nicolò Rizzuto was charged with tax evasion and summoned to appear at the Court of Québec in Montreal. The eighty-five-year-old patriarch was accused of hiding $5.2 million in Swiss banks and failing to report $728,000 in interest income. Pending the outcome of the case, the Canada Revenue Agency ordered that a mortgage be instituted against Rizzuto’s home on Antoine-Berthelet Avenue as well as two of his cars, a Jaguar and a Mercedes.
Old Nick pleaded guilty to two counts of tax evasion and agreed to pay a $209,000 fine. Crown prosecutor Yvan Poulin explained that the fine was in addition to taxes and interest that Rizzuto was also being forced to pay under an out-of-court settlement. Those amounts, however, remained confidential. Before the hearing began, the old man stood in the courtroom, his trademark fedora on his head, and insisted he had acted in good faith. “The money was from my business in Venezuela,” he said with a shrug. “I didn’t think I had to declare it.”
The RCMP had succeeded in convincing authorities in several countries to freeze most of the accounts into which it had transferred traffickers’ funds via its covert currency exchange. Panama proved the most difficult sell. Three days before making their August 30 swoop, RCMP officers travelled to the tiny Central American nation, which harboured a significant portion of the dodgy accounts. The Mounties presented a raft of documents proving that the deposits represented the profits of criminal activity. The Panamanian bank branch managers listened politely to their entreaties—and said no. The officers took their request higher up the bureaucratic chain, to no avail. One month later, the Panamanian government still refused to intercede with the banks.
The RCMP was undaunted. Four investigators took turns pressing the investigation in Panama, living in an apartment they rented specifically for this purpose. In all, they spent four months painstakingly reproducing the drug money trail. Eventually, they persuaded the Panama Solicitor General’s Office to support them in their efforts. They were joined by agents of the U.S. DEA.
Essentially, the system worked as follows. The Montreal Mafia would place an order for cocaine with the Cali cartel in Colombia. Vito Rizzuto’s reputation was such that, unlike the Hells Angels or other criminal outfits, he was not always required to pay for the cargo upon delivery. The cartel extended the payment deadline for its most loyal clients. After it arrived at its destination, the merchandise was sold on the Montreal market—or elsewhere—by street dealers. The banknotes piled up, and a middleman—for example, lawyer Joe Lagana—handled their pickup. An obliging currency exchange accepted the cash and wired cheques or bank drafts to secret accounts in an offshore bank.
That bank would then transfer part of the money to one of its branches in Panama, which in turn would issue cheques payable to companies incorporated in the Colón Free Zone (CFZ), located at the eastern end of the Panama Canal, in the Caribbean Sea. In some cases, cheques might be sent directly to the companies. Those companies then issued fake invoices to businesses in the small city of Maicao, Colombia—all of which were in fact front companies for the leaders of the Cali cartel. A business located in Colón might, for example, pretend to sell one million dollars’ worth of clothing to an import company in Maicao, when in fact no goods ever changed hands. In other cases, importers bought actual merchandise in the CFZ at extremely competitive prices, then resold them in exchange for Colombian pesos in Maicao. There were other, even more complex, schemes.
Investigators with the RCMP, the DEA and Panamanian police uncovered evidence that at least eighty companies, most of them operating out of the CFZ, were recycling the Cali cartel’s drug trade profits through some 140 wholesale businesses in Maicao. Several of the companies were headed by Lebanese nationals. Panamanian authorities arrested three of them and temporarily froze the assets of three companies: Chaher International, Shadj and Dalila Fashion.
The CFZ, the world’s second-largest free-trade zone after Hong Kong, and the largest in the Americas, was first envisioned by bankers in the United States as early as 1929. The Panamanian government has made it one of its principal economic levers. Containerized goods on board the thousands of ships that pass through the canal each year can be imported and re-exported free of customs duty fees, tariffs, taxes and quotas. More than 1,700 companies have opened business counters in the tiny, 2.4-square-kilometre zone, through which commodities worth in excess of seven billion dollars—and more than 250,000 visitors—pass every year. Sellers accept payment by cheque, money order, wire transfer or cash. Their main customers are Colombian merchants.
Most of those 250,000 visitors are honest, bargain-hunting business people—but not all. “Colombian traffickers … will exploit any means possible to safely launder their drug proceeds,” a DEA report states. “One such form of money laundering is known as the Black Market Peso Exchange (BMPE). The BMPE is a complex system currently used by drug trafficking organizations to launder billions of dollars of drug money each year utilizing the advantages of Panama’s Colón Free Zone (CFZ), which serves as an integral link in the Colombian money laundering chain.” Exchanging foreign currencies into pesos was a further hurdle for Colombian traffickers, hence the black-market route.
Maicao is a city in Guajira, on the northern tip of Colombia, close to the Venezuelan border, approximately 750 kilometres east-northeast of Colón. In 1991, as part of a government job growth incentive, Colón was granted special status as a free-trade zone, allowing goods to be imported tax-free. Officially this status aimed to create employment for workers turning raw materials into finished goods for re-export. In practice, it proved a gold mine for the drug cartels and their money launderers. Incidentally, the modest town of 100,000 includes a sizable population of Middle Eastern origin, including many Lebanese.
The RCMP’s covert currency exchange operation exposed the central role of the CFZ in their suspects’ money-laundering operations, and they sought to expand their investigation to Maicao. They asked Sergeant Varoug Pogharian, their liaison at the Canadian Embassy in Bogotá, to mount an operation jointly with Colombian authorities.
Pogharian sent the information that the RCMP had compiled to the Dirección de Impuestos y Aduanas Nacionales de Colombia (DIAN), the country’s tax and customs agency. He then met with DIAN officials, who strongly cautioned the Canadians against precipitating any action. The liaison officer briefed RCMP headquarters in Ottawa on the meetings and the Colombians’ concerns: the Maicao region, he noted, is a contraband zone in which “immigrants of Syrian and Lebanese origin who are known criminals” were active. Sergeant Pogharian added:
For the first time, the Colombian authorities have formal proof of the Maicao merchants’ links to the Cali cartel. Because of our investigation, huge amounts of money will likely be seized from the cartel. We believe that for our safety as well as theirs, the Colombian government should remain cautious. It is possible that they will not follow up on our request; after all, it is their men who would be put in harm’s way.
The Colombians will be less keen than the Panamanians on having investigators from another country do a job that is in their purview.… If we decide to go ahead, it would be best to keep as low a profile as possible, otherwise we could be endangering the safety of the Embassy and its staff.
Still fresh in Pogharian’s mind, clearly, were the bomb threats against the Canadian Embassy following the arrest of Sammy Nicolucci, the Montreal trafficker with ties to the Rizzutos, as part of the August 30, 1994, police swoop. Colombian criminals are only too willing to turn words into deeds, he explained, recalling the numerous killings and attempted killings that had surrounded the arrest, escape and execution of Medellín cartel kingpin Pablo Escobar the year before. “Colombian drug traffickers are inclined to respond with violence when they sense an imminent threat to their freedom or their money.” The Canadian Embassy in Bogotá was not an especially well-secured building, he warned: “The U.S. Embassy is a virtual fortress. Its staff members constantly travel in armoured vehicles. They cannot (again, for security reasons) go to public places in their leisure time, nor venture outside Bogotá. Staff at the Canadian Embassy have no such constraints, and do not want them.”
Despite these concerns, DIAN investigators decided to proceed with a large-scale operation in Maicao and planned multiple raids on city businesses to take place on March 20, 1995. But they were nervous. On March 15, Pogharian met with Officer Juan Gabriel Ronderos, in charge of special investigations. The next day, Pogharian reported to Ottawa headquarters:
Ronderos is now convinced that he will face threats as soon as they make a move in Maicao. For this reason, he has decided to resign a few weeks from now, and keep out of sight overseas for a few years. His superior is going to do the same. The rumour is that someone from the old guard will step in as the new director of the DIAN. The new DIAN head will probably be an ally of the traffickers and smugglers. This sort of two steps forward, two steps back situation is common here.…
The Guajira region is known for its merciless settlings of accounts. I have asked Ronderos not to mention any Canadian involvement if he does decide to go ahead with a raid in Maicao before resigning. If we are excessively intrusive, we could be seen as white knights who decided to attack the Colombian cartels. In which case we must understand that this would result in very unpleasant consequences for the Embassy and its staff.
The Maicao operation was called off. On March 22, Pogharian informed his RCMP superiors that Juan Gabriel Ronderos had resigned—and so had the director of the DIAN. “As you know, Ronderos was the key man,” the liaison officer wrote. A few days later, the newly appointed DIAN director quit as well. “Apparently, he started receiving death threats,” Pogharian wrote. “I have heard that these threats came from inside the DIAN, from corrupt former customs officers recently re-hired by the DIAN.” The Mounties’ man in Bogotá recovered all of the RCMP and DIAN documentation pertaining to the aborted mission in Maicao.
Another thread picked up by police during surveillance as part of Operation Compote led to one of the most improbable tales ever to involve the Montreal Mafia: the Rizzutos had, apparently, been tasked with the mission of recovering a fortune in gold bullion stashed in Swiss bank safes by the deposed—and by then deceased—Philippine dictator, Ferdinand Marcos.
Marcos and his wife, Imelda, were driven out of Manila’s Malacañang Palace in 1986, their regime brought down by a popular revolt, and sought refuge in Hawaii. Imelda was famously forced to leave behind some 2,500 pairs of shoes, 1,000 handbags, 500 gowns and 15 mink coats. The new government set about trying to recover part of the estimated five billion dollars that the couple had plundered from the country’s citizens during their two-decades-long dictatorial reign. After her husband’s death in 1989, Imelda Marcos was allowed to return from exile in 1991, and she ran in the presidential election a year later. At that time she was forced to answer the question on every Filipino’s lips: How had she amassed her fortune?
She announced at a news conference that her husband had found part of a fabled treasure, “Yamashita’s Gold,” in the Philippine jungle when he was a guerrilla fighting invading Japanese forces during the Second World War. A long-standing legend has it that General Tomoyuki Yamashita, who governed the Philippines after his forces captured the country in late 1941 and early 1942, had hidden tonnes of gold looted during his Southeast Asian campaign in various jungle caches all over the archipelago. Imelda explained that her valiant husband had given some gold ingots to his men but had kept some for himself, eventually socking it away in Switzerland. “It’s become something like an urban legend–type story,” Rico José, a professor at the University of the Philippines and an authority on the Japanese occupation, said in 2005, when asked to comment on this story straight out of an Indiana Jones movie. Former Philippine Solicitor General Francisco Chavez has been even more trenchant, saying, “The myth of the Yamashita treasure is only being utilized to explain away a clear case of graft and corruption.” True, there has never been any credible proof that Yamashita’s Gold ever existed. There is, however, ample evidence that the strongman ruler and his footwear-addicted wife helped themselves to billions of dollars during their twenty years in power, siphoning funds from the state coffers, pocketing gargantuan bribes and misappropriating subsidies from the World Bank and the International Monetary Fund. It was thus entirely plausible that the Marcoses could have stolen gold bars from the Central Bank of the Philippines and stored them in offshore banks.
At 4:35 P.M. on August 6, 1993, the RCMP intercepted a three-page fax demonstrating that Vito Rizzuto and his associates, Joe Lagana and a certain Hummy Shumai, had been asked to recover the gold bullion. The letter of authorization had been notarized in the city of Cabanatuan, in the Philippines, and faxed from there. The document indicated that the three authorized legal representatives were being hired “to negotiate a claim from Fiordeliza T., special curator given responsibility for the estate of her father, Severino G. Sta. Romana.”
Severino G. Santa Romana, it seemed, was a former Philippine general who had been close to the Marcoses throughout his military career. Before his death, he had managed to convince his daughter that he was entitled to the Marcoses’ gold, because he had been by the former dictator’s side on the day they discovered part of the Yamashita treasure.
The hard copy of the letter of authorization was seized a year later during a search of Lagana’s Peel Street law office in Montreal. It specified that part of the booty lay dormant in a vault at a Zurich branch of the Union Bank of Switzerland. Half of “the money, bonds and metals” was to be distributed to the general’s heir, and the other half to the hired treasure hunters.
An RCMP report stated that thousands of gold bars bearing the seal of the Central Bank of the Philippines reserve were said to be stored in secret vaults in Zurich and Hong Kong. The most imaginative estimates put the value of the fortune at five thousand tonnes of gold. The investigation revealed that Vito Rizzuto and his partners expected to be paid $4.2 billion if they succeeded in their quest. Vito was to split this tidy commission with Joe Di Maulo and several other associates. Around forty people in Canada, the United States, Europe and Asia were mixed up in the treasure hunt. Three European bankers supposedly stood to pocket $200 million each if they managed to turn the spoils over to the putative heiress.
Police documents show that a retired French lawyer and a criminal with a specialty in international fraud met with the presumed head of the Montreal Mafia early in March 1994. An RCMP report notes that the lawyer felt ill at ease “because of the people involved.” The three men met at Vito Rizzuto’s home on Antoine-Berthelet Avenue and at Bongusto, a restaurant in Montreal’s Little Italy neighbourhood.
The following month, “Pierre Morais,” the RCMP officer posing as manager of the CIMM, reported that Joe Lagana had told him that Vito Rizzuto had already spent $1.5 million trying to track down the Marcoses’ gold, travelling first class and staying in upscale hotels. Lagana said he was about to fly to Switzerland to help out, and he invited Morais to come along, saying he would pay for his trip; this was more than the Mounties could have asked for. They subsequently intercepted a telephone conversation during which the lawyer emphasized that discretion was the watchword in the operation: Rizzuto feared that things might unravel if his name were directly linked to the treasure hunt.
Montreal police had in fact known about the venture for two years, long before the daughter of the dead Filipino general faxed her notarized letter. According to Sergeant-Detective Michel Amyot, now retired, the force’s anti-gang squad “had heard about tonnes of gold supposedly for sale on the Montreal market.” It had all started with a loansharking case. A group of Montreal businessmen, including a notary and an accountant, had decided to go looking for part of the Marcoses’ gold. But it was an expensive proposition, and the less-than-scrupulous prospectors had borrowed large sums from Giovanni Bertolo, a drug trafficker on the Rizzuto clan payroll, who demanded an exorbitant interest rate. When the treasure seekers hit a brick wall, they had no money to pay back the loan.
Bertolo brought Vito Rizzuto up to speed. The don set out after the treasure himself, his appetite whetted by the prospect of colossal profits. The first step was to secure letters of authorization from the owners of the gold, in the names of a dozen or so front companies. Based on what Rizzuto had been able to find out, the letters were in safety deposit boxes in a variety of banks in Zurich, Hong Kong and New York. Vito travelled extensively—except, of course, to the United States, where he didn’t dare set foot. He went to Manila, via Vancouver and Hong Kong. The RCMP urged authorities in the Philippines to follow him as soon as he arrived at the airport, but they weren’t too enthusiastic about doing the Canadian police a favour: they had other fish to fry, they replied—or the equivalent in diplomatic language. And yet, their own interests were at stake: the country was certainly entitled to recover the despot’s gold.
Vito’s gold-digging also took him to Switzerland. He was spotted in Zurich in the company of Roberto Papalia, one of his British Columbia associates, who had been banned by the Vancouver Stock Exchange because of suspicious transactions. With his brother Antonio, Papalia owned a small gold mine on Texada Island, in the Strait of Georgia, north of Vancouver. Police were never able to establish whether there was any link between potential exploitation of the mine and Rizzuto’s search for the Marcoses’ gold. Had the ingots been located, might Vito and the Papalia brothers have claimed the gold came from the mine? In the end, police never did ascertain whether Vito found the pot of gold at the end of that particular rainbow.
His business with the Papalia brothers wasn’t the first time the don had tested the waters of high finance. A civil trial in Ontario that ended in 1993 revealed that Vito had played a pivotal role in a stock-market scam. The artifice had begun back in the 1980s and eventually blew up in his face.
Penway Explorers was an obscure mining exploration company that owned several claims in Northern Ontario. Penway was essentially an empty shell; its revenues were practically nil. Nevertheless, shares in the company were traded on the Alberta Stock Exchange. In the space of thirteen months, from July 1986 to August 1987, their value increased tenfold, from sixty cents to more than six dollars per share. The following year, they crashed, far more suddenly than they had risen, to thirty cents a share.
The yo-yoing share prices were the result of a classic ploy called “pump and dump”: the value of a stock is artificially jacked up through purchases of large amounts of shares. Often spurred on by a broker who is in on the scam, innocent and inexperienced investors smell a bargain and start buying up shares themselves. The share price soars, then the swindlers all sell their shares at a profit at the same time, leaving the cheated investors empty-handed. Their only recourse is through the courts. A pump-and-dump scheme was precisely the reason for the steady rise and swift fall of the Penway stock: crooked brokers had blown up the balloon, having agreed to burst it at an opportune time. A forty-year-old trader named Arthur F. Sherman, who sold large amounts of Penway stock, was part of this particular ruse. He worked for a Toronto-based brokerage house called McDermid St. Lawrence Securities, whose senior executive knew nothing of the plot.
In May 1988, the charlatans were fooled at their own game. Penway share prices plummeted back to penny-stock levels before they had time to dump their stocks as agreed. Their suspicions were directed at Sherman. Everything pointed to him having run off with the money. Trying to con the Mafia is an inadvisable move, to say the least, and about to emerge from the background was Vito Rizzuto, not at all pleased to find himself in the role of the plucked pigeon.
Lise Ledesma, a receptionist at McDermid St. Lawrence Securities, received intimidating phone calls from people claiming their name was Rizzuto, demanding to speak to Arthur Sherman. One of the callers had been put through by an operator who spoke Spanish, suggesting that the call originated in Venezuela, where Nicolò Rizzuto spent a lot of time. Then Vito showed up at the brokerage offices in person, accompanied by two sinister-looking goons. They insisted on seeing Sherman.
According to Ledesma, Sherman grew nervous. On May 9, he disappeared after telling people he was going to play golf. Two weeks later, he called his boss, John Shemilt, and informed him he was on the island of Aruba, just off the coast of Venezuela. He said he planned to return to work at the end of the month. When he didn’t come back by the agreed-upon date, he was fired. Someone later claimed to have spotted him in Barcelona. The spooked broker, no doubt several million dollars richer, was never heard from again. He was officially pronounced dead in 1995, enabling members of his family to collect his life insurance.
What followed was one of the more surreal court cases in Canadian legal history. The crooks who had been involved with Sherman filed suit in the Ontario Court of Justice to claim their due. They said they were former clients of Sherman; the suit named the broker, but since he had vanished, it also sought damages from his former employer, McDermid St. Lawrence Securities. The plaintiffs demanded $3.5 million, which, they alleged, was the value of their 530,400 shares in Penway at their peak worth of $6 per share.
The accusers included R.R. (Bob) Campbell, a lawyer who had been disbarred in Ontario, and Costa Papadakis, a small-time speculator. The two claimed to represent investors who had entrusted large sums to them to purchase Penway stock and wished to remain unidentified. The brokerage house, McDermid, reacted vigorously. Hearings took place intermittently over forty-five days between April 1992 and April 1993. The more he heard, the more Mr. Justice George Adams was convinced that the actual owner of the shares, hidden behind a host of front men, was Vito Rizzuto.
The judge learned that Campbell had received hefty sums of money from Vito and his loyal laundryman Dima Messina. He learned even more thanks to Papadakis. Michel Gagné, an investigator with the Montreal police who specialized in organized crime, testified how Papadakis had confided to him that Vito was a personal friend, and that he had attended the birthday party of one of Rizzuto’s children.
Papadakis admitted to having personally borrowed $100,000 from Messina, which he had then lent to Campbell. He also admitted that he had driven Vito Rizzuto from Montreal to Toronto so that he could “meet with someone about a mining property,” the judge wrote.
The money invested by Bob Campbell and Costa Papadakis came entirely from people close to Vito, including Dima Messina, Rocco Sollecito, Gennaro Scaletta—and his own mother, Libertina. Sollecito ran the Consenza Social Club in Saint-Léonard, which served as a headquarters for the Rizzuto clan. Scaletta had been arrested in Venezuela at the same time as Vito’s father, Nicolò. Large parts of their “investments” had initially been paid in small cash denominations: ten- and twenty-dollar bills.
Justice Adams clearly understood the true nature of the Penway stock transactions. There was no legitimate reason for the sudden sharp rise in share prices; the company’s operations were embryonic and there were no plans for expansion. He concluded that the transactions were rigged and the sales bogus. Nearly 90 percent of the transactions had originated with the small group of schemers—who, at one point, owned slightly more than half of the shares in circulation.
“On the evidence, I find the only person acting as a true owner [of the shares] was Vito Rizzuto,” the judge concluded. The lawsuit was dismissed, and the judge ruled that Papadakis’s claims had no credibility whatsoever: “[Mr. Papadakis] would be in his late fifties and testified that he has not had a full-time job since his early twenties,” he said. “That job had been in the stock market industry but [he] admitted it had been lost as a result of him having stolen securities and that he had been convicted for this offence.” The role of broker Arthur Sherman, who had disappeared and was probably deceased, appeared ambiguous to the judge. “My finding entails that, if anything, Sherman was up to ‘no good’ with the plaintiffs and with Mr. Rizzuto,” he wrote. “While the plaintiffs urge that Sherman’s disappearance amounted to an admission he had stolen their shares … other problems might equally explain his absence, as, indeed, might the wrath of Mr. Rizzuto.”
The lawsuit provided ammunition for Revenue Canada tax inspectors. They were being handed, on a silver platter, evidence that Vito Rizzuto was hiding taxable income. On October 6, 1995, a notice of assessment on an amount of $1.5 million was delivered to his home on Antoine-Berthelet Avenue. The amount corresponded to the sum that Vito had personally invested in Penway stock between 1986 and 1988. The taxman was also seeking payment of a fine in the amount of $127,690 for “gross negligence.”
Vito contested both the notice of assessment and the fine and took his appeal to the Tax Court of Canada in Montreal. In documents filed with the Court’s Registry, Revenue Canada reiterated the decision by the Ontario judge and repeated that Rizzuto “controlled all of the Penway stock transactions carried out by nominee shareholders.” It was he, the tax agency added, who had provided the money to purchase the Penway shares—a significant quantity of which had been paid in cash.
The Penway investments came around the same time as Rizzuto’s arrest following the seizure of thirteen tonnes of hashish in Newfoundland on November 30, 1987, the investigators added. Of course, that undelivered cargo represented a dead loss for the Mafioso, but it was public knowledge that authorities never managed to lay their hands on more than a fraction of the drugs imported into the country—probably 10 percent at the most. Though there was no explicit accusation, the tax inspectors were insinuating that the ten- and twenty-dollar bills that had been used to purchase so much of the Penway stock were drug money. One statement entered into the court record by Revenue Canada, however, could not have been more clear-cut: “The applicant is known as ‘the Godfather’ of the Italian Mafia in Montreal.”
In his brief to the court, Rizzuto’s tax lawyer, Paul Ryan, countered that Rizzuto “never made the advances to the individual shareholders and therefore did not earn the [$1.5 million] in income that Revenue Canada claims he did.” Vito was willing to admit only that he and his wife, Giovanna, had lent Rocco Sollecito $100,000 to purchase shares in Penway.
Revenue Canada officials and the federal government attorneys wanted to go for Vito’s jugular, and they didn’t hide it. They informed the Tax Court of Canada that the trial would last two weeks and announced that they would call some fifty witnesses, including Vito’s mother, Libertina. They were prepared to summon Raynald Desjardins, a narcotics trafficker and one of Vito’s closest associates, from his current residence—a cell in a federal penitentiary—and force him to answer their questions. Judge Pierre Archambault, who was to preside at the trial, requested that the services of Italian and Sicilian interpreters be retained. Courtroom security was beefed up to ensure the trial went smoothly. Court reporters awaited the signal that would draw them to the trial like hummingbirds to nectar.
The hearings were to begin on Monday, August 19, 2001. On Thursday 16, reporters learned that an out-of-court settlement had been reached. Their disappointment was palpable. “We felt like we had a strong case, but we wanted to avoid the media circus that was sure to happen,” Ryan told them. In Rizzuto’s lawyer’s opinion, there was another reason for the sudden turnaround: interest had continued to accrue on the unpaid taxes on the $1.5 million in earnings and had already inflated the original amount demanded by 400 percent. One thing was for certain: Vito Rizzuto hated publicity—and problems. Discretion was his hallmark.
The federal government refused to reveal the amount of the settlement. La Presse, which had broken the story, learned from a reliable source that it amounted to $360,000. A number of civil servants confided in private that they were outraged. But they didn’t dare criticize their employer in public. The chairman of the government’s Standing Committee on Public Accounts, an opposition MP, filed a motion in Parliament asking “[t]hat a humble Address be presented to Her Excellency [the Governor General] praying that she will cause to be laid before this House a copy of all agreements and related documents and/or correspondence, reports, minutes of meetings, notes, e-mail, memos and correspondence, entered into between the government and Mr. Vito Rizzuto, as it relates to the tax case brought before the Tax Court of Canada in 2001.” On the grounds that tax matters are private, the government rejected the “humble address.”
Canadians never learned why their government agreed to abandon the case in exchange for a payment as low as $360,000, nor whether agreement had been reached on a lower fine.