Firms seek reputational risk solutions in light of the Parmalat scandal

Parma, Italy –- The bankruptcy of Parmalat, the Italian dairy conglomerate, at the end of 2003 will have wide-ranging effects on the way European and US financial institutions look at issues such as reputational risk, corporate governance, money laundering, and professional legal liability, say experts. While Enron created awareness of many of these subjects, the Parmalat scandal looks set to drive home improvements in the way financial institutions measure and manage operational risks.

Although events were still unfolding as Operational Risk went to press, the essence of the Parmalat case is that senior executives at the firm allegedly diverted proceeds of bond sales and other funding mechanisms into private bank accounts, and used dodgy accounting practices to both raise the capital and keep the firm afloat. The firm received about E4 billion (about $5 billion) in loans from banks in 2003 by allegedly double-billing for its dairy products, according to press reports. A $4.9