Finmeccanica CEO arrested in corruption probe

MILAN (AP) -- The chief executive of Italian defense and aerospace giant Finmeccanica was arrested in a corruption probe Tuesday, the third corporate scandal to erupt during Italy's hotly contested national election campaign.

Finmeccanica CEO Giuseppe Orsi is under investigation in a case involving the payment of bribes in the €560-million ($670 million) sale of 12 helicopters to the government of India. Prosecutors in Busto Arsizio, north of Milan, ordered a search of Orsi's home, as well as the headquarters of Finmeccanica's AgustaWestland helicopter division.

Authorities also ordered the house arrest of AgustaWestland chief Bruno Spagnolini.

Orsi has denied any wrongdoing, and Finmeccanica and AgustaWestland both issued statements supporting the executives and calling the measures "precautionary."

Finmeccanica said late Tuesday it has convened a board of directors meeting for Wednesday to decide any changes in company governance. The company also confirmed that operations would continue as usual to limit impact from the investigations on business, including its plans to sell off two subsidiaries.

The arrests for alleged corruption gave fuel to an already incendiary election campaign, with some candidates blaming Mario Monti's technical government for not having done enough to shore up management at the company, which is 30 percent state-owned and Italy's second-largest industrial concern.

Monti is currently leading a centrist movement in his campaign for a second term.

Monti, whose technical government has wrestled with the Finmeccanica case and pressured Orsi's predecessor to resign due to other allegations, said the governance issues at the aerospace company would be dealt with "as soon as possible." Monti said that anti-corruption measures need to be reinforced on a national level.

"It is important not only morally and civilly, but also economically because it facilitates economic investment in our country," Monti said on state TV.

Later on LA7 private TV, Monti said he found "laughable" accusations by political opponents about his government's handling of the brewing scandal.

In a statement, the Treasury Ministry said internal reviews of the company's procedures had revealed no irregularities, and Orsi himself had denied any wronging. "In the absence of factual findings," the ministry said, taking any action to remove a manager would have potentially damaged the company.

The scandals have helped boost the popularity of a political movement founded by comic and political agitator Beppe Grillo, who has been filling piazzas with his anti-establishment message in the final weeks before the Feb. 24-25 national vote. The last polls of voter sentiment before the vote showed Grillo even or just ahead of Monti's centrist movement, in third place behind the center-left and center-right candidates.

Prosecutors allege that bribery was part of the "company philosophy," according the Italian news agencies that obtained copies of the arrest warrant. Prosecutors also allege Orsi tried to interfere with the investigation.

Orsi's lawyer, Ennio Amodio, told reporters that the arrest orders were "devastating because it decapitates two of the largest companies in our country," Italian news agencies quoted him as saying.

Meanwhile, in India, the country's Defense Minister has ordered a separate investigation.

Finmeccanica shares closed down 7.3 percent to €4.41 in Milan trading despite an order by the market watchdog banning short-selling of the company's stock. Short-selling is when traders sell stock they do not actually own, hoping to buy it back at a lower price.

Fitch ratings agency also placed the company on negative watch following the arrests.

Finmeccanica and its executives have been the target of a wide-ranging, years-long investigation into alleged corruption in the awarding of international contracts. In 2011, Orsi took over at the helm of Finmeccanica when the previous chairman and CEO, Pier Francesco Guarguaglini, was also implicated in the bribery investigation.

Guarguaglini and his wife, who ran a subsidiary, are accused of setting up slush funds to funnel money to political parties.

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Ravi Nessman in New Delhi contributed to this report.