Now Europe has a financial scandal to match Enron, and this time real, hard cash has gone missing. But once more the big US banks may be at least partly to blame

Parmalat, the fraud that is gripping the financial community, has been dubbed "Europe's Enron". There are certainly parallels with the Houston con - vast losses, mind-boggling complexity and lots of activity in unregulated tax havens. There has been the same unedifying sight of an army of bankers, advisers and auditors who contentedly snuggled up to the company until a few months ago now haring away as fast as their fee-heavy legs can carry them.

For those readers with better things to do over the past three weeks than read the pink pages, the Italian food group Parmalat has gone bust and anything up to 10bn euros (£7bn) has gone missing. The scam came to light days before Christmas, when a document purporting to show that the company had billions on account with Bank of America turned out to be a forgery.

We Europeans, it seems, can perpetrate a fraud every bit as entertaining as Enron, but with some nicely Old World touches. Thus, while Enron had close relations with the Republican Party, the Parmalat founder, Calisto Tanzi, schmoozed with the high-ups of the Catholic Church. He stumped up more than £1m to help renovate Parma's 11th-century cathedral. "Christian and moral values are important, not money," he once opined. He lent his helicopter to prelates so often that it was known as "God's helicopter".

While Enron executives initially maintained an American silence by pleading the fifth, their peers at Parmalat have been more Mediterranean. Fausto Tonna, the former chief financial officer, resorted to an omerta-style curse after his arrest on suspicion of faking documents and destroying evidence. "I wish you and your families a slow and painful death," he snarled at reporters. He later fell back on an old European excuse. "I was only carrying out orders," he told investigators, a sentiment echoed by the head of Parmalat's Venezuelan operations, Giovanni Bonici, who is wanted for questioning in Italy. "I am only a soldier - I obey."

While Enron and its now defunct auditor, Arthur Andersen, infamously made use of shredders, someone at Parmalat, so Italian investigators believe, got to work with another indispensable 21st-century office tool, the scanner, to forge the Bank of America letterhead.

But the really big difference between Enron and Parmalat is that at the former, although company money was used to inflate executive pay and advisers' fees, there was no suggestion that it went completely AWOL. At Parmalat, only a fraction of the billions of hard cash brought in through capital raisings has been accounted for. Parmalat raised 7.5bn euros by selling bonds just in the past six years. Where's it all gone? This is not just an accounting discrepancy. Real money is missing.

Tanzi has reportedly admitted only to "diverting" 500m euros into private family companies. Could all the rest have been swallowed up in fees, dud investments and losses in the operating businesses? Some of it, perhaps. But Parmalat - or at least those bits of it we understand - just isn't that kind of beast. It does low-margin stuff, such as making cheese and yoghurt. These businesses may not be exciting, but they tend not to make vast losses. Someone, somewhere is probably sitting on a pile of hot money.

The scandal has many victims - not least the 36,000 employees of the operating companies under the Parmalat umbrella, who fear for their jobs. Dairy farmers from Italy to Brazil wonder whether they will ever get paid. Meanwhile, anyone with a pension fund or life policy probably had a small chunk of their savings invested in Parmalat shares (now worthless) or bonds (near worthless). Parmalat bonds were marketed not just to Italian institutions but in every financial centre from London to Wall Street by some of the world's biggest banks.

Which brings me back to the nationality of this scandal. The banks that really pushed Parmalat bonds - and therefore turned the company from a modest regional dairy business into a big food empire - were almost all American. It was Bank of America, Citigroup, J P Morgan, Merrill Lynch and Morgan Stanley that, however innocently, hawked Parmalat bonds around the world's financial centres, giving the company a credibility it could never have achieved by itself. The US Securities and Exchange Commission is investigating whether any of them acted recklessly or negligently.

Although it is too early for firm conclusions, it seems likely that the aggressive, innovative culture of the US banks played a part in amplifying the problems. One special Parmalat subsidiary created by Citigroup to help the group indulge in some particularly esoteric financial engineering probably best sums up the whole affair. It was called Buconero - Italian for "black hole".

Patrick Hosking is deputy City editor of the London Evening Standard

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