UK targeted in Serb inquiry

Italian investigation into Telekom privatisation puts NatWest Markets in spotlight.

Italian fraud investigators looking into allegations of corruption over the part-privatisation of Serbia's telephone monopoly under the Milosevic regime have turned their attention to the UK.

Turin public prosecutors Bruno Tinti and Paolo Storari have been in London to seek the assistance of the Serious Fraud Office.

They are investigating allegations of false accounting, bribery and embezzlement in connection with the privatisation of 49% of Telekom Serbia in 1997.

While the nature of their interest in Britain remains unclear, the visit is likely to throw a spotlight on NatWest Markets - now part of the Royal Bank of Scotland - which was a key financial adviser during the privatisation.

Telecom Italia acquired a 29% stake in Telekom Serbia for DM890m in 1997 while a further 20% was acquired by Greek telecoms group OTE. NatWest Markets and its deputy chairman Lord Hurd were central to the deal and received a substantial fee.

A year earlier - and only 12 months after he quit as Foreign Secretary - Lord Hurd had a breakfast meeting with the then Serbian president Slobodan Milosevic. This is thought to have been a turning point in getting the privatisation process under way.

Lord Hurd was accompanied by Dame Pauline Neville-Jones, a former senior British diplomat, who also joined NatWest Markets.

The Italian prosecutors are believed to be investigating the possibility that some of the proceeds of the privatisation deal ended up in private companies controlled by Milosevic or his associates.

There is no evidence to suggest that Lord Hurd, Dame Pauline, NatWest Markets, Telecom Italia, or OTE had any involvement in wrongdoing.

Asked if Royal Bank of Scotland had been contacted by Italian prosecutors during their visit last month, a spokesman for the bank said: "Customer confidentiality prevents us from talking about individual clients. You had better direct your inquiries to the Italian authorities."

Both Mr Tinti and Mr Storari were on holiday and unavailable for comment. A spokesman for the SFO confirmed that the Italian prosecutors had been to London and had lodged a request for assistance in relation to an inquiry.

The role of NatWest Markets and Lord Hurd in the privatisation of Serbia Telekom has come under criticism after some observers suggested it provided a financial windfall to bolster Milosevic at a time when mass demonstrations against him were regularly staged in Belgrade. Some have also suggested that funds from the deal assisted the Milosevic regime to intensify attacks against Kosovo Albanians in 1998. Lord Hurd was perceived to be sympathetic to the Serbs during his time as foreign secretary. Most notably, he opposed US plans to lift an arms embargo against Bosnia's Muslim population in the mid-1990s.

Milosevic, who is standing trial in The Hague for war crimes, has promised to give further details of how former western leaders gave their support to his more controversial actions as Serbian president. Lord Hurd is expected to be high on his list.