Prosecutors in Milan have confirmed that an investigation has commenced into allegations of false accounting and embezzlement at BT Italy. At the time of writing, it is expected that Corrado Sciolla, the head of BT Europe, will soon confirm his resignation, following the earlier departures of the CEO and COO of BT Italy. This news comes as external auditor, KPMG, has uncovered a series of "improper" transactions requiring adjustment to BT Italy's accounts of some £530millon.

BT's own investigations into BT Italy began last year in response to reports it received from a whistle-blower. The significant “hole” found in the Italian accounts has been attributed to serious accounting errors involving staff and internal auditors. Questions are now also being asked of external auditors, PWC Italy.

In response to KPMG's report, shares in BT are down around 20% and BT is reportedly being targeted by shareholder litigation specialists as a consequence. If evidence is uncovered that BT's senior management knew about (or failed to discover) improper accounting practices or presented inaccurate financial reports, it is possible that BT could face shareholder action in Italy. It remains to be seen whether the SFO and/or the FCA will consider that a review of BT's management in London is necessary but it is already possible that individuals will be targeted by Italian prosecutors to answer serious charges. In the meantime, BT is looking into whether any bonuses paid out to senior management in recent years ought to be clawed back.