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Exclusive-Italian prosecutors probing supply chain of around a dozen fashion brands, says source

By Emilio Parodi

LONDON (Reuters) -Prosecutors in Milan are investigating the supply chain of around a dozen more fashion brands, a person with knowledge of the matter said, after a unit of France's LVMH in Italy was placed under court administration in a worker exploitation probe.

On Monday, a Milan court appointed a commissioner to run an LVMH-owned maker of Dior-branded handbags after an investigation into four of its suppliers based in the surroundings of Italy's fashion capital uncovered illegal working conditions for staff.

On-site inspections and checks on electricity usage data led prosecutors to allege workers were employed for extended hours, working often into the night and during holidays. Some of the staff slept where they worked, had no regular contracts, with two having illegally immigrated into Italy.

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This is the third such decision this year by the Milan court in charge of pre-emptive measures, which in April took similar steps in relation to a company owned by Giorgio Armani due to accusations the fashion group was "culpably failing" to properly oversee its suppliers. Armani Group said at the time it had always sought to "minimise abuses in the supply chain".

LVMH on Monday declined to comment on the court's decision.

Milan prosecutors and Italian police are investigating further small manufacturers that supply around a dozen other brands, the person told Reuters, declining to provide additional details because the information is confidential.

The appointment of a special commissioner is intended to give the fashion brands' subsidiaries time to fix problems in their supply chain while continuing to operate.

Neither LVMH nor Armani are under investigation, while the suppliers targeted by the probe face accusations of worker exploitation, copies of the court decisions seen by Reuters showed.

'MADE IN ITALY'

Milan prosecutors have been investigating for the past decade recruitment firms that allegedly illegally employed workers, evading taxes, as well as welfare and pension contributions, to slash the cost of the services they supplied.

The probes traditionally targeted sectors such as logistics, transportation and cleaning services, where workers were supplied by firms that sprung up and were wound down every couple of years.

The focus then shifted onto the fashion sector, where probes have highlighted similar problems this year.

Italy accounts for 50% to 55% of the global luxury goods production, consultancy Bain calculated, with thousands of small manufacturers supplying big brands and allowing them to sport the prized 'Made in Italy' label on their goods.

The latest Milan investigation has shown a small manufacturer was able to charge Dior as little as 53 euros ($57) to make a handbag, which the fashion house then sold in shops at 2,600 euros.

Under Italian law, brands outsourcing production are responsible for carrying out adequate checks on suppliers.

In the past, the measures taken by Italian magistrates in relation to worker exploitation probes concerned only the suppliers who mistreated workers.

However, Milan prosecutors have been able to make use of a provision in the law that was originally designed to deal with companies infiltrated by the Mob.

These companies would be placed under court, or judicial, administration through the appointment of special commissioners to run them.

($1 = 0.9326 euros)

(Reporting by Emilio Parodi; Writing by Valentina Za; Editing by Matt Scuffham and Emelia Sithole-Matarise)