UPDATE: Police Arrest Former Finmeccanica Adviser -Reports

Italian police have arrested a former adviser to defense and aerospace company Finmeccanica SpA (FNC.MI) as part of an investigation into money laundering, two local news agencies reported Thursday.

The investigation is an offshoot of another probe into tax fraud and money laundering involving telecommunications operators Fastweb SpA (FWB.MI) and Telecom Italia SpA's (TI, TIT.MI) unit Sparkle.

News reports emerged in May that the public prosecutor's office was looking into the affairs of the former adviser, with Finmeccanica denying any knowledge of the case.

The company requested a probe into possible market manipulation because the news had hurt its share price.

On Thursday, police arrested the former adviser to the company following an order from the public prosecutor's office in Rome, the ANSA and AGI news agencies said, citing judicial sources.

The office is investigating the transfer of some EUR8 million through various offshore accounts, the agencies said.

The money was to be used by the former adviser and other suspects to buy a stake in Digint, a security systems company partly owned by Finmeccanica, they said.

The idea was to increase the value of the company with new contracts and resell it to Finmeccanica at a higher price, they added.

Finmeccanica declined to comment, while the public prosecutor's office in Rome was not available for comment.

In the other probe, prosecutors are looking into the purchase and sale of EUR2 billion in services to phony companies backed by the 'Ndrangheta mob.

Prosecutors allege executives at Fastweb and Sparkle knew about the purchases, conducted between 2003 and 2006.

Both operators deny any wrongdoing and describe themselves as victims--rather than perpetrators--of the fraud.

Fastweb is a unit of Swisscom AG (SCMWY, SCMN.VX).

-By Gilles Castonguay, Dow Jones Newswires; [phone]; [e-mail]

(Giada Zampano in Rome contributed to this article.)