Exploited Chinese workers employed in Italy by an unauthorised subcontractor made handbags and accessories for the Giorgio Armani fashion house in a series of supply chain abuses that the in-house production company failed to properly monitor, Italian police said Friday.

The fashion house denied wrongdoing by GA Operations, which produces apparel, accessories and home decor for the Giorgio Armani Group brands.

“The company has always had control and prevention measures in place to minimize abuses in the supply chain,'' the Armani statement said. “GA Operations will collaborate with the utmost transparency with the competent bodies to clarify its position on the matter."

According to police, GA Operations hired a subcontractor, which in turn hired unauthorised Chinese subcontractors that employed workers under the table, some of whom were in Italy illegally. They allegedly disregarded health and safety regulations as well as rules governing working hours, breaks and days off.

Police said it was part of a system of caporalato, the illegal intermediation and exploitation of workers most often associated with the agricultural sector. Four Chinese factory owners face a separate criminal investigation for their role.

GA Operations, meanwhile, is not under investigation, but has been placed under judicial administration for up to a year as part of a procedure to ensure legal operations, said Carabinieri Lt. Col. Loris Baldassarre.

A diagram released by police indicated that the Chinese subcontractor was paid 93 euros (USD 100) for a handbag that the fashion house sold for around 1,800 euros (around USD 1950). The authorised subcontractor, acting as the middleman but without real production capabilities, was paid 250 euros for the same bag, pocketing 157 euros for each bag, police said.

“The system allows for maximizing profits (in which) the Chinese factory actually produces the products, lowering labor costs by resorting to off-the-books and illegal workers,'' police said in a statement.

A video released by carabinieri shows a workshop where leather goods were being made, with two beds with blankets in an adjacent office. A second-floor dormitory, reached through a gated stairway, had a set of bunkbeds and another bed strewn with clothes and blankets.

Cooking pots were piled in a filthy bathroom alongside a broken sink and a pot with water containing what appears to be eel. A makeshift kitchen included a gas burner next to a wall splattered with food. Dirty dishes and uneaten food were piled on the sink. Cardboard was taped over windows.

The finding is part of a wider investigation into the fashion supply chain operating in the Milan and Bergamo provinces, which placed bag and accessory maker Alviero Martini Spa under judicial administration in January, Baldassarre said.

In the more recent case, police investigated four illegally operating factories with unhealthy working conditions and a series of safety violations, including illegal dormitories with “sanitary and hygienic conditions below the ethical minimum.”

The factories were ordered closed, and the four Chinese owners facing a separate criminal investigation were handed fines and administrative sanctions totaling 145,000 euros (nearly USD 157,000).