(FORTUNE Magazine) – One of the world's biggest financial scandals was the looting of Paris-based Credit Lyonnais and the bank's role in the near bankruptcy of fabled film studio MGM. The aftershocks are intensifying: Investigators in France, Italy, and the U.S.--a sort of bicontinental legion of financial geologists--are drilling deeper into the mountain of fraud. And they're finding plenty more trouble.

A leading villain here is Giancarlo Parretti, a onetime Italian waiter whose sinister dealings landed him on the cover of FORTUNE's European edition last July 8. Parretti, who has an extensive criminal record, and his partner, Italian businessman and known money launderer Florio Fiorini, bribed Credit Lyonnais bankers to loan them $2 billion. The duo then used much of that money to buy Metro-Goldwyn-Mayer in 1990. Parretti was about to be sentenced several months ago in the U.S. for crimes related to the MGM takeover, when he jumped bail and fled to Italy.

Important developments in this saga are taking place in France, where an unusual and widening investigation focuses on Credit Lyonnais. French officials are scrutinizing a broad array of people who managed, regulated, or even borrowed money from the government-owned bank between 1990 and 1993. This is the period when Credit Lyonnais' loan portfolio noticeably began to rot. The bank was "looted" in an organized way, according to a recent internal audit. The FORTUNE story may have helped spur this aggressive investigation. The International Herald Tribune said, "The FORTUNE expose caused anxiety in French political circles and apparently contributed to the government's decision to seek indictments."

Just a few years ago, Credit Lyonnais was the world's largest non-Japanese bank. Now it's an emaciation of its former self. The famed institution has written off a shocking $35 billion in bad loans. Some $5 billion of these loans are Hollywood related; the rest are associated with real estate and other sorts of soured deals. The French government has already spent at least $14 billion to prop up the bank. And Paris sources estimate that the cost to taxpayers may eventually exceed $26 billion. For perspective, that amount roughly equals half the budget deficit of the French government this year.

While French investigators are digging into the Credit Lyonnais mess from the top down, U.S. prosecutors are burrowing into the bank's problems from the bottom up. A federal grand jury in Los Angeles, according to independent observers, has extended its probe of Parretti and Fiorini to include the bank they borrowed from. A team of American prosecutors and law-enforcement agents has visited Europe, and they appear to be casting their spotlight on Credit Lyonnais' Dutch branch, Credit Lyonnais Bank Nederland (CLBN). In lending to Parretti and Fiorini, former bankers of CLBN may have aided a massive securities fraud.

One of those CLBN bankers is Georges Vigon. An elusive French war hero, Vigon ran Credit Lyonnais' Dutch operations during most of the 1980s. Later, in Paris, he headed Credit Lyonnais' lending across Europe, Africa, and the Middle East. But all the while he continued to supervise CLBN and its lending to Parretti and Fiorini. In a deposition, which is sealed in California Superior Court but has been obtained by FORTUNE, Vigon acknowledged that he accepted "gifts" from Parretti. These "gifts" --which included a drawing supposedly done by Picasso--didn't affect his judgment as a loan officer, Vigon claimed. He kept the purported Picasso for three years until 1991, when it became clear that he would be investigated. Then he returned it to Parretti's wife. Now it looks as though Parretti may have scammed Vigon. The authenticity of Paretti's art collection is in doubt.

Another target of the Credit Lyonnais probe: Jacques Griffault, a former cohort of Vigon's at the Dutch CLBN. Griffault accepted bribes from Parretti and Fiorini. He is also accused--in a sworn statement by another former CLBN official who testified in Los Angeles--of shifting money among clients' bank accounts in order to benefit companies controlled by Parretti and Fiorini.

Griffault has already pleaded guilty to criminal conduct in Italy, where investigators are examining Credit Lyonnais from yet another important angle: its relationship with Florio Fiorini and his collapsed corporate empire. Fiorini recently completed a prison term in Switzerland for fraud involving the bankruptcy of a Swiss holding company known as SASEA. Set up by the Vatican in 1897 to conduct business outside of Italy, SASEA was acquired by Fiorini in the Eighties. Under his cunning management, the company grew to control some 300 corporations around the world. Many of the businesses, it turns out, were shells. Fiorini sold stock and debentures to thousands of small investors who were oblivious to the fake balance sheets and bogus assets. Then he used SASEA to manipulate accounts at Credit Lyonnais. Now he's on trial in Milan.

Whatever the investigators in Italy, France, or the U.S. ultimately find, there are dark indications that the corruption reaches high into the French and Italian political systems. A number of people in Paris believe that Parretti bribed French officials. And as FORTUNE previously reported, Parretti and Fiorini, by Fiorini's own account, bribed a former prime minister of Italy and a former Italian foreign minister. These Italian politicians helped spur the French government to get Credit Lyonnais to lend money for the MGM takeover.

Why did Parretti and Fiorini want MGM so badly? Why did Credit Lyonnais go to all this trouble to help such notorious crooks? The answers are yet to be unearthed. As they're revealed, they are sure to fascinate and scandalize Europe and Hollywood for years to come.

--David McClintick