VZCZCXRO1296
RR RUEHFL RUEHNP
DE RUEHRO #2520/01 3621704
ZNY CCCCC ZZH
R 281704Z DEC 07
FM AMEMBASSY ROME
TO RUEHC/SECSTATE WASHDC 9610
INFO RUEHFR/AMEMBASSY PARIS 2378
RUEHLO/AMEMBASSY LONDON 1452
RUEHRL/AMEMBASSY BERLIN 1820
RUEHNP/AMCONSUL NAPLES 2983
RUEHFL/AMCONSUL FLORENCE 2839
RUEHMIL/AMCONSUL MILAN 9178
RUEATRS/DEPT OF TREASURY WASHDC

C O N F I D E N T I A L SECTION 01 OF 02 ROME 002520 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: DECL: 12/29/2017 
TAGS: EFIN KFIN IT
SUBJECT: ITALY: CENTRAL BANK EXPANDS OVERSIGHT OVER 
FINANCIAL TRANSACTIONS 
 
REF: ROME 2313 
 
Classified By: Econ Counselor William R. Meara 
for Reasons 1.4  (b) and (d). 
 
¶1. (C) Summary: On January 1, the Central Bank of Italy will 
expand its oversight over financial transactions by creating 
a formal Financial Intelligence Unit (FIU) and abolishing the 
out-dated Foreign Exchange Office, which had, until now, 
served as Italy's FIU. A new law, based on EU regulation 1889 
of 2005 will lower the threshold on reporting requirements 
for cash-transfers, bank transactions and abolish third party 
checks.  The change is necessary, but some fear that 
over-burdensome systems could drive people away from the 
formal banking systems. End summary. 
 
----------------------------------- 
Financial Intelligence Unit Created 
----------------------------------- 
 
¶2. (SBU) Italy's Foreign Exchange Office (UIC), a relic from 
the pre-Euro days that had been charged with monitoring cash 
transactions, will be absorbed by the Bank of Italy effective 
January 1, 2008.  According to press reports, Bank of Italy 
Governor Mario Draghi and Minster of Finance Tomasso 
Padoa-Schioppa argued over control of the new directorate for 
months.  Draghi won the argument and is now charged with 
appointing a director; two long-time BOI insiders are 
competing for the job. 
 
¶3. (SBU) Principle Director of Competition, Regulation and 
Services department Luigi Donato explained the changes to 
Econoff on December 13. The UIC's 450 employees will move to 
the Bank of Italy, 60 of the former UIC employees, will 
constitute the new FIU. Donato said that he thought this 
number would be augmented after they review the workload. 
(The rest of the employees will be absorbed into other 
functions at the BOI.) Previously, a UIC office performed the 
work of a financial intelligence unit, but it was not 
centralized and reported to both the Ministry of Finance and 
the Central Bank.  According to the new law, the FIU will 
report to the Governor of the Bank of Italy and have sole 
responsibility for analyzing trends in financial 
transactions, noting anomalies in banking transactions, and 
reporting anomalies to the appropriate government 
law-enforcemnt authorities, such as the Guardia di Finanza 
(Financial Police).  Donato affirmed that Italy's interagency 
Financial Security Committee will still make the policy 
decisions and will direct the new FIU to take action when 
appropriate.  (Note: In 2006, the UIC received over 10 
thousand reports of suspicious activity. The new law will 
lower the reporting threshold and will expand the workload. 
End note). 
 
------- 
New Law 
------- 
 
¶4. (SBU) The new law upholds all previous anti-money 
laundering laws and brings Italy's laws in line with EU 
directive 1889 of 2005.  The threshold for filing significant 
transaction reports has been lowered, the aim of these 
changes is be up-to-date with Financial Action Task Force 
recommendations.  Transactions of 5,000 Euro and above must 
now be reported to the new FIU. (Note: Reftel reported that 
the threshold would be lowered to 10,000 Euro, BOI officials 
explained that the change was a last minute decision to 
expand their oversight authority.)  Western Union and other 
money transfer organizations must report transactions at or 
above 2,000 Euro. The Guardia di Finanza will retain its 
authority to monitor these transactions, but will pass their 
information to the FIU. 
 
¶5. (SBU) Third party use of checks will be outlawed and 
financial institutions will face heightened reporting 
requirements.  Donato explained that many of Italy's banks 
are already operating under the new procedures, but noted 
that the greatest impact would be felt by lawyers and real 
estate brokers, who previously did not operate under such 
strict reporting requirements.  A second phase of the Bank of 
Italy reorganization will take place later this year with the 
creation of a new oversight body specifically designed to 
monitor trading houses, lawyers, and real estate brokers.  A 
third phase of the reorganization planned later this year, 
 
ROME 00002520  002 OF 002 
 
 
Donato explained, will close 60 of the Bank of Italy's 90 
branches.  Donato said that with advances in communication 
and electronic banking, the BOI decided it could cut back on 
its offices. 
 
------------ 
Implications 
------------ 
 
¶6. (C) Comment: A reorganization of the Central Bank's 
monitoring capabilities is long overdue. Post looks forward 
to establishing close ties to the new FIU, and to using 
contacts there in support of efforts to fight terror 
finance/WMD proliferation and other crimes. However, in a 
society in which tax evasion is widespread, some here fear 
that the heightened scrutiny and regulation envisioned by 
this law might actually push many transactions out of the 
banking system. End comment. 
BORG