This record is a partial extract of the original cable. The full text of the original cable is not available.

191646Z Jan 06

UNCLAS SECTION 01 OF 04 ROME 000187 
 
SIPDIS 
 
DEPT PLEASE PASS TO INL 
JUSTICE FOR OIA AND AFMLS AND TREASURY FOR FINCEN 
 
E.O. 12958: N/A 
TAGS: EFIN KCRM KTFN PTER IT EUN UN
SUBJECT: 2005-2006 INTERNATIONAL NARCOTICS CONTROL 
STRATEGY REPORT (INCSR) INSTRUCTIONS PART II, FINANCIAL 
CRIMES AND MONEY LAUNDERING 
 
REF: A. STATE 210351 
 
     ¶B. STATE 209558 
     ¶C. STATE 209560 
            ¶D. STATE 209561 
 
¶1.  Italy is not an important regional or offshore 
financial center.  However, money laundering is a 
concern both because of the prevalence of homegrown 
organized crime groups and the recent influx of 
criminal organizations from abroad, especially from 
Albania, Romania, and Russia.  The heavy involvement in 
international narcotics-trafficking of domestic and 
Italian-based foreign organized crime groups 
complicates counter-narcotics. Italy is a consumer 
country and a major transit point for heroin coming 
from the Near East and Southwest Asia through the 
Balkans en route to Western/Central Europe and, to a 
lesser extent, the United States.  Italian and ethnic 
Albanian criminal organizations work together to funnel 
drugs to and through Italy.  Additional priority 
trafficking groups include other Balkan organized crime 
entities, as well as Nigerian, Dominican, Colombian, 
and other South American trafficking groups.  In 
addition to the narcotics trade, money to be laundered 
comes from myriad criminal activities, such as alien 
smuggling, contraband cigarette smuggling, pirated 
goods, extortion, usury, and kidnapping.  Financial 
crimes not directly linked to money laundering such as 
credit card and Internet fraud are increasing. 
¶2.  Money laundering occurs both in the regular banking 
sector and, more frequently, in the nonbank financial 
system, i.e., casinos, money transfer houses, and the 
gold market.  Money launderers predominantly use 
nonbank financial institutions for the illicit export 
of currency--primarily U.S. dollars and euros--to be 
laundered in offshore companies. There is a substantial 
black market for smuggled goods in the country, but it 
is not funded significantly by narcotics proceeds. 
¶3.  Money laundering is defined as a criminal offense 
when it relates to a separate, intentional felony 
offense.  All intentional criminal offenses are 
predicates to the crime of money laundering, regardless 
of the applicable sentence for the predicate offense. 
Italy has strict laws on the control of currency 
deposits in banks.  Banks must identify their customers 
and record and report to the Italian exchange office 
(UIC)--Italy's financial intelligence unit (FIU)--any 
cash transaction that exceeds approximately $15,000. 
The Bank of Italy's mandatory guidelines require the 
reporting all suspicious cash transactions (STR - 
suspicious transaction report) and other activity--such 
as a third party payment on an international 
transaction--on a case-by-case basis.  Italian law 
prohibits the use of cash or negotiable bearer 
instruments for transferring money in amounts in excess 
of approximately $15,000, except through authorized 
intermediaries/brokers. 
¶4.  Banks and other financial institutions are required 
to maintain for ten years records necessary to 
reconstruct significant transactions, including 
information about the point of origin of funds 
transfers and related messages sent to or from Italy. 
Banks operating in Italy must remit account data to a 
central archive controlled by the Bank of Italy.  This 
archive was established for record keeping and 
financial oversight purposes, but has proved useful for 
tracking money laundering.  A "banker negligence" law 
makes individual bankers responsible if their 
institutions launder money.  The law protects bankers 
and others with respect to their cooperation with law 
enforcement entities. 
¶5.  Italy has addressed the problem of international 
transportation of illegal-source currency and monetary 
instruments by applying the $15,000-equivalent 
reporting requirement to cross-border transport of 
domestic and foreign currencies and negotiable bearer 
instruments.  Reporting is mandatory for cross-border 
transactions involving negotiable bearer monetary 
instruments (e.g., checks), but not for wire transfers; 
nevertheless, financial institutions are required to 
maintain a uniform anti-money laundering database for 
wire transfers and to submit this data on a monthly 
basis to the UIC.  The UIC analyzes the data and can 
request specific transaction details if warranted.  In 
2004, the UIC received 6,816 STRs related to money 
laundering and 288 related to terrorism finance.  The 
UIC does little filtering of the STRs, but rather sends 
virtually all of them to the Anti-Mafia Investigative 
Unit (DIA) and the Guardia di Finanza (GdF).  Law 
enforcement opened 328 investigations based on STRs, 
which resulted in 103 prosecutions. 
¶6.  Because of these banking controls, narcotics- 
traffickers are using different ways of laundering drug 
proceeds. To deter nontraditional money laundering, the 
Government of Italy (GOI) has enacted a decree to 
broaden the category of institutions and professionals 
required to abide by anti-money laundering regulations. 
The list now includes accountants, debt collectors, 
exchange houses, insurance companies, casinos, real 
estate agents, brokerage firms, gold and valuables 
dealers and importers, auction houses, art galleries, 
antiques dealers, labor advisors, lawyers, and 
notaries.  Not all implementing regulations for the 
decree have been issued, so while Italy now has 
comprehensive internal auditing and training 
requirements for its (broadly-defined) financial 
sector, implementation of these measures by nonbank 
financial institutions lags behind that of banks, as 
evidenced by the relatively low number of suspicious 
transaction reports (STRs) filed by nonbank financial 
institutions.  According to UIC data, banking 
institutions submit 88 per cent of all STRs.  Other 
financial intermediaries such as exchange houses submit 
5.5 per cent, insurance companies 3.1 per cent, the 
postal sector 2.6 per cent, and all other sectors less 
than one per cent. 
¶7.  he UIC, which is an arm of the Bank of Italy (BoI), 
receives and analyzes STRs filed by covered 
institutions, and then forwards them to either the Anti- 
Mafia Directorate, the National Anti-Mafia Directorate 
(local public prosecutors) or the Guardia di Finanza 
(GdF) (financial police) for further investigation. 
The UIC compiles a register of financial and non- 
financial intermediaries that carry on activities that 
could be exposed to money laundering.  The UIC also 
performs supervisory and regulatory functions such as 
issuing decrees, regulations, and circulars.  It does 
not require a court order to compel supervised 
institutions to provide details on regulated 
transactions. 
¶8.  A special currency unit of the GdF is the Italian 
law enforcement agency with primary jurisdiction for 
conducting financial investigations in Italy.  STRs led 
the GdF to identify $14,400,000 in laundered money in 
¶2003. Both the UIC and the special currency unit have 
access to the Bank of Italy's central archive. 
Investigators from other divisions in the GdF and other 
Italian law enforcement agencies must obtain a court 
order prior to being granted access to the archive. 
¶9.  Italy has established reliable systems for 
identifying, tracing, freezing, seizing, and forfeiting 
assets from narcotics-trafficking and other serious 
crimes, including terrorism. These assets include 
currency accounts, real estate, vehicles, vessels, 
drugs, legitimate businesses used to launder drug 
money, and other instruments of crime.  Under anti- 
Mafia legislation, seized financial and non-financial 
assets of organized crime groups can be forfeited.  The 
law allows for forfeiture in both civil and criminal 
cases.  Through October, Italian law enforcement seized 
more than 160 million in forfeited assets due to money 
laundering in 2004.  Italy does not have any 
significant legal loopholes that allow traffickers and 
other criminals to shield assets.  However, the burden 
of proof is on the Italian government to make a case in 
court that assets are related to narcotics-trafficking 
or other serious crimes.  Law enforcement officials 
have adequate powers and resources to trace and seize 
assets; however, their efforts can be affected by which 
local magistrate is working a particular case.  Funds 
from asset forfeitures are entered into the general 
State accounts.  Italy shares assets with member states 
of the Council of Europe.  Italy is involved in 
multilateral negotiations with the European Union (EU) 
to enhance asset tracing and seizure. 
¶10.  In October 2001, Italy passed a decree 
(subsequently converted into legislation) that created 
the Inter-Ministerial Financial Security Committee 
(FSC), which is charged with coordinating GOI efforts 
to track and interdict terrorist financing.  The FSC 
members include includes the Ministries of Finance, 
Foreign Affairs, Home Affairs, Justice, the BoI, UIC, 
CONSOB (securities market regulator), GdF, the 
Carabinieri, the National Anti-Mafia Directorate (DNA) 
as well as the Anti-Mafia Investigative Directorate 
(DIA). The Committee has far-reaching powers that 
include waiving provisions of the Official Secrecy Act 
to obtain information from all government ministries 
and the as-yet-unused authority to order a freeze of 
terrorist-related assets. 
¶11.  A second October 2001 decree (also converted into 
legislation) made financing of terrorist activity a 
criminal offense, with prison terms of between seven 
and 15 years. The legislation also requires financial 
institutions to report suspicious activity related to 
terrorist financing.  Both measures facilitate the 
freezing of terrorist assets.  Per FSC data as of 
December 2004, 57 accounts have been frozen belonging 
to 55 persons, totaling $528,000 under UN Resolutions 
relating to terrorist financing.  The GOI cooperates 
fully with efforts by the United States to trace and 
seize assets.  Italy is second only to the United 
States in the number of individual terrorists and 
terrorist organizations it has submitted to the United 
Nations (UN) 1267 Sanctions Committee for designation. 
The UIC transmits to financial institutions the EU, UN, 
and U.S. Government (USG) lists of terrorist groups and 
individuals.  The UIC may provisionally suspend for 48 
hours transactions deemed suspect.  The courts must 
then act to freeze or seize the assets. Under Italian 
law, financial and economic assets linked to terrorists 
can only be seized through a criminal sequestration 
order.  Courts may issue such orders as part of 
criminal investigation of crimes linked to 
international terrorism.  The sequestration order may 
be issued with respect to any asset, resource, or item 
of property, provided that these are goods or resources 
linked to the criminal activities under investigation. 
A provision of the Italian implementing legislation of 
the 3rd EU Money Laundering directive would give the 
government authority to issue a decree law to allow the 
freezing, seizing, and forfeiture of non-financial 
assets belonging to terrorist groups and individuals. 
The legislation must be passed by the Parliament before 
it dissolves for the March 2005 national elections or 
the law must be resubmitted by the new government. 
¶12.  In Italy, the term "alternative remittance system" 
refers to nonbank regulated institutions such as money 
transfer businesses.  Informal remittance systems do 
exist, primarily to serve Italy's significant immigrant 
communities, and in some cases are used by Italy-based 
drug trafficking organizations to transfer narcotics 
proceeds.  Italy does not regulate charities per se. 
Primarily for tax purposes, Italy in 1997 created a 
category of "not-for-profit organizations of social 
utility" (ONLUS).  Such an organization can be an 
association, a foundation or a fundraising committee. 
To be classified as an ONLUS, the organization must 
register with the Economics Ministry and prepare an 
annual report. There are currently 19,000 registered 
ONLUS. 
¶13.  The ONLUS Agency was established in 2000 and has 
the power to issue guidelines and to draft legislation 
for the non-profit sector, to maintain data and 
statistics, alert other authorities in case of 
violations of existing obligations, and confirm the de- 
listing from the ONLUS registry.  The ONLUS Agency 
cooperates with the Finance Ministry in reviewing the 
conditions for being an ONLUS.  The ONLUS Agency has 
recently launched a $240,000 project for the creation 
of a centralized database, gathering mandatory 
information related to all Italian ONLUS'.  The ONLUS 
Agency has reviewed 1,500 agencies and recommended the 
dissolution of several ONLUS which were not in 
compliance with Italian Law.  Italian authorities 
believe that based on the analysis of the UIC and the 
investigations of the GdF, there is a low risk of 
terrorism financing in the Italian non-profit sector. 
¶14.  Italian cooperation with the United States on 
money laundering has been exemplary.  The United States 
and Italy have signed a customs assistance agreement as 
well as extradition and Mutual Legal Assistance 
treaties (MLAT).  Both in response to requests under 
the MLAT and on an informal basis, Italy provides the 
United States records related to narcotics-trafficking, 
terrorism and terrorist financing investigations and 
proceedings.  Italy also cooperates closely with U.S. 
law enforcement agencies and other governments 
investigating illicit financing related to these and 
other serious crimes.  An effort to provide a mechanism 
under the MLAT for asset forfeiture and the sharing of 
forfeited assets has not yet come to fruition.  Assets 
can only be shared bilaterally if agreement is reached 
on a case-specific basis. 
¶15.  Italy is a party to the 1988 UN Drug Convention; 
the UN International Convention for the Suppression of 
the Financing of Terrorism; and the Council of Europe 
Convention on Laundering, Search, Seizure, and 
Confiscation of the Proceeds from Crime.  Italy has 
signed, but not yet ratified, the UN Convention against 
Transnational Organized Crime. 
¶16.  Italy is a member of the FATF and held the FATF 
presidency in 1997-98.  As a member of the Egmont 
Group, Italy's UIC shares information with other 
countries' FIUs.  The UIC has been authorized to 
conclude information-sharing agreements concerning 
suspicious financial transactions with other countries. 
To date, Italy has signed memoranda of understanding 
with France, Spain, the Czech Republic, Croatia, 
Slovenia, Belgium, Panama, Latvia, the Russian 
Federation, Canada, and Australia. Italy also is 
negotiating agreements with Japan, Argentina, Malta, 
Thailand, Singapore, Hong Kong, Malaysia, and 
Switzerland, and has a number of bilateral agreements 
with foreign governments in the areas of investigative 
cooperation on narcotics-trafficking and organized 
crime.  There is no known instance of refusal to 
cooperate with foreign governments. 
¶17.  The GOI is firmly committed to the fight against 
money laundering and terrorist financing, both 
domestically and internationally.  However, given the 
relatively low number of STRs being filed by nonbank 
financial institutions, the GOI should increase its 
training efforts and supervision in this sector, to 
decrease its vulnerability to abuse by criminal or 
terrorist groups.  The GOI should also continue its 
active participation in multilateral fora dedicated to 
the global fight against money laundering and terrorist 
financing. 
 
Spogli