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UNCLAS SECTION 01 OF 04 ROME 003172 
 
SIPDIS 
 
SIPDIS 
 
DEPT PLEASE PASS TO INL 
JUSTICE FOR OIA AND AFMLS 
TREASURY FOR FINCEN 
 
E.O. 12958: N/A 
TAGS: EFIN KCRM KTFN PTER IT
SUBJECT: 2006-2007 INTERNATIONAL NARCOTICS CONTROL STRATEGY 
REPORT (INCSR) INSTRUCTIONS PART II, FINANCIAL CRIMES AND 
MONEY LAUNDERING 
 
REF: A. ROME 3060 
     ¶B. STATE 157084 
 
¶1.  This message responds to ref B request for information on 
financial crimes and money laundering in Italy.  Together 
with ref A, these reports transmit Mission Italy's submission 
to the 2006-07 International Narcotics Control Strategy 
Report (INCSR). 
 
¶2.  Italy is not an offshore financial center.  Italy is part 
of the euro area and is fully integrated in the EU single 
market for financial services.  However, money laundering is 
still 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 important trafficking groups 
include other Balkan organized crime entities, as well as 
Nigerian, Dominican, Colombian, and 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. 
 
¶3.  Money laundering occurs both in the regular banking 
sector and 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 Italy, but it 
is not funded significantly by narcotics proceeds.  According 
to late 2004 Embassy reporting, Italy,s underground economy 
in 2002 was an estimated 27 percent of Italian GDP -- or 
approximately 200 billion euro.  For the most part, Italy's 
underground economy does not include illicit activities per 
se, but does reflect substantial activity that is not subject 
to taxation.  Its sheer volume, however, provides a ready 
environment for money laundering. 
 
¶4.  Italy has a comprehensive Anti-Money Laundering/Combating 
the Financing of Terrorism (AML/CFT) system set up initially 
in 1991 and, later, updated a number of times.  The AML/CFT 
law enforcement system is based on long-standing enforcement 
machinery designed to cut down on the economic power of 
mafia-type criminal organizations.  Money laundering is 
defined as a criminal offense when laundering 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.  Law enforcement efforts against money 
laundering have been quite successful.  Almost 600 cases of 
money laundering lead to conviction every year -- one of the 
highest rate of successful prosecutions in Europe.  Italy has 
strict laws on the control of currency deposits in banks. 
Banks must identify their customers and record any 
transaction that exceeds approximately $15,000 (12,500 euro). 
 Bank of Italy (BoI) mandatory guidelines require the 
reporting of all suspicious cash transactions (STRs) and 
other activity -- such as a third party payment on an 
international transaction.  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. 
 
¶5.  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 record 
account data on their own standardized customer database 
established within the framework of the anti-money laundering 
 
ROME 00003172  002 OF 004 
 
 
regulation.  A &banker negligence8 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. 
 
¶6.  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).  Financial 
institutions are required to maintain a uniform anti-money 
laundering database for all transactions (including wire 
transfers) over $15,000 and to submit this data monthly to 
the Ufficio Italiano dei Cambi (Italian Exchange Office, 
UIC), although edited to remove any reference to customers 
and aggregated for classes of transactions.  The UIC analyzes 
the data and can request specific transaction details if 
warranted.  In 2005, the UIC received 8,576 STRs related to 
money laundering and 482 related to terrorism finance.  The 
UIC does filter the STRs, although the Italian law requires 
that the Anti-Mafia Investigative Unit (DIA) and the Guardia 
di Finanza (GdF) be informed about all cases, including those 
that the UIC does not pursue further.  Law enforcement opened 
328 investigations based on STRs, which resulted in 103 
prosecutions. 
 
¶7.  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 (included since 1991), casinos, real estate agents, 
brokerage firms, gold and valuables dealers and importers, 
auction houses, art galleries, antiques dealers, labor 
advisors, lawyers, and notaries.  The required implementing 
regulations for the decree, as far as non-financial 
businesses and professions are concerned, were issued in 
February 2006 and came into force in April 2006 (per 
Ministerial Decree no. 141, 142, and 143 of 3.02.2006). 
However, while Italy now has comprehensive internal auditing 
and training requirements for its (broadly-defined) financial 
sector, it is not clear whether 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.  As of 2005, according to UIC data, 
banking institutions submitted about 80 per cent of all STRs. 
 Other financial intermediaries, such as money remittance 
operators, submit 13.5 percent; insurance companies, about 
two percent; the postal sector, nearly 4.5 percent; and all 
other sectors, less than one percent.  Nonetheless, such 
distribution of STRs across the financial spectrum closely 
resembles what can be observed in most jurisdictions. 
 
¶8.  The UIC, which is an arm of the BoI, receives and 
analyzes STRs filed by covered institutions, and then 
forwards them to either the DIA or the GdF for further 
investigation.  The UIC compiles a register of financial and 
non-financial intermediaries which 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. 
 
¶9.  A special currency branch 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. The UIC has 
access to the banks, customer database.  Investigators from 
the GdF and other Italian law enforcement agencies must 
obtain a court order prior to being granted access to the 
archive. 
 
¶10.  Italy has established reliable systems for identifying, 
tracing, freezing, seizing, and forfeiting assets from 
narcotics-trafficking and other serious crimes, including 
 
ROME 00003172  003 OF 004 
 
 
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 2004, Italian law enforcement seized more 
than 160 million euro in forfeited assets due to money 
laundering.  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 Member 
State negotiations within the European Union (EU) to enhance 
asset tracing and seizure. 
 
¶11.  In October 2001, Italy issued a decree (subsequently 
converted into law) that created the Financial Security 
Committee (FSC), charged with coordinating GOI efforts to 
track and interdict terrorist financing.  FSC members 
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 DIA. The Committee has 
far-reaching powers that include waiving provisions of the 
Official Secrecy Act to obtain information from all 
government ministries. 
 
¶12.  A second October 2001 decree (also converted into law) 
made financing of terrorist activity a criminal offense, with 
prison terms of between seven and fifteen 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 in the EU only to the 
United Kingdom in the number of individual terrorists and 
terrorist organizations the country has submitted to the 
United Nations (UN) 1267 Sanctions Committee for designation. 
 The UIC disseminates 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 of money laundering or terrorist 
financing.  The courts must then act to freeze or seize the 
assets. Under Italian law, financial and economic assets 
linked to terrorists can be directly frozen by the financial 
intermediary holding them, should the owner be listed under 
EU regulation. Moreover, assets can be seized through a 
criminal sequestration order.  Courts may issue such orders 
as part of criminal investigation of crimes linked to 
international terrorism or applying administrative seizing 
measures originally conceived to fight the mafia.  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. Law no. 15 of 29.01.2006 gave the government 
authority to implement the Third EU Money Laundering 
directive and to issue provisions to make more effective the 
freezing of non-financial assets belonging to listed 
terrorist groups and individuals. 
 
¶13.  In Italy, the term &alternative remittance system8 
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 
¬-for-profit organizations of social utility8 (ONLUS). 
Such an organization can be an association, a foundation, or 
a fundraising committee.  To be classified as an ONLUS, the 
 
ROME 00003172  004 OF 004 
 
 
organization must register with the Finance Ministry and 
prepare an annual report.  There are currently 19,000 
registered ONLUS. 
 
¶14.  The ONLUS Agency was established in 2000 and can issue 
guidelines and 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 there is a low risk of terrorism financing in 
the Italian non-profit sector. 
 
¶15.  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 (MLAT) Treaties. 
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.  In May 2006, however, the U.S. and 
Italy signed new bilateral instruments on extradition and 
mutual legal assistance as part of the process of 
implementing the U.S./EU Agreements on Extradition and Mutual 
Legal Assistance, signed in June 2003.  Similar bilateral 
instruments have now been negotiated and signed with all 25 
EU member states, but must be still be ratified by the U.S. 
Senate.  Once ratified, the new U.S./Italy bilateral 
instrument on mutual legal assistance will provide for asset 
forfeiture and sharing. 
 
¶16.  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 ratified the UN Convention against 
Transnational Organized Crime with Law no. 146 of 16.03.2006. 
 
¶17.  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. 
 
¶18.  The GOI is firmly committed to the fight against money 
laundering and terrorist financing, both domestically and 
internationally.  However, given the newness of reporting 
requirements for nonbank financial institutions, the GOI 
should closely monitor activities in this area to determine 
if additional training and supervision are warranted.  The 
GOI should also continue its active participation in 
multilateral fora dedicated to the global fight against money 
laundering and terrorist financing. 
SPOGLI