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OO RUEHFL RUEHNP
DE RUEHRO #0703/01 0951535
ZNR UUUUU ZZH
O 051535Z APR 07
FM AMEMBASSY ROME
TO RUEHC/SECSTATE WASHDC IMMEDIATE 7626
INFO RUEHMIL/AMCONSUL MILAN PRIORITY 8541
RUEHNP/AMCONSUL NAPLES PRIORITY 2457
RUEHFL/AMCONSUL FLORENCE PRIORITY 2307
RUEABND/DEA HQS WASHDC PRIORITY
RUEAHLC/DHS WASHDC PRIORITY
RHMCSUU/FBI WASHINGTON DC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

UNCLAS SECTION 01 OF 02 ROME 000703 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR LONNI REASOR 
TREASURY FOR BEN DAVIS 
 
E.O. 12958: N/A 
TAGS: EFIN ETTC KTFN PREL PTER PGOV IT
SUBJECT: WORKING WITH ITALY TO BETTER COMBAT FINANCIAL CRIME 
 
REF: A. ROME 384 
     ¶B. 06 ROME 3172 
 
SUMMARY & BACKGROUND 
--------------------- 
 
¶1.  (SBU)  Italy has made significant strides over the past 
several decades in investigating and combating financial 
crimes, such as terrorism finance and money laundering.  The 
government's highly public fights against the Sicilian Cosa 
Nostra mafia and the "Tangentopoli" ("Bribery-gate") scandal 
in Milan in the 1980s and 90s also raised public awareness of 
the economic and political consequences of financial crime. 
However, challenges still remain.  The large size Italy's 
underground economy creates ample space for money launderers 
and terrorist financiers to operate.  Resources within the 
Italian law enforcement and intelligence communities are 
tight, due to national budget constraints.  And Italian law 
enforcement agencies do not regularly share information with 
each other.  Post has been engaged with our GOI counterparts 
in improving law enforcement tactics and the prosecution of 
financial crimes, and will continue to meet with GOI 
officials to encourage greater cooperation.  End summary and 
background. 
 
CHALLENGES 
---------- 
 
¶2.  (U)  The size and scope of Italy's underground economy is 
a significant challenge for Italian law enforcement in 
preventing and combating financial crimes.  Economic analysts 
estimate the size of Italy's underground economy to range up 
to 27 percent of GDP.  Much of the underground economy 
consists of routine tax evasion by small- and medium-sized 
entrepeneurs.  However, money launderers and terrorism 
financiers almost certainly use the underground economy to 
operate through holding companies, real estate investments, 
and illegal money transfer operators (e.g., hawalas).  Recent 
reporting in Italy's leading daily, "Corriere della Sera," 
highlighted the role of illegal money transfer operators in 
Italy's underground economy.  It focused on an investigation 
by the Guardia di Finanza, made public March 6, which 
described illegal money transfer operations in Italy, with 
over 400 money transfer agencies and 280,000 "irregular 
transactions."  According to the report, a total of 80 
million euro worth of unreported financial transactions were 
carried out just by these transfer agencies. 
 
¶3.  (SBU)  A second challenge to combating financial crime is 
the lack of an aggressive legal regime to prosecute financial 
crime.  For example, Italian law currently requires that any 
amount over 12,500 euro (approx. 16,000 USD) brought into 
Italy must be declared (ref A).  As a penalty for not 
declaring cash, a fine of 40 percent of the undeclared amount 
over 12,500 euro is imposed.  There is no threat of jail time 
for cash smuggling, as in the U.S., which could be used as 
leverage to encourage the cash smuggler to work as an 
informant to investigate the source of the cash.  (Comment: 
Even if there existed the possibility for jail time, Italy's 
legal system differs significantly from the U.S. in the use 
of informants.  The use of informants in Italy is tightly 
regulated under the "Pentiti" law, most recently amended in 
¶2001.  Italian investigators do not have the same  discretion 
of U.S. law enforcement in using informants.  End comment.) 
Additionally, even when strong penalties may exist against a 
given financial crime, court cases in Italy last 7-8 years on 
average. 
 
¶4.  (SBU)  A third challenge is the lack of awareness about 
financial crimes and due diligence (a.k.a. "Know Your 
Customer," or KYC) among small- and medium-enterprises. 
Econoffs met in early February with consultants at 
PricewaterhouseCoopers Advisory SrL in Milan to discuss 
anti-money laundering and terrorism finance compliance at 
Italian banks and firms.  They reported that, while large 
Italian banks and firms have in place effective controls to 
ensure due diligence, small- and medium-sized banks, firms, 
and insurance companies in Italy often lack adequate 
compliance measures.  Additionally, they often claim to be 
unaware of Italian law on compliance -- or, if they know the 
law, decide that the cost of complying is too high. 
 
 
ROME 00000703  002 OF 002 
 
 
¶5.  (SBU)  A fourth challenge is a lack of information 
sharing between law enforcement agencies.  This problem is 
particularly acute between the "big three" national security 
forces -- the Polizia di Stato, Carabinieri, and the Guardia 
di Finanza.  Information sharing is also a challenge for 
various Italian government agencies that make up the 
Financial Security Committee (FSC).  (Note:  The FSC is an 
interagency body that coordinates Italy's efforts to prevent 
and combat terrorism financing and financial crime.)  This is 
sometimes due to bureaucratic inefficiencies; sometimes to 
bureaucratic rivalries.  U.S. law enforcement officials also 
note a lack of interagency task forces in Italy to combat and 
investigate financial crimes. 
 
¶6.  (SBU)  A final challenge facing Italian law enforcement 
is national budget constraints.  Given Italy's anemic 
economic growth rate since 2000, government revenue has 
suffered and funds available for law enforcement and 
intelligence are tight.  In the absence of an asset 
forfeiture law to help fund operations and investigations, 
Italian law enforcement is heavily dependent on government 
spending. 
 
WHAT WE ARE DOING & STEPS FORWARD 
--------------------------------- 
 
¶7.  (SBU)  Post is currently organizing a Voluntary Visit 
(VOLVIS) program to the U.S. for five mid-level GOI contacts 
(from four ministries) who specialize in anti-money 
laundering and terrorism finance to learn more about U.S. law 
enforcement efforts and interagency cooperation.  Other USG 
agencies, such as the FBI and Secret Service, organize 
regular capacity-building training exercises and seminars for 
their Italian law enforcement counterparts.  We will continue 
to discuss with our law enforcement counterparts ways the 
U.S. could better assist Italy in moving forward with tougher 
penalties and more rigorous prosecutions of financial crimes. 
 Additionally, we will hold regular meetings with our Italian 
colleagues to discuss new and innovative ways for law 
enforcement officials to cooperate and share information. 
SPOGLI