29 February 2008

2008 International Narcotics Control Strategy Report, February 29, 2008

Excerpt from: Volume II "Money Laundering and Financial Crimes" - Italy

Italy

Italy is fully integrated in the European Union (EU) single market for financial services. 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, Russia, China, and Nigeria.

The heavy involvement in international narcotics trafficking of domestic and Italian-based foreign organized crime groups complicates counternarcotics activities. Italy is both 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 Italy and, in many cases, on to third countries. Additional important trafficking groups include other Balkan organized crime entities, as well as Nigerian, Colombian, and other South American trafficking groups.

In addition to the narcotics trade, laundered money originates from a myriad of criminal activities, such as alien smuggling, pirated and counterfeited goods, extortion, and usury. Financial crimes not directly linked to money laundering, such as credit card and Internet fraud, are increasing. Italy is not an offshore financial center.

Money laundering occurs both in the regular banking sector and in the nonbank financial system, including 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. According to Italy’s Central Institute of Statistics (ISTAT), Italy’s “underground” economic activity may be as large as 18 percent of the GDP. Much of this “underground activity is not related to organized crime, but is instead part of efforts to avoid taxation.”

According to a 2006 International Monetary Fund evaluation, Italy’s anti-money laundering and counter-terrorist financing system is comprehensive. 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. With approximately 600 money laundering convictions a year, Italy has one of the highest rates of successful prosecutions in the world.

Italy has strict laws on the control of currency deposits in banks. In June of 2007, the Ministry of Finance issued a decree bringing Italy into compliance with EU regulation 1889/2005 on controls of cash entering or leaving the European Community. Banks must identify their customers and record any transaction that exceeds 5000 euros (approximately U.S. $7,300). The previous threshold was 12,500 euros (approximately U.S. $18,250). Bank of Italy mandatory guidelines require the reporting of all suspicious cash transactions 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 5,000 euros (approximately U.S. $7,300), except through authorized intermediaries or brokers.

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 databases established within the framework of the anti-money laundering regulation. 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.

Italy has addressed the problem of international transportation of illegal-source currency and monetary instruments by applying the 10,000 euros (U.S. $14,700) 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. Financial institutions are required to maintain a uniform anti-money laundering database for all transactions (including wire transfers) over 5,000 euros ($7,300) and to submit this data monthly to the Italian Foreign Exchange Office (Ufficio Italiano dei Cambi, or UIC). The data is aggregated by class of transaction, and any reference to customers is removed. The UIC analyzes the data and can request specific transaction details if warranted. In 2008, this operation will be handled by the newly created Financial Intelligence Unit.

In 2005, the UIC received 8,576 suspicious transaction reports (STRs) related to money laundering and 482 related to terrorist financing. Italian law requires that the Anti-Mafia Investigative Unit (DIA) and the Guardia di Finanza (GdF) be informed about almost all STRs, including those that the UIC does not pursue further. The UIC does, however, have the authority to perform a degree of filtering before passing STRs to law enforcement. Law enforcement opened 328 investigations based on STRs, which resulted in 103 prosecutions.

Because of Italy’s 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 subject to 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. The required implementing regulations for the decree, as far as nonfinancial businesses and professions are concerned, were issued in February 2006 and came into force in April 2006 (Ministerial Decrees 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, implementation of these measures by nonbank financial institutions lags behind that of banks, as evidenced by the relatively low number of STRs filed by nonbank financial institutions. As of 2005, according to UIC data, banking institutions submit about 80 percent of all STRs. Money remittance operators submit 13.5 percent of the total number of STRs, and all other sectors together account for less than ten percent.

Until January 1, 2008, the UIC served as Italy’s financial intelligence unit (FIU). An arm of the Bank of Italy (BoI), the UIC received and analyzed STRs filed by covered institutions, and then forwarded them to either the Anti-Mafia Investigative Unit (DIA) or the Guardia di Finanza (GdF) (financial police) for further investigation. The UIC compiles a register of financial and nonfinancial intermediaries that carry on activities that could be exposed to money laundering. The UIC has access to banks’ customer databases. Investigators from the GdF and other Italian law enforcement agencies must obtain a court order prior to being granted access to the archive. The UIC also performed 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. A special currency branch of the GdF is the Italian law enforcement agency with primary jurisdiction for conducting financial investigations in Italy. On January 1, 2008 Italy opened a Financial Intelligence Unit at the Bank of Italy that will assume the responsibilities of the UIC.

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 nonfinancial 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 euros (approximately $U.S. 233 million) 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 and is involved in negotiations within the EU to enhance asset tracing and seizure.

In October 2001, Italy passed a law 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 include the Ministries of Finance, Foreign Affairs, Home Affairs, and Justice; the BoI; UIC; CONSOB (Italy’s securities market regulator); GdF; the Carabinieri; the National Anti-Mafia Directorate (DNA); and the DIA. The Committee has far-reaching powers that include waiving provisions of the Official Secrecy Act to obtain information from all government ministries.

A second October 2001 law 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 had been frozen belonging to 55 persons, totaling U.S. $528,000 under United Nations (UN) resolutions relating to terrorist financing. Data for 2005 through 2007 has not been reported. 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 UN 1267 Sanctions Committee for designation.

The UIC disseminates to financial institutions the EU, UN, and U.S. Government lists of terrorist groups and individuals. The UIC may provisionally suspend for 48 hours transactions suspected of involving 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 when authorities are investigating crimes linked to international terrorism or by applying administrative seizure 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 January 29, 2006, gave the government authority to implement the EU’s Third Money Laundering Directive (Directive 2005/60/EC) and to issue provisions to make more effective the freezing of nonfinancial assets belonging to listed terrorist groups and individuals. Legislative Decree 231 of November 21, 2007 implements elements of the Third Money Laundering Directive.

In Italy, the term “alternative remittance system” refers to regulated nonbank 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 as such. Primarily for tax purposes, in 1997 Italy created a category of “not-for-profit organizations of social utility” (ONLUS). Such organizations can be associations, foundations or fundraising committees. To be classified as an ONLUS, the organization must register with the Finance Ministry and prepare an annual report. There are currently 19,000 registered entities in the ONLUS category. Established in 2000, the ONLUS Agency issues guidelines and drafts legislation for the nonprofit sector, alerts other authorities of violations of existing obligations, and confirms de-listings from the ONLUS registry. The ONLUS Agency cooperates with the Finance Ministry in reviewing the conditions for being an ONLUS. The ONLUS Agency has reviewed 1,500 entities and recommended the dissolution of several that were not in compliance with Italian law. Italian authorities believe that there is a low risk of terrorist financing in the Italian nonprofit sector.

Italian cooperation with the United States on money laundering has been exemplary. The United States and Italy have signed a customs mutual assistance agreement, as well as extradition and mutual legal assistance treaties. Both in response to requests under the mutual legal assistance treaty (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. Currently, 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 a new bilateral instrument on mutual legal assistance as part of the process of implementing the U.S./EU Agreement on Mutual Legal Assistance, signed in June 2003. Once ratified, the new U.S./Italy bilateral instrument on mutual legal assistance will provide for asset forfeiture and sharing.

Italy is a party to the 1988 UN Drug Convention, the UN International Convention for the Suppression of the Financing of Terrorism, the UN Convention against Transnational Organized Crime, and the Council of Europe Convention on Laundering, Search, Seizure, and Confiscation of the Proceeds from Crime. Italy has also signed, but has not yet ratified, the UN Convention against Corruption.

Italy is an active member of the Financial Action Task Force (FATF). Italy co-chaired FATF’s International Cooperation Working Group in 2007. Italy’s FIU, the UIC, is a member of the Egmont Group. The UIC has been authorized to conclude information-sharing agreements concerning suspicious financial transactions with other countries. To date, the FIU has signed memoranda of understanding with 12 analogs, primarily in Europe and is negotiating agreements with 8 other FIUs, primarily in Asia. Italy has a number of bilateral agreements with foreign governments in the areas of investigative cooperation on narcotics trafficking and organized crime. Reportedly, there is no known instance of refusal to cooperate with foreign governments.

The Government of Italy 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 improve its training efforts and supervision in this sector. Italian law enforcement agencies should take additional steps to understand and identify underground finance and value transfer methodologies employed by Italy’s burgeoning immigrant communities. The GOI should also continue its active participation in multilateral efforts dedicated to the global fight against money laundering and terrorist financing.