Italy
Financial Sector Assessment Program: Detailed Assessment Report on Anti: Money Laundering and Combating the Financing of Terrorism

This Detailed Assessment Report focuses on Anti–Money Laundering and Combating the Financing of Terrorism (AML/CFT) for Italy. The assessment reveals that overall, the current AML/CFT framework in Italy is extensive and mature, and achieves a high degree of compliance with most of the Financial Action Task Force (FATF) 40 recommendations. The law enforcement efforts against money laundering have been quite successful. The AML/CFT preventive system is quite sophisticated, but needs to be updated to incorporate the new features of the revised FATF standard with respect to financial institutions and nonfinancial businesses and professions.

Abstract

This Detailed Assessment Report focuses on Anti–Money Laundering and Combating the Financing of Terrorism (AML/CFT) for Italy. The assessment reveals that overall, the current AML/CFT framework in Italy is extensive and mature, and achieves a high degree of compliance with most of the Financial Action Task Force (FATF) 40 recommendations. The law enforcement efforts against money laundering have been quite successful. The AML/CFT preventive system is quite sophisticated, but needs to be updated to incorporate the new features of the revised FATF standard with respect to financial institutions and nonfinancial businesses and professions.

I. General

General information on Italy

Italy covers an area of 301,401 square kilometers with a population of more than 58 million inhabitants. The country is divided into 20 administrative regions, four of which enjoy full autonomy in all that is connected with local legislation. In the interior of its territory, Italy has common boundaries with two independent states, Holy See (Vatican City) and San Marino. The natural population growth in 2004 was about 9 percent, including immigrants. Italy is a member of the European Union.

Italy is a republic and has a written constitution that was adopted December 11, 1947 and became effective January 1, 1948. As head of the executive branch of government, the President of the Republic appoints a Prime Minister, who in turns appoints the Council of Ministers (cabinet), subject to the President’s approval. The legislative branch consists of a democratically elected bicameral parliament divided in Senato (315 seats) and Camera dei Deputati (630 seats).

Italy’s judiciary is comprised of judges and public prosecutors, all considered magistrates. The constitution guarantees the independence of magistrates from the executive branch of government by assigning to the Consiglio Superiore della Magistratura (CSM) -which is an independent, self-governing judicial body - the exclusive competence to appoint, assign, move, promote and discipline judges and public prosecutors. The judiciary is subdivided geographically on an administrative basis. Prosecutors are responsible for directing the police to conduct investigations.

The Corte Costituzionale is entrusted with the review of the constitutionality of laws and is composed of 15 judges (one-third appointed by the president, one-third elected by parliament, one-third elected by the ordinary and administrative Supreme Courts).

Italy’s diversified industrial economy is the sixth largest in the world, with a per capita GDP just behind that of France and the United Kingdom. There are still economic disparities between the highly-developed industrial north and the less-developed agricultural south. Similar to most other advanced OECD economies, Italy has a small and diminishing primary sector, with services contributing close to two-thirds of gross value added.

General Situation of Money Laundering and Financing of Terrorism

Organized crime and money laundering

Italy has historically had a high rate of criminality, organized violence and penetration of political and economic life by groups like the Camorra in Naples and the Mafia in Sicily. By the 1970s the active role of the Sicilian Mafia in refining and providing heroin to the North American market was producing immense concentrations of wealth associated with the principal Mafia families, invested in Palermo real estate development and other visible displays. These organized crime groups historically exercised strong community and political influence.

By the 1970s, authorities and observers of the organized crime phenomenon in the law enforcement, judicial, political and academic communities had recognized the importance of the introduction of these organized crime proceeds into the domestic economy. The accumulations of wealth were perceived both as a threat to distort markets and diminish competition, and as an opportunity for the forces of order to strike at a vulnerable aspect of the criminal gangs. This vulnerability resulted from the fact that by introducing criminal proceeds into the lawful economy, they became visible and could be reached by preventive and repressive legal action. Legal tools were developed to allow preventive seizures and forfeitures of property which could circumstantially be proved to be associated with or intended for use in criminal activities and whose possession was not compatible with the person’s lawful resources. Punitive forfeitures allowed the proceeds and instrumentalities of crime or substitute assets to be forfeited as a supplemental or alternative punishment after conviction.

After reaching perhaps the greatest extension of its power based on drug dealing in the late 1980s and 1990s, the Sicilian Mafia has been less visible in recent years. But diversion of funds from public contracts is still a law enforcement concern, while extortion and loan-sharking are continuing sources of illegal income. On the mainland, drug trafficking and distribution, loan-sharking, extortion, and trafficking in smuggled cigarettes are lucrative enterprises of the criminal groups. Foreign criminal groups are also present in Italy, in particular from the Balkan region and Eastern and Southern Europe.

Because of the more developed economic activity in the North and Central portions of Italy, laundered funds from criminal activity elsewhere are often invested in properties and enterprises in those areas which also experience drug trafficking and loan-sharking. Tax evasion seems to be relatively common in Italy. Although it is not directly related with money laundering, this situation is an aggravating risk for money laundering.

In its annual report for 2003, the Guardia di Finanza (GdF) reported €11.1 million in money laundering ascertained as a result of STRs, in contrast to €16.9 million in 2002. Illegal assets seized for all types of criminal activity, including money laundering, were over €44 million in preventive seizures, plus 229 vehicles and 82 commercial enterprises. Confiscations for all offences were €97.4 million, plus 49 vehicles and 30 commercial enterprises. The GdF reported 228 investigations for money laundering in 2003, 495 persons reported to the judicial authorities, 128 persons subjected to precautionary measures and €108 million found to have been laundered, in comparison with €491 million in 2002.

The cash payment ratio in Italy is one of the highest compared to other European countries despite the wide availability of noncash payment means and the sophisticated banking system. Tax evasion that exists in sectors such as real estate provides a favorable environment to money laundering. The notary profession drew in particular the attention of the mission on the large side cash payment practices in real estate transactions. This situation carries a high risk that real estate transactions are used for the purpose of laundering criminal cash proceeds. In addition, according to some interlocutors, it attracts foreign individuals willing to launder criminal proceeds or to evade tax and to use this channel for integrating cash money in the licit economy. According to the notary profession, the real estate sector of the Adriatic coast seems to be particularly attractive to criminal organizations.

Terrorism financing

Terrorism has a history in Italy, particularly in the 70’s and 80’s, with the development of leftist terrorist groups which now seem to be dismantled. Terrorist financing is considered by the intelligence and law enforcement services to be a risk in the large communities of legal and illegal immigrants from Islamic countries, particularly North Africa. Italy estimates that there are over 1,200,000 such legal immigrants and a large number of illegal visitors, estimated at 700,000 by public authorities. Charitable contributions are often collected at places of worship and prosecutions have documented intended terrorist financing in connection with such locations. The relatively low level funds related to charitable contributions that move through the banking system leads the authorities to think that informal transfer systems may be in place.

Since the latest war in Iraq, Italy has been under specific terrorist threats. Italian civilians have been the targets of kidnappings and murder and the Madrid train bombing is taken by the intelligence and law enforcement agencies as a demonstration of the constant danger that a terrorist attack may be financed, organized and carried out in Italy. As a tourist destination, Italy presents a myriad of human and cultural targets which are extremely difficult to defend, creating great temptation for potential terrorists in Italy to finance and organize an attempt on targets within their easy reach.

Overview of the Financial Sector and DNFBPs

The financial sector

Italy’s financial sector is characterized by a wide-range of service providers. The banking sector remains a core source of funding for the domestic economy. Since 1990, the banking sector has undergone a rapid process of privatization and consolidation. The number of banks fell by 28 percent from 1,100 in 1990 to 788 in 2002. In 2003, there were 244 commercial banks (representing 80 percent of total bank assets), 445 mutual banks (5 percent of total bank assets); 38 cooperative banks (11 percent of total bank assets) and 61 branches of foreign banks (4 percent of total bank assets). There were some 30,500 branches nationwide. The top five banking groups together accounted for 51 percent of total sector assets and the top three for close to 40 percent. Banks provide a range of deposit-taking and credit services as well as a broad range of other financial services (i.e., financing, investment, foreign exchange and insurance) either directly, on behalf of third parties, or indirectly through subsidiaries.

In 2003, the financial sector also included 132 registered securities firms engaged principally in intermediation (i.e., trading for customer account, reception of orders) and placement services. Many of them are controlled by insurance groups or individual investors. It also included 153 asset management companies divided almost evenly between those specializing in open-ended funds and those in closed-end and hedge funds.

In 2003, the insurance sector consisted of 198 undertakings, of which 79 were life insurance companies and 88 were nonlife insurance companies.

In 2003, there were 1494 financial companies registered pursuant to Article 106 of the Banking Law (BL) engaged in financing activities (i.e., leasing, factoring and consumer credit, most of which largely controlled by banks), equity investment, money transmission services including credit cards, foreign exchange intermediation and securitization. Of these, there were 359 prudentially supervised financial companies registered additionally pursuant to Article 107, based on having attained a certain volume of business and ratio of debt/equity.

A postal savings institution—Bancoposta—provides a wide range of competitive financial services in 13,267 branches nationwide. It provides current accounts (the fourth largest provider in Italy), money orders, payment cards, wire transfers, as well as a range of investment products including its own mutual funds, insurance products (through Poste Vita), bonds and savings passbooks. In December 2004, Bancoposta accounted for 24.3 percent of household deposits.

Structure of Financial Sector, 2003

article image
article image

Includes three State-owned institutions accounting for 10 percent of total bank assets.

Consob is the exclusive supervisory authority for investment services in matters regarding transparency and market conduct. UIC is the supervisory authority for AML/CFT measures.

UIC has overall responsibility for AML/CFT supervision. As part of its responsibility for prudential supervision, BI also examines for AML/CFT compliance.

BI is responsible for prudential supervision, whereas Consob is responsible for matters regarding transparency and market conduct.

Sub-agents.

The number includes 22,395 agents with brief issued by the insurance company and 3,018 natural persons. Registered brokers account for less than 2 percent of life insurance premiums.

The nonfinancial businesses and professions (DNFBPs)

Pursuant to Legislative Decrees 374/99 and 56/2004, the following nonfinancial businesses and professions fall within the scope of the AML Law:

  • custody and transport of cash, securities or other assets with and without the use of security guards

  • real estate brokering

  • dealing in antiques

  • operation of auction houses or art galleries

  • dealing in gold, including export and import, for industrial or investment purposes;

  • manufacturing, brokering and dealing in valuables, including export and import

  • operation of casinos

  • manufacturing of valuables by craft undertakings

  • accountants

  • labor advisers

  • notaries and lawyers when involved in certain transactions..

However, because the required implementing regulations had not all been issued at the time of the mission, these Legislative Decrees have not been fully implemented and DNFBPs do not yet have to comply with the AML/CFT requirements of the AML Law.

Although the authorities have some information on the numbers of lawyers, notaries, accountants and dealers in precious metals and stones, data concerning the numbers of the other businesses and professions is lacking. Moreover, the requisite AML/CFT supervisory structure for DNFBPs has not been decided.

The professional activities of lawyers, accountants and notaries are regulated by law. The law organizes these professions in national orders, which are then organized regionally. The Ministry of Justice has a supervisory role regarding the observance of laws of the professions; in particular, it oversees the observance of laws by professional associations. The regional orders for the professions supervise all the activities of their members.

Notaries

There are in total 4,766 notaries. They are public officials that authenticate transactions and documents which can then serve as proof before the courts. Notaries, in light of their public function of authenticating transactions, are inspected every two years by a local authority under the responsibility of the primary courts.

In addition, the regional orders also have a supervisory task. The regional orders will only act on the basis of a complaint (in general from a colleague notary). After interviewing the notary, they can report the case to the public prosecutor if necessary. The civil court will then issue a sanction.

Lawyers

There are 162,000 lawyers of which 95,000 are practicing. A majority of lawyers not only represent their clients in criminal proceedings but will also be involved in financial and real estate transactions.

The national order for lawyers, the Consiglio Nazionale Forense, has issued a code of conduct with customary (binding) rules. The regional orders can make autonomous decisions on sanctions for professional violations. Sanctions, which include a suspension or cancellation of membership, are issued by the regional orders. A lawyer can appeal such a decision to the national order that functions as a judge in those cases and the judgment of the national order can be appealed to the Supreme Court.

Accountants and labor advisers

Accountants, including chartered accountants, number in total close to 100,000. External auditing firms are separately registered by Consob, the securities regulator; there are 20 registered auditing firms. Labor advisers assist companies regarding social security, salary issues, and relationships between employers and employees.

Accountants and chartered accountants are currently divided in two orders but those orders will be united into one order in 2005. The regional orders supervise their members for all their activities and are in charge of disciplinary actions against their members. The orders will in general only inspect an accountant on the basis of a complaint. The orders can issue three types of sanctions: a written notice, suspension and cancellation of membership.

Casinos

Italian law generally forbids gambling and the establishment of gambling-houses. Nevertheless, the opening of four casinos in SanRemo, Campione d’Italia, Venezia and Saint Vincent has been allowed, owing to a particular historical situation when the four localities were the Italian places most linked to international tourism (Royal Decree 2448/1927 (SanRemo); Royal Decree 201/1933 (Campione); Royal Decree 1404/1936 (Venezia); Laws 1065/1971 and 690/1981 (Saint Vincent). Over the last decades, the Corte Costituzionale asserted several times the need for legislation to harmonize the sector.

The competent public office for authorization of casinos is the branch of the Ministry of Home Affairs denominated Direzione Generale dell’Amministrazione Civile—Divisione Enti Locali—Sezione 3. This department does not supervise the four casinos for AML/CFT compliance.

Number and supervision of selected nonfinancial businesses and professions in Italy

article image

Overview of commercial laws and mechanisms governing legal persons and arrangements

There are three types of private legal persons, associazioni riconosciute, fondazioni and società di capitali, and three forms of the latter:

  • società per azioni-Spa (joint stock company), regulated by articles 2325 to 2451 of the Civil code. Special provisions apply to companies listed on regulated markets or to those whose financial instruments are spread among the public (Legislative Decree no. 58/1998 as subsequently amended)

  • società a responsabilità limitata-Srl (limited company), regulated by articles 2472 to 2483 of the Civil code;

  • società in accomandita per azioni, (limited partnership company) regulated by articles 2452 to 2471 of the Civil code.

Incorporated associations and foundations are part of the nonprofit sector, which counts around 250,000 entities, most of them (150,000) being nonincorporated associations which therefore do not have a legal personality. They are under the supervision of an agency which was created for this purpose in 2000, the Agenzia dell’ONLUS.

The acquisition of legal personality for companies is based on the registration of the entity in the Public Register of Undertakings (registro delle imprese), which takes place when the constitutive process of the company is completed. 1.8 million companies are registered with the Chamber of Commerce in addition to 3.5 million personal enterprises.

The legal form of companies (Spa, Srl and limited partnership companies) depends on the governance structure chosen for the company. Only Spas may be listed, whereas small undertakings are usually registered as Srls.

The total share capital of an Srl is divided into quotas. No certificates are issued to represent these quotas and the quotas are freely transferable if not otherwise agreed in the Articles of Association.

Spas and società in accomandita per azioni can issue nominative shares or bearer shares according to the Civil Code. However, Decree no.700 of 29 September 1973 prohibits Italian companies from issuing bearer shares except for saving shares which do not confer any voting rights. According to the authorities, bearer shares are dematerialized. Moreover, shareholders who hold more than 2% in a listed company must disclose their ownership to the Consob and to the market. Shareholders agreements must also be disclosed.

The Italian legislation does not provide for the creation of legal arrangements such as trusts or fiduciaries. However, Italy is a party to the Hague Convention of 1 July 1985 on the law applicable to trusts and their recognition. It therefore recognizes that a trust which is subject to a foreign governing law has legal effect within the Italian legal system. In practice, foreign trusts may be handled in Italy. Trusts may even be created in Italy under a foreign law and the trust deeds and their signatures may be authenticated by Italian notaries. But there is no CDD provision in respect of foreign trusts that are handled in Italy.

Overview of strategy to prevent money laundering and terrorist financing

a. AML/CFT strategies and priorities

As explained in the description of the General Situation, Italy recognized decades ago that illicit proceeds were a harmful influence in the legitimate economy. It adopted a legal strategy of both preventive and punitive seizures and confiscations aimed at weakening the economic, political and social power of organized crime and of diminishing the economic incentive to form criminal enterprises by placing accumulated profits and assets at risk of governmental confiscation. Roughly contemporaneously, and in part based upon Italy’s experience with a capital flight problem in the 1980s, a corresponding and supporting financial strategy was adopted. This strategy was to deter ML by channeling cash transactions through regulated entities subject to defined responsibilities. Those responsibilities were designed to make anomalous transactions visible by means largely conforming to FATF safeguards such as transparency, customer due diligence (CDD), recoverability of transaction information and suspicious transaction reporting.

The AML political strategies are defined by the Ministry of Economy and Finance (MEF) while operational strategies and actions are carried out by the UIC with the support of the BoI and the cooperation of other regulators. The most prominent output of the AML strategy are the STRs submitted by reporting entities, which then form the basis of administrative action by police authorities empowered to investigate organized crime and fiscal offences. When the elements of a criminal offence are established, judicial action follows under laws specifically designed and refined to deal with money laundering and, since 2001, with the financing of terrorism.

Italy’s overall strategic approach combines both legal and financial defensive and offensive measures against ML and FT. The legal strategy is based upon legislation criminalizing ML offences and permitting both preventive and punitive seizures and confiscation to be investigated primarily by the existing financial police, the GdF, and by a special anti-Mafia investigative force, the DIA. Judicial AML action was placed in the hands of the normal institutions, as modified by the specialization of anti-organized crime units (the Direzione Distrettuale Antimafia, DDA) in territorial prosecutors’ office, and a national coordinating office for organized crime prosecution, the Direzione Nazionale Antimafia (DNA). More recent responses to FT have utilized the existing GdF and traditional prosecutorial structures with specialization in the police by legislative provision and in the prosecution offices by creation of informal specialized groups. In addition, the legislator conferred to law enforcement and prosecutors extensive investigative powers, including undercover operations, controlled deliveries, advanced investigative techniques, use of repentants, and witness protection programs. This extraordinary effort proved to bear successful results but safeguards are in place to avoid abuse of power.

In a manner consistent with this strategy, authorities reported to have developed a work program which aims to put in due time the main focus on the following activities:

  • Issuing the regulations to give effect to the Second AML Directive 2001/97/EC, notably in relation to the implementation of the extension of the AML obligations to nonfinancial businesses and professions. Draft regulations being developed will include a risk based approach as well as a requirement to consolidate and share all customer-related information in the intermediary’s possession within the same group, including foreign branches.

  • Implementing the Third EC AML/CFT Directive.

  • Drafting and issuing the Consolidated Anti-Money Laundering Legislation (Testo Unico Anti-riciclaggio) which should include all the AML legislative provisions in force, as well as improvements in the institutional framework with regard to the extension of AML measures to DNFBPs.

  • Issuing a specific law to amend the legal framework on the freezing of terrorist assets;

  • Strengthening financial intelligence and law enforcement instruments to combat ML/FT;

  • Updating by the Bank of Italy (BoI), in cooperation with the UIC, of the “Operating Instructions for Identifying suspicious transactions” (the “Decalogo”);

In terms of operational priorities, the authorities are focusing on the following:

  • Developing financial behavioral patterns (operational schemes) to be disseminated throughout the reporting entities in order the facilitate the detection of anomalous transactions;

  • Updating the format used for suspicious transaction reports.

The institutional framework for combating money laundering and terrorist financing

The Ministry of Economy and Finance (MEF)

Within the AML/CFT sector, the Ministry of Economy and Finance (MEF) is in charge of the following activities:

1) Legislative drafting at national and international levels:

  • - Co-operation with standards setting international authorities;

  • - Contribution to the European Commission (EC) legislative procedure;

  • - Implementation of international standards and EC legislation through national laws and regulations.

2) Policy-making and development of general guidelines.

3) Representation of Italy in all relevant international fora (G-7, G-20, European Union, OECD, FATF, etc.)

4) Coordination of the Italian authorities involved in the prevention of money laundering and the financing of terrorism by means of two interagency committees: the AML Committee, chaired by the MEF, and the Financial Security Committee (FSC), chaired by the Director General of the Treasury.

5) Sanctions

The MEF is responsible for issuing administrative sanctions for violations of the AML/CFT preventive measures. In particular, it is responsible for charging infringers in collaboration with the GdF, the UIC and supervisory authorities, for inquiries, for issuing sanction decrees as well as for litigation.

The Ufficio Italiano dei Cambi (UIC)

The UIC is, from the organizational point of view, an instrumental entity of the BoI. Among other functions the UIC, which enjoys a wide operational independence, is responsible for the collection, analysis and dissemination of suspicious transaction reports and therefore serves as the Italian Financial Intelligence Unit. Within the UIC, the Servizio anti-riciclaggio (AML Department) comprises 109 personnel, 16 of which being in charge of analyzing suspicious transactions related to ML. The analysis of reports in relations to terrorism financing are dealt with the International Division of the Servizio Anti-Riciclaggio.

The Servizio Ispettorato (Inspectorate Department) carries out on-going supervision concerning AML/CFT compliance on prudentially supervised institutions (Intermediari abilitati) in cooperation with other supervisory authorities pursuant to Article 5, Subsection 10, AML Law.

The role and functions of the UIC are described in greater detail under the relevant section of the DAR.

The AML Committee

The AML Committee, chaired by the MEF and consisting of representatives of the BoI, UIC and GdF, has a role of interpretation of AML Laws and regulations. To date the AML Committee has issued approximately one hundred documents, including legal opinions and general guidelines, on the application of AML legislation by individuals and entities.

The Financial Security Committee (FSC)

The Financial Security Committee (FSC) is the lead authority in the fight against terrorist financing. This body was established under Law 431 of 2001. The Committee, chaired by the Director General of the Treasury, includes representatives of the following ministries, agencies and law-enforcement bodies: the MEF, the Ministry of Foreign Affairs, the Ministry of Home Affairs, the Ministry of Justice, the BoI, the UIC, Consob, the GdF, Carabinieri, the Direzione Nazionale Antimafia (DNA) and the Anti-Mafia Investigative Directorate (DIA).

The FSC has the following remit:

  • to prevent the Italian financial system from being used by international terrorists to finance their criminal operations; and

  • to ensure international coordination of measures taken by other countries, in particular the G7 and the EU.

One of the FSC’s most sensitive activities concerns the freezing of terrorists’ assets. The FSC fosters dialogue and cooperation between different government departments, agencies and law-enforcement bodies with a view to maximizing information sharing. The FSC has also created channels of communication with courts of law and the intelligence service. The FSC maintains close contacts with its foreign counterparts.

ISVAP

The Istituto per la Vigilanza sulle Assicurazioni Private e di Interesse collettivo (ISVAP) is the body authorized under Law 576 of 12 August 1982 to supervise insurance and reinsurance undertakings as well as all the other bodies subject to the regulations on private insurance, insurance agents and brokers included. It is responsible for ensuring the stability of the insurance market and undertakings as well as the solvency and efficiency of market participants in the interests of policyholders and consumers.

ISVAP’s primary function is to carry out supervision on insurance undertakings and intermediaries by monitoring their technical, financial and accounting management and by verifying that they actually comply with the laws, regulations and administrative rules in force. Article 5.10 of the AML Law entrusts the UIC, in cooperation with ISVAP, with the task of monitoring financial intermediaries in order to assess the degree of compliance with anti-money laundering provisions. As part of its responsibility for prudential supervision of financial intermediaries and on the basis of a MOU with the UIC, ISVAP also supervises for compliance with AML/CFT requirements.

Banca d’Italia (BoI)

The BoI is responsible for prudential regulation and supervision of credit institutions and nonbank financial intermediaries and is the competition authority in the banking sector. In this regard, it pursues the following objectives: the sound and prudent management of financial intermediaries; the overall stability and good functioning of the financial system; and the promotion of competition in the financial sector. It is responsible for strengthening the systemic soundness of the financial industry by promoting competition and enhancing efficiency of financial intermediaries.

The BoI discharges its supervisory responsibilities through:

  • The drafting and enacting of prudential rules for sound and prudent management of financial intermediaries;

  • The authorization of the establishment of financial intermediaries;

  • The monitoring of the sound and prudent management of financial intermediaries through off-site analysis and on-site inspections; and

  • The management of crises.

Article 5.10 of the AML Law entrusts the UIC, in co-operation with the BoI, with the task of monitoring financial intermediaries in order to assess the degree of compliance with AML provisions. As part of its responsibility for prudential supervision of financial intermediaries and on the basis of a MOU with the UIC, the BoI also supervises compliance with AML/CFT requirements.

In its oversight role for the payment system, the BoI monitors the payment system and its development with a view to ensuring its reliability and to preventing its use for illicit purposes. In this regard it cooperates with other authorities in the design of the AML/CFT legal framework as it relates to payment systems issues, both domestically and internationally.

Consob

The Commissione Nazionale per le Società e la Borsa (Consob) is responsible for ensuring (i) transparency and correct behavior of securities market participants; (ii) disclosure of complete and accurate information to the investing public by listed companies including major holdings; (iii) accuracy of the facts represented in the prospectuses to offerings of transferable securities to the investing public; and (iv) compliance with regulations by auditors entered in the special register. Moreover, it conducts investigations regarding potential infringements of insider dealing and market manipulation laws.

The aim of Consob’s supervision of financial markets and issuers of financial securities is to ensure investor protection, the efficiency and transparency of the market in corporate control and the capital market and the orderly functioning of regulated markets.

Market operators must establish rules for the participation in the regulated markets managed by them. In particular, pursuant to Article 62 of the Consolidated Law, the market rules must establish:

  • a. the conditions and procedures for the admission, exclusion and suspension of market participants and financial instruments to and from trading;

  • b. the conditions and procedures for the conduct of trading and any obligations of market participants and issuers;

  • c. the procedures for ascertaining, publishing and distributing prices; and

  • d. the types of contracts admissible and the methods for determining the minimum amount which may be traded.

The rules issued by the market operator must be approved by Consob before becoming effective, as must any amendment thereto.

Market operators supervise the conduct of traders and can apply sanctions (under contractual arrangements and not as administrative penalties) for misbehavior. Pursuant to Article 64(1)(d) of the Consolidated Law, market operators must report to Consob any misbehavior detected within the sphere of their competence. Consob adopts appropriate enforcement measures.

In case of wholesale markets in government securities, pursuant to Article 4 of Legislative Decree no. 219/1999, the market operator must notify the MEF, the BoI and Consob of the violations to the market rules and the measures adopted. The BoI and Consob must inform the MEF about irregularities and violations which come to their knowledge in the performance of their respective functions (see Articles 4 to 7 of Decree no. 219/1999).

Law enforcement agencies including police and other relevant investigative bodies.

The Ministry of Home Affairs (MHA)

The Ministry of Home Affairs (MHA) is responsible for the public order and general security policies. It coordinates the five national police forces to this effect. Preventive activities against money laundering and terrorist financing by the Polizia di Stato are conducted under the authority of the MHA through two of its branches: the Central Anticrime Directorate and the Central Directorate for Prevention Police, which is the central service responsible for the fight against terrorism and which carries out its activities together with its local branches, the Digos.

Although located administratively in the MHA, the Direzione Investigativa Antimafia (DIA) is an interdepartmental law enforcement agency set up in 1991 within the Department of Public Security to carry out preventive and judicial investigations targeting organized crime activity. The DIA is responsible for following up on STRs when there is a suspicion or evidence of connections with organized crime associations. In addition, the MHA is also in charge of the four casinos permitted to operate in Italy.

Il Consiglio Generale per la Lotta alla criminalità organizzata (The General Council for the Fight against Organized Crime)

Il Consiglio Generale per la Lotta alla criminalità organizzata was set up by Law Decree no. 345 (Article 1) on October 29, 1991. This body, established within the MHA, is chaired by the Minister. Its members are the Chief of the Police, the Commander General of the Guardia di Finanza and of the Carabinieri, the Director of the DIA, as well as the Directors of the civil and military intelligence services—SISDE and SISMI.

With regard to organized crime, the Consiglio Generale has the responsibility of developing anticrime strategies and investigative activity, distributing duties among the various police forces based on areas, fields of activity and criminal phenomena types; identifying the resources and means necessary for the fight against organized crime as well as verifying results on a regular basis.

The Guardia Di Finanza (GdF)

Protection of government revenues is assigned to the GdF or Financial and Economic Police, subordinated to the MEF. With specific reference to the fight against money laundering and financing of terrorism, the Nucleo Special di Polizia Valutaria is the focal point although judicial investigations may be assigned to any of the GdF judicial police units by a magistrate.

The main activities of the NSPV Unit are the prevention and repression of the introduction of “dirty money” into economic legal circuits. This unit is able to examine all aspects emerging during investigations through a two-way intervention, based on both administrative controls and investigative police inquiries.

The most important administrative activities are inspections aimed at verifying compliance with anti-money laundering requirements and the in-depth analysis and investigations of STRs received from the UIC. This analysis and resulting inspections may be delegated to Regional and Provincial Tax Police Units;

Operational AML and CFT activities may include carrying out Judicial Police investigations by the “Anti-money laundering Investigation Team” in Rome and the related sections in Milan and Palermo, which serve as the usual reference point for prosecutors when they decide to open a judicial investigation.

The Carabinieri Corps is one of Italy’s major law enforcement bodies which also deals with counter terrorism activities and investigations on organized crime and therefore with detection, prevention, and repressive actions in relation to money laundering and terrorism financing

The Carabinieri Corps, which counts 112.000 personnel, is a military organized Police Force with an overall competence on law enforcement activities all over the country. The Corps is at the same time a law enforcement body and an Armed Force.

Within the Carabinieri, the Special Investigative Department (ROS) is specialized on complex high level investigations on organized crime and terrorism. ROS was instituted in 1990 and has specific competence on:

  • counter terrorism against internal and international extremist organizations;

  • qualified investigations on organized crime, drug - arms trafficking, kidnappings;

  • search and capture of mafia and terrorism wanted persons;

  • analysis of organized crime and terrorism phenomenon.

L’Agenzia dell’Entrate (Italian Revenue Agency)

The Italian Revenue Agency is a public body acting under the supervision of the MEF. Constituted in 1999 by Legislative Decree No. 300, it has been operating since January 1, 2001. It carries out all functions regarding the administration, assessment and collection of taxes. The Agency is organized into Central and Regional Departments, having mainly planning, direction, coordination and control functions and local offices with general operating functions.

In performing its assessment control, the Agency has also specific powers of vigilance and inspection of all nonprofit organizations, including noncommercial bodies and ONLUS. The Agency is responsible for the registration of ONLUS. Tax concessions are subject to the fulfillment of such tasks.

Customs Agency (also located within the MEF).

The Customs Agency is responsible for all the tasks and functions provided for by the European Union (EU) and Italian law in the sector of customs, movement of goods, internal taxation concerning international trade, excise duties on production and consumption and the related environment and energy taxation.

The Customs Agency monitors cash entering and leaving Italy on the basis of the declarations of travelers carrying an amount of money exceeding € 12,500, as well as for nondeclared movements of cash.

Prosecutorial authorities

The Italian judiciary is constitutionally an independent and self-governing body with selection, promotion, transfer and disciplinary decisions made by it Consiglio Superiore della Magistratura (CSM). Both prosecutors and judges are part of this branch. Jurisdiction over an offence is based upon territoriality. There is an administrative hierarchy within offices but each prosecutor enjoys complete professional independence in assigned matters.

Within the office responsibility for areas with major criminality, specialized units called Direzione Distrettuale Anti-Mafia (DDA) have been created to deal with organized crime cases. These offices are supported but not supervised by the Direzione Nationale Anti-Mafia (DNA), a national body with statutory powers to receive information from both investigators and prosecutors and to exercise a coordinating role. However, in case of inaction, the DNA can assign the case to another DDA.

Intelligence services

The Italian intelligence Community is composed of the General Secretariat of CESIS (Executive Committee for Intelligence and Security Service), SISMI (Military Intelligence and Security Service) and SISDE (Democratic Intelligence and Security Service). The General Secretariat of CESIS - which is not a third Service - plays a coordination role with the main tasks of channelling to the Prime Minister information provided by SISMI and SISDE and coordinating and directing personnel. Moreover, it acts as an interface between the intelligence sector and the other Public Administrations. The political Authority exercises, through the Office of the Secretary General of CESIS, the power to direct uniformly the activities of the two Services. In this framework, the General Secretariat of CESIS is the body whereby the Prime Minister carries out his peculiar functions in the security and intelligence sector. SISMI and SISDE do not directly participate in the AML/CFT coordination mechanisms of the FSC and the AML Committee. They maintain dedicated AML or CFT units and pass any relevant collected information through police liaison or directly to concerned Ministries.

c. Approach concerning risk

The Italian system provides strict and detailed provisions on the anti-money laundering and terrorist financing requirements; in general, there is no possibility to graduate these obligations on the basis of risk. That said, the legislature is also preparing to issue some provisions regarding the risk based approach in applying the requirements of Legislative Decree no.56/04 to DNBFP.

Special provisions apply to transfers of cash and bearer instruments and only “authorized” intermediaries can deal in amounts at or above Euro 12 500. Moreover, certain exceptions to full CDD are provided under the AML Law. However, the framework does not call for enhanced measures in higher risk situations, such as for private banking, or for the circumstances covered by Recommendation 6 and 7. Nor is there any tailoring of internal control requirements according to risk.

Supervisory authorities in general focus their inspection activities on a risk basis, though owing to differences in priorities (e.g. BoI/GdF) the results differ.

d. Progress since the last IMF/WB assessment or mutual evaluation

Since the last FATF mutual evaluation, which took place in October 1997, a lot of changes have occurred not only in the development of the AML system but also in the evolution of national and international policies (including the revision of the FATF Recommendations and the inclusion of financing of terrorism standards), which in turn have resulted in changes in the legal and institutional framework. This section reports only on the changes made with respect to the suggestions for improvements of the 1997 FATF report.

  • The money laundering offence

Self laundering is still not covered in the definition of money laundering because it is not seen as consistent with the general principles of penal law. A draft law was presented to parliament to this effect but failed to be adopted. No step was taken also with regard to the alleviation of the burden of proof as to the mens rea of the offence, as knowledge of the illicit origin of the assets cannot be presumed. Legal persons are not criminally liable for the offence although a draft law is being considered in order to extend the administrative liability of legal entities in the case of the commission of a money laundering offence (see infra).

  • Confiscation and provisional measures

A draft law is being considered, as part of the ratification process of the Palermo Convention, in order to consolidate confiscation provisions under Article 240 of the Penal Code, as suggested by the report. This draft has been pending before parliament since June 2003.

  • The FIU and the reporting mechanisms

Since the 1997, when the UIC had just been established as the authority to receive suspicious transactions, a lot of progress has been made in setting up reporting mechanisms. The UIC has been formally established as the FIU by Law 388 of 23 December 2000. In January 2001, the BoI issued the Operating Instructions for Identifying Suspicious Transactions (the “Decalogo”), which sets out the reporting procedure. The UIC is now fully operational as an FIU and it processed more than 6.500 STRs in 2004 and issued several guidance notes. It is now a member of the Egmont Group and of the FIUNET network of the EU FIUs. However, the suggestion made by the report that the FIU should have access to law enforcement information has not been implemented and the UIC cannot access law enforcement information except on the basis of a request by a foreign FIU. The UIC considers that such access is not necessary since almost all STRs transmitted by reporting institutions are forwarded after analysis to the law enforcement agencies and the checks against the databases are carried out at that stage by the law enforcement agencies themselves.

  • Feedback

A mechanism was instituted in Decree Law 143/91 to require law enforcement agencies to report to the FIU on cases where STRs are not followed up by the investigative authorities (Article 3.5. of the AML Law). The UIC is then required to forward the feedback to reporting entities. The UIC also uses the information to provide more accurate guidance to them. However, financial institutions continue to complain about the limited feedback they receive following their filing of an STR.

  • Inter-agency coordination and policy commission

The Guidance Committee instituted by Law 143 of May 3, 1991 has never met. Instead, an AML Committee, composed of the MEF, the BoI, the UIC and the GdF, has been setup as a policy body and meets regularly. In addition, since October 2001, a Financial Security Committee (FSC) was established to deal with financing of terrorism issues. Authorities are now considering how to improve AML coordination, in particular in view of the effective extension of AML/CFT measures to DNFBPs, building on the successful experience of the FSC. The UIC has asserted its role as the main body to monitor compliance of financial institutions and financial intermediaries with AML requirements, and coordination with the BoI is not an issue, considering that the UIC is an instrumental entity of the BoI.

  • Financial and nonfinancial businesses and professions

The 1997 report called for better supervision of financial intermediaries which were just subject to registration with the UIC and of nonfinancial businesses like casinos which were not required to identify their customers.

Financial intermediaries registered with the UIC pursuant to Article 106 of the BL are inspected by the GdF for compliance with AML requirements. As indicated further in this report, the on-site inspection efforts and resources of the GdF still need to be increased.

Legislative Decree no. 374/99 extends the list of businesses subject to the AML Law to include those performing the following activities: credit recovery; custody and transportation of cash and valuable items; real estate agencies; antiques dealers; auction agencies or art galleries; gold trade; manufacturing, wholesale and retail trade of valuable items; casinos; credit mediation. As soon as the Decree is fully implemented, all the above-mentioned businesses will be required to implement AML requirements. In addition, Legislative Decree 56/2004 extends the same requirements to notaries, lawyers and accountants. However, as it is the case for the Legislative Decree 374/1999, the implementing legislation has not been yet enacted. Neither of these Decrees is therefore fully applicable.

The issue of who will supervise these businesses and professions remains to be decided. Some of them have some sort of supervisory mechanism (e.g. professional order, chamber, etc) and some do not, but the AML compliance monitoring role would be either exercised in part by the professional regulatory body, by the UIC or by the GdF.

  • Consolidation of guidance instruments and texts

The need for consolidated guidelines is obvious as new requirements are implemented. Given the complexity of some of the requirements and the lack of awareness with regard to these requirements in some of the businesses and professions concerned, authorities will have an important role to play in reaching out with them and in spelling out the obligations and the procedures to be followed

  • Bearer instruments

Legislative Decree 56/2004 (Article 6.2) has introduced a partial phase-out of bearer passbooks. As of 31 January 2005,1, bearer passbooks cannot hold balances in excess of €12,500. In addition, according to the authorities, all transactions on these bearer passbooks would entail the identification of the person effecting the transaction. All passbooks are based on the existence of a bank or postal account for which normal CDD measures are applied upon account opening and closing. Measures are being taken to ensure that accounts with outstanding balances above the €12,500 threshold are brought into line with the law.

  • Enforcement

The report emphasized the need for rapid and vigorous investigations and prosecutions, and for a number of convictions for money laundering consistent with the significance of the problem. The assessment team could witness the commitment of the law enforcement authorities to address the money laundering problem and, in particular, the efficiency with which financing of terrorism investigations were carried out. The successes in the investigation of the Italian component of the Madrid bombings demonstrates that prosecutors and law enforcement agencies are making an efficient use of the proactive legal tools that were conferred to them in the framework of anti-mafia and anti-terrorism legislation.

II. Detailed Assessment

Legal System and Related Institutional Measures

Table 1.

Detailed Assessment

article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image

Preventive Measures—Financial Institutions

article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image