Italy: Detailed Assessment Report on Anti-Money Laundering and Combating the Financing of Terrorism

This report provides a summary of the anti-money laundering and combating the financing of terrorism (AML/CFT) measures in place in Italy as at the date of the onsite visit. It analyzes the level of compliance with the Financial Action Task Force recommendations and the level of effectiveness of Italy's AML/CFT system, and provides recommendations on how the system could be strengthened. Italy has a mature and sophisticated AML/CFT regime, with a correspondingly well-developed legal and institutional framework. Law enforcement agencies access, use, and develop good quality financial intelligence. Financial sector supervisors have been using a risk-based approach to varying degrees, but their supervisory tools could be improved.

Abstract

This report provides a summary of the anti-money laundering and combating the financing of terrorism (AML/CFT) measures in place in Italy as at the date of the onsite visit. It analyzes the level of compliance with the Financial Action Task Force recommendations and the level of effectiveness of Italy's AML/CFT system, and provides recommendations on how the system could be strengthened. Italy has a mature and sophisticated AML/CFT regime, with a correspondingly well-developed legal and institutional framework. Law enforcement agencies access, use, and develop good quality financial intelligence. Financial sector supervisors have been using a risk-based approach to varying degrees, but their supervisory tools could be improved.

Detailed Assessment Report

A. Preface

This report summarizes the AML/CFT measures in place in Italy as at the date of the on-site visit. It analyzes the level of compliance with the FATF 40 Recommendations and the level of effectiveness of Italy’s AML/CFT system, and recommends how the system could be strengthened.

This evaluation was based on the 2012 FATF Recommendations, and was prepared using the 2013 Methodology. The evaluation was based on information provided by Italy, and information obtained by the evaluation team during its on-site visit to Italy from January 14 to 30, 2015.

The evaluation was conducted by an assessment team consisting of: Richard Lalonde, (team leader), Nadine Schwarz, (legal expert), Ian Carrington, (financial expert), Chady El-Khoury, (financial intelligence unit and legal expert), all IMF; Richard Chalmers, consultant (financial expert); Christopher Burdick, U.S. Department of the Treasury (financial expert); Henri Pons, Court of Appeal of Montpellier, France (legal expert); and Santiago Alvarez, National Police, Spain (law enforcement expert).

The report was reviewed by Mr. John Ringguth, Executive Secretary to MONEYVAL; Ms. Christina Pitzer, Senior Policy Officer, Gruppe Geldwäscheprävention, Federal Financial Supervisory Authority (BaFin), Germany, and Ms. Emily Rose Adeleke, Financial Sector Specialist, World Bank.

Italy previously underwent a FATF Mutual Evaluation in 2005, conducted according to the 2004 FATF Methodology. Italy’s 2005 Detailed Assessment concluded that the country was compliant (C) with 18 Recommendations; largely compliant with 13; partially compliant with 12; and non-compliant with 6. Italy was rated compliant or largely compliant with 11 of the 16 Core and Key Recommendations. Italy entered into the follow-up process in October 2007, which it exited in February 2009 on the basis that it had achieved a sufficient level of compliance with all Core and Key Recommendations, such that all were considered equivalent to at least an LC.

The 2005 evaluation and 2009 follow-up reports have been published and are available at http://www.fatf-gafi.org/countries/d-i/italy/.

ML/TF Risks and Context

40. Italy occupies a land area of about 294,140 square kilometers, making it the seventy-second largest country in the world. Neighboring countries are Austria, France, Slovenia, and Switzerland. The sovereign states of San Marino and Vatican City are enclaves within Italy, while Campione d’Italia is an Italian exclave in Switzerland. Italy’s population is currently about 60 million with approximately 7.5 percent of the population being immigrants. Italy was one of the founding members of the European Community in 1957, which became the EU in 1993. It is part of the Schengen Area, and has been a member of the Eurozone since 1999.

41. Italy is a republic. The President of the Republic appoints the Prime Minister and, on his proposal, the Ministers (cabinet), all subject to Parliament’s confidence. The legislative branch consists of a democratically-elected bicameral parliament divided between the Senato (315 seats) and Camera dei Deputati (630 seats).

42. Italy’s Constitution was adopted on December 22, 1947 and came into force on January 1, 1948. 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 and assigns specific powers to the Consiglio Superiore della Magistratura (CSM)-which is an independent, self-governing judicial body with the 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 Italian Constitution provides for mandatory criminal prosecution.

A. ML/TF Risks and Scoping of Higher-Risk Issues

Overview of ML/TF Risks

43. Although there is no official estimate, the authorities and the assessors agree that the amount of proceeds generated annually by predicate crimes committed in Italy is high. Available estimates vary widely, ranging from 1.7–12 percent of GDP,1 with most pointing to the upper end of the range. In 2014, this translates into illegal proceeds ranging from €27.5–194.4 billion.

44. The main proceeds-generating crimes can be divided into three tiers of magnitude:2

  1. Tax and excise evasion (around 75 percent of total proceeds of crime).3 Income tax evasion and VAT fraud are considered the biggest sources of tax evasion. By value, most tax evasion takes place in northern Italy; tax evasion in the southern regions, while more widespread, tends to involve smaller amounts.

  2. Drug trafficking and loan sharking (collectively around 15 percent of the total).

  3. Corruption and bribery, fraud, counterfeiting and piracy or products, environmental crime, robbery or theft, smuggling, extortion, and illegal gambling (collectively accounting for 10 percent of the total).

45. According to the authorities’ NRA, most of the crimes in tiers ii. and iii. are closely linked to the activities of organized crime. Italy has historically suffered from a high rate of organized criminal activity linked to Mafia-type organized crime structures, such as the Camorra, N’drangheta, Sacra Corona Unita, Cosa Nostra, and Stidda. Although predominant in the South, organized crime has spread throughout the country (and trans-nationally). There is also a growing presence of foreign organized crime groups in certain parts of the country, notably central Italy.4 Organized crime groups in Italy have become less visible than in the past, owing in part to their increasingly becoming entrepreneurial criminal organizations infiltrating the legitimate economy.5 They may also have shifted their investment strategies from large urban areas to smaller municipalities and peripheral areas where it is easier to hide and infiltrate or corrupt public administrations.6 This may not only reflect a need to move into more profitable lines of business but also be in response to the authorities’ increased efforts to clamp down on organized crime since the 1990s. In their NRA, the authorities characterize organized crime as the dominant and most worrisome tool in criminal conduct.

46. The risk of TF appears relatively low. While domestic extremist groups exist, they are very fragmented and do not, at present, seem to pose a significant terrorism or TF risk. The main TF risk is connected to independent individuals who are devoted to Jihad, encouraged by online, anti-Western, and anti-Semitic propaganda, and tend to operate through small cells that are primarily self-funded. Charities and other NPOs do not appear to be used to a significant extent to raise funds for terror in or from Italy.

47. The channel most vulnerable to ML activity appears to be the banks and BancoPosta due to their dominance of the financial sector, the range of products they offer, the transaction volumes they handle, and the interconnectedness of the banking sector with the international financial system. This vulnerability is to a fair degree offset by the implementation of AML/CFT measures by banks and competent authorities. Increasing use of electronic money instruments is an emerging concern due to vulnerabilities in some preventive measures. Lawyers, notaries, and accountants are in some cases involved in creating and managing structures that lack transparency and are used to launder money. According to the authorities’ NRA, certain types of trust companies may also be of high risk.

48. According to the NRA, the high use of cash7 and relatively large informal economy8 very significantly increases the risk that illicit proceeds may be rechanneled into the regulated formal economy.

49. The openness of its economy and the volume of international visitors expose Italy to international ML activity, but the extent of this is unclear. The main destinations for outwards flows are: Switzerland, Luxembourg, and Monaco (in particular with respect to proceeds of tax crimes),9 as well as France, Germany, San Marino, and Spain.

50. Italy recently passed a law criminalizing self-laundering which came into force on January 1, 2015. Although some authorities believe this will lead to an increased number of ML cases, it is too soon to tell how it will work out in practice. That said, the adoption of the law is a welcome development as the absence of criminalization of self-laundering had been highlighted by the authorities and others as compromising the authorities’ ability to punish perpetrators, and hindering international cooperation other than FIU-to-FIU cooperation. The re-criminalization of “false corporate accounting” is another welcome step, and is particularly significant in light of the extent of tax crimes in Italy.10

51. The criminal judicial system appears to be complex and procedures, lengthy.11 Combined along with the complexity of ML cases, as well as insufficient resources, these factors appear to undermine the efficacy of the judicial system. The fact that, in many cases, ML and predicate offenses are committed by repeat offenders would tend to indicate that the sanctions applied are not sufficiently dissuasive.

Country’s Risk Assessment and Scoping of Higher Risk Issues

52. Prior to the on-site visit, the assessment team reviewed material provided by the authorities, notably the national risk assessment, and the detailed assessment questionnaire, and other information from public sources. As a result, during the on-site visit the team gave increased attention to the following three areas which it deemed posed the highest ML/TF risks in Italy:

  • Tax evasion (i.e., income tax evasion and VAT fraud) is by far the single most important source of proceeds of crime. The assessment team sought a better understanding of the phenomenon (e.g., whether there are linkages to the informal economy and organized crime; transmission channels into the regulated economy; and measures taken to curb it, including AML/CFT preventive measures, recovery efforts, cooperation (including through exchange of information) among relevant domestic competent authorities (e.g., tax authorities, FIU, supervisors, and law enforcement), and international cooperation (notably with counterparts in Switzerland, Luxembourg, and Monaco).

  • Organized crime remains pervasive and is connected to all the main predicate crimes in Italy, some of which are almost exclusively conducted in an organized crime context (notably drug trafficking, extortion, loan sharking, and illicit trafficking in waste materials). The team explored the extent of the problem, its linkages with the informal economy, tax evasion and corruption, its main ML methods, and the measures taken by the authorities to combat it, including domestic and international cooperation.

  • Corruption, although estimates of its magnitude vary, is clearly a significant concern, both in terms of the proceeds it generates, and the potential impact it may have on the sound functioning of the AML/CFT framework. The team sought a better understanding of the magnitude of the problem, the linkages to organized crime, the areas of activity that are most affected, and the measures taken to combat corruption, including the enforcement of compliance with AML/CFT preventive measures, as well as the existing framework for cooperation and sharing of information among the FIU, anti-corruption and other domestic competent authorities and, internationally, with foreign counterparts.

53. Cross-cutting issues: In its examination of these risks, the assessment team paid particular attention to the implementation (as well as enforcement) of AML/CFT preventive measures in the banking sector on the grounds of materiality relative to other sectors. The team also focused on the functioning of the criminal justice system, the statute of limitations, and international cooperation. In this context, it also sought to gauge the potential impact of the newly-adopted law that criminalizes self-laundering. Finally, the team sought to ascertain the role of lawyers and notaries in the creation of corporate structures and legal arrangements that may lack transparency and facilitate ML

B. Materiality

54. All financial services that comprise FATF’s definition of “FIs” are provided in Italy, and all designated non-financial businesses and professions (DNFBPs) are present. Italy’s financial sector is well developed and mature. In absolute terms, it is very large (and far larger than the sectors covered by the DNFBPs), with assets totalling approximately 240 percent of GDP12 (this percentage indicates that FIs provide substantial services to non-residents), and, according to the IMF, is the eighth most interconnected financial system in the world.

55. The financial system is dominated by banks that hold over 85 percent of the total financial sector assets.13 While banking has become slightly more concentrated over the past decade, there are still many small cooperative and regional banks in operation resulting in Italy having a relatively higher branch density. Italian banks are crucial for the financing of small and medium-size enterprises (SMEs), which account for almost 70 percent of business value added. Non-resident loans are extended to customers mainly from Germany and Austria.14

56. According to the IMF’s 2013 Financial Sector Assessment Program assessment of Italy, compliance with international standards for banking and securities supervision is high and supervisory practices are strong and sophisticated.

C. Structural Elements

57. The key structural elements for effective AML/CFT controls appear to be present in Italy. Political and institutional stability, accountability, rule of law are all present, although compared to other large high-income countries, Italy ranks relatively low in terms of governance indicators.15 There is a professional and independent judicial system, but as noted above there are some vulnerabilities.

D. Background and other Contextual Factors

58. Italy has a mature and sophisticated AML/CFT regime, with a correspondingly well-developed legal and institutional framework. The level of financial inclusion is also relatively high.

59. Corruption in Italy is a significant problem, especially compared to other large high-income countries, and has drawn particular attention from the Council of Europe and the OECD during the past few years.16 The authorities recognize this and have made combating corruption a key priority. Historically, Italy’s strategic anti-corruption approach has relied to a considerable extent on the repression side. A new anti-corruption law was enacted in 2012. It aims at ensuring a more balanced approach towards anti-corruption policies, strengthening preventive measures and enhancing accountability within the public administration.17 Within the third tier of the main proceeds generating crimes (see paragraph 39.), estimates of its costs and the amount of proceeds that it generates vary widely, but all suggest it is important, making corruption one of the most pressing issues in Italy.18 In some instances, the relationship between politicians, organized crime and businesses, and the degree of integrity within the ranks of elected and appointed officials has appeared problematic. Public procurement, in particular with respect to infrastructure work, is one area vulnerable to corruption.19 To ensure transparency of public procurement, the National Anti-Corruption Authority (ANAC) was charged in 2014 with the supervision of public contracts; special powers have been attributed to the ANAC, including for the extraordinary and temporary management of contractors. (See Annex 2 for a fuller description of steps taken by Italy over the past several years to combat corruption.)

Overview of AML/CFT Strategy

60. ML is criminalized in a comprehensive way. Italy recently criminalized self-laundering as well (article 648 ter 1 of CC—law of December 15, 2014, entered into force on January 1, 2015). All the categories of crimes listed in the FATF Glossary are predicate offenses to ML, including a range of tax crimes. A voluntary tax compliance program is effect from January until September 2015. It does not, however, appear to be an obstacle to the implementation of the AML/CFT framework including the implementation of the ML offense.

61. Italy has a comprehensive framework for seizing and confiscating assets linked to crime which includes not only “ordinary” confiscation but also confiscation of per equivalent, confiscation for disproportion, and a range of preventive measures under the Anti-Mafia Code.

62. The main ministries, agencies, and authorities responsible for AML/CFT are:

  • Ministry of Finance and Economy (MEF)—is responsible for policies to prevent the use of the financial system and of the economy for the purpose of ML/TF. It houses and chairs the Financial Security Committee (FSC), which comprise key competent authorities and is tasked with coordinating action for the prevention of the use of the financial system and of the economy for ML/TF purposes, and the financing of proliferation of weapons of mass destruction (PF). The MEF also has the power to levy AML/CFT administrative sanctions.

  • Interior Ministry—is responsible for the public order and general security policies. It coordinates the five national police forces to this effect. Preventive activities against ML and TF by the Polizia di Stato are conducted under the authority of the ministry.

  • Ministry of Justice—deals with the organization of justice/courts and some administrative tasks such as the management of notarial archives and of the judicial records register monitoring of chartered professions. It also plays a role in international cooperation. The Legislative Office carries out studies and develops proposals for legislative action.

  • Bank of Italy (BoI)—is responsible for the supervision of banks, e-money institutions, payment institutions, Bancoposta, financial intermediaries, and Cassa Depositi e Prestiti SPA. The BoI also undertakes the supervision of investment firms, asset management companies and Società di Investimento a Capitale Variabile (SICAV) jointly with CONSOB. Under the SSM, the ECB is responsible for the supervision of significant banks, i.e. the 13 largest banking groups in Italy. The BoI is responsible for the prudential supervision of the remaining banks and the AML/CFT supervision of all banks.

  • National Commission for Companies and the Stock Exchange20 (CONSOB)—is the public authority responsible for regulating the Italian financial markets. Its activity is aimed at the protection of the investing public. The CONSOB is the competent authority for ensuring (i) transparency and correct behavior by financial market participants; (ii) disclosure of complete and accurate information to the investing public by listed companies; (iii) accuracy of the facts represented in prospectuses related to offerings of transferable securities to the investing public; and (iv) compliance with regulations by auditors entered in the Special Register. It also investigates potential infringements of insider dealing and market manipulation law.

  • Institute for Insurance Supervision21 (IVASS)—is the supervisor of 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.

  • Unità di Informazione Finanziaria (UIF)—is an administrative FIU established within BoI. It has been operational since January 1, 200822 as the national center for receipt, and analysis of suspicious transaction reports and other information relevant to ML and TF, and for the dissemination of the results of that analysis to LEAs.

  • Guardia di Finanza (GdF)—is a body with military status placed under the direct authority of the MEF. It is responsible for dealing with financial crime, corruption, tax evasion and avoidance, as well as smuggling. It also has AML/CFT supervisory responsibilities regarding bureaux de change, payment institutions’ agents and DNFBPs.

  • Carabinieri—is a military corps with police duties which also serves as the Italian military police. Its Specialized Operational Group (R.O.S.) was created to coordinate investigations into organized crime, and it is the main investigative arm of the Carabinieri which deals with organized crime and terrorism, both at national and international levels.

  • Anti-Mafia Investigation Department (DIA)23—is entrusted in particular with fighting specific Mafia-type organizations. It is a special inter-force investigative body staffed with personnel from the State Police, Carabinieri and GdF with experience in financial investigations and organized crime investigations. The DIA is vested with special investigative powers to fight organized crime.

  • Anti-Mafia National Department (DNA)—is the judicial coordinating body which enforces the anti-mafia legislation. It comprises the National Anti-Mafia Prosecutor (Procuratore Nazionale Antimafia) and 20 deputy prosecutors. The DNA works in close coordination with the DIA.

63. Other agencies that play a role in AML/CFT include the National Anti-Corruption Agency (ANAC), Ministry of Foreign Affairs and International Cooperation, Inland Revenue Agency (Agenzia delle Entrate), Customs Agency, Ministry of Economic Development (MISE), and the Ministry of Labor.

64. The FSC, under the auspices of the MEF, is the key vehicle for the coordination of national AML/CFT policies. The judicial authorities must transmit to the FSC any information deemed as useful for its mandate.

65. There are detailed rules for the exchange of information and collaboration among the concerned agencies under the AML Law. Relevant agencies are required to cooperate and coordinate, and Memoranda of Understanding (MOUs) must be signed between them.24 The AML Law also provides for the derogation of professional secrecy for the exchange of information between the supervisory authorities and the UIF.

66. Italian authorities have been applying an RBA to varying degrees based on their individual understanding of risk. Over the past decades, specific structures have been established to address the key ML threats (e.g., the DIA and DNA for combating organized crime, the GdF for financial crime). Unique and best practice measures have also been introduced (e.g., use of anti-mafia preventive measures against other crimes, including ML; confiscation measures originally conceived for ML and organized crimes have been applied to tax crimes; specific powers to ANAC—the anticorruption authority—such as extraordinary and temporary management of contractors; and a highly-restrictive regime on the use of cash). Italy has a strong institutional framework for combating ML and TF. Law enforcement agencies (LEAs) and prosecutors pursue the recovery of proceeds of crime as a clear policy objective.

67. Italy has not yet developed a nationally coordinated AML/CFT strategy which is fully informed by the ML/TF risks in the NRA, but the FSC is currently working on it. The NRA was finalized and published shortly before the on-site and, as such, its results are beginning to shape national AML/CFT strategy. Guidelines have been developed for notaries, work has begun on developing similar ones for accountants, and the BoI has launched a supervisory initiative targeted at EU branches of PIs and EMIs established in Italy that were identified as a major ML/TF vulnerability by the NRA. However, it is too soon to tell whether the current allocation of resources to AML/CFT is in line with the results of the NRA.

Overview of the Legal and Institutional Framework

68. Although the main authorities have identified and assessed Italy’s ML/TF risks separately, i.e. within their respective remits, it is only recently that they have done so in a coordinated manner by issuing Italy’s first NRA in July 2014, following a seven-month long exercise,25 led by the FSC. The NRA refers to the ML/TF risks associated with the activities of reporting entities under the supervision of the BoI and other supervisors, the indicators and typologies developed by the UIF, the trends and information provided by the judiciary and LEAs, and reports issued by academics and regional and international organizations. The NRA analyzes ML/TF threats and vulnerabilities, but not consequences, at the national level on the basis of an agreed upon methodology, that generally covers the range of issues addressed in the FATF guidance on conducting national ML/TF risk assessments. The assessment also identifies and assesses new and emerging risks reflected in the latest FATF standard including domestic politically exposed persons (PEPs) and tax evasion.

69. The NRA is of good quality, has involved close coordination among concerned agencies, the private sector and academia, and uses multiple sources of information. There are some data gaps (e.g., comprehensive statistics on ML/TF investigations, and international cooperation) and the methodology establishes how to deal with such gaps so as not to undermine the robustness of the assessment. The background information used to reach conclusions seems credible, factual, and up to date. The risk assessment focused on the laundering of the proceeds of crime committed in Italy and abroad, and predicate offenses as well as sectors affected by ML. It also includes an assessment of preventive measures in FIs and DNFBPs, cross-border controls, legal persons and trusts; investigative measures; and repressive measures. As a result, it identifies the FIs, and DNFBPs that present the highest risk (i.e. banks, electronic money institutions and payment institutions; and electronic gaming, gold buyers, real estate agents, and gambling, notaries, and lawyers). Although the TF component of the NRA appears to be less sophisticated than the ML component as a result of the differences in the available underlying information and data, it is of good quality and has yielded reasonable findings.

Overview of the Financial Sector and DNFBPs

70. The Italian financial system is diverse in nature, but is dominated by banks, which account for almost 85 percent of total financial sector assets, and which are focused on traditional banking business of raising deposits from customers and (with the exception of BancoPosta)26 lending to businesses and households. At end-2014, there were 684 banks (including BancoPosta) with total assets of about €3.5 trillion. The top five banking groups (comprising 40 banks) held 47 percent of total banking assets.

71. At end-2014 a total of 134 Italian-incorporated insurance undertakings were authorized, of which 64 provided life insurance products. Foreign institutions (mostly French and German) control 48 of the Italian insurers, accounting for 24 percent of total premiums, while 93 EU-incorporated insurers are operating through branch networks. Overall, the business activity is relatively concentrated, with five institutions accounting for approximately 65 percent of life premiums. Life insurance is mainly sold through banks and post offices (the bancassurance model).

72. At end-2014, 936 firms were authorized to provide investment and other financial services, of which there were 89 investment firms (with €8 billion under management); 147 asset management companies, whose core business is the management of open-ended investment funds (with €770.5 billion under management); and 700 non-bank financial intermediaries, mainly involved in leasing, factoring and consumer credit. The banks own almost all the asset management companies, with the five largest accounting for about 65 percent of funds under management in Italy.

73. Of the 41 domestic payment institutions authorized at end-2014, 16 were providing remittance services, for the most part as their primary business. These payment institutions operate through a network of 21 branches and 1,400 agreements with local agents. However, since the introduction of the EU Payment Service Directive (March 2010), over 240 EU payment institutions have given notification of their intention to provide services in Italy, including remittance services in most cases. The result has been that Italian service providers now process only 10 percent of remittances. The NRA comments that: “this scenario is exacerbated by the fact that the distribution network is composed of about 40,000 people, only a thousand of which is registered at the Organismo Agenti e Mediatori (OAM), while the majority is attributable to community operators.” Since 2005, remittances from Italy have been growing at an annual rate of 13 percent, totaling €6.8 billion in 2012, of which 40 percent was destined to China.

74. Over 300 trust companies exist in Italy and are treated as part of the financial sector. The so-called “dynamic” trust company that actively manages investment portfolios on behalf of clients has largely disappeared from the market-place. The majority “static” trust companies act under a direct mandate executed on behalf of the client, for whom they act as nominees in the placement of investments, etc.

Table 1

Composition of the Financial Sector in Italy as at End-2014

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75. Italy has approximately 4,600 notaries who play a key role in everyday private and commercial life through the requirement that they authenticate and hold documents relating to both movable and immovable property, particularly in respect of real estate transactions and corporate affairs. Although notaries undertake about three million acts each year, only a proportion will involve the type of transaction for which they are captured under the AML Law.

76. Approximately 80 percent of Italy’s 234,000 lawyers act solely at litigators, and are not therefore subject to the AML legislation. Some 90 firms located in 30 cities across the country (and involving approximately 5,000 lawyers) generate the vast majority of revenues derived from engagement in the corporate, commercial and financial sectors.

77. There are about 114,000 registered accountants. Their activities include budgetary planning, preparation of financial statements, corporate and operations liquidations, evaluations, expert reports and opinions, consultancy, administration and custody. In addition, the AML Law has been extended to cover auditors, of whom there are about 100,000.

78. There are 31,681 active real estate agents recorded in the register. The category includes individuals who act as lessors, agents and/or brokers operating in one or more of the following areas: selling, buying and renting real estate, and providing other services such as the valuation of property, or agency services on behalf of third parties.

79. Italy hosts four casinos (Campione d’Italia, San Remo, Venice, and Saint Vincent), all owned and managed by the municipalities in which they are located. Casinos are also located on ships when they are in international waters. There is a very active internet gambling sector, comprising approximately 800 vendors, some of which are covered by the AML Law.

Overview of Preventive Measures

80. The current legal framework relevant to the preventive measures postdates the last assessment of Italy’s compliance with the FATF standards (based on the situation in 2005), and is materially different from that time. Therefore, no reliance has been placed on the previous assessment when considering Italy’s compliance with the 2012 standards. The legal framework includes the AML Law of 2007, as subsequently amended, and the relevant regulations issued by the BoI on CDD and record-keeping (both effective from January 1, 2014, although the latter was an update of a 1993 regulation) and internal controls29 (effective September 1, 2011); and by the IVASS on internal controls and CDD (effective August 1, 2012 and January 1, 2015, respectively). In addition, in September 2012, the BoI issued instructions for the application of EU Regulation 1781/2006 on information on the payer accompanying the transfer of funds. There are several additional laws that are not specific to AML/CFT measures, but which have relevance to this assessment, including the Consolidated Laws on both Banking and Finance.

81. The AML Law applies to all the financial activities and DNFBPs specified under the FATF Recommendations, but also extends to a variety of other activities not addressed within the standards (e.g., clearing and settlement services, security transport businesses, gaming enterprises, auditing firms (which the authorities consider to be a key addition), antiques traders, auction houses and art galleries). The primary law is quite comprehensive in its requirements relating to the preventive measures, such that the BoI, CONSOB, and IVASS regulations add relatively little in terms of core obligations, but do take into account many of the points of detail added in the course of the 2012 revision to the FATF standards. They also provide extensive narrative and guidance that is, itself, enforceable. However, these regulations only extend to the DNFBP sectors with respect to PIE auditors; for DNFBPs other than PIE auditors and notaries, there is no substantive secondary legislation or guideline linked to the 2007 AML Law.

82. One area where the law and regulations have not been updated for the financial sector to reflect the revision of the FATF standards relates to wire transfers. Pending action at the EU level, Italy is still bound by the 2006 EU Wire Transfer Regulation, which does not take account of the new requirements with respect to beneficiary information and the obligations on intermediary FIs.

83. Italy has not applied any exemptions from the AML/CFT framework with respect to financial activities defined within the FATF standards.

Overview of Legal Persons and Arrangements

84. Several types of private legal persons may be established under Italian law, namely: (i) Companies, which are classified as: joint stock companies (società per azioni, SPA); limited liability companies (società a responsabilità limitata, SRL); and companies limited by shares (società in accomandita per azioni, SAPA); (ii) recognized associations (associazioni riconosciute); (iii) foundations (fondazioni); and (iv) cooperatives (società cooperative). The participation of a notary (who exercises a public function in Italy) is mandatory for the establishment of most legal persons as well as for some activities during the life of the company, such as an increase in capital. It is also common (but not mandatory in call cases) for other types of activities, such as a transfer of shares (which, for some companies, may also be performed by other reporting entities). Legal personality is acquired through registration in the Business Register (as far as companies and cooperatives are concerned) or in the Register of legal persons (for associations and foundations). Both types of registers are publicly available. Access to the information contained in the Business Register is facilitated through Infocamere’s online database.

85. As the table below indicates, most businesses in Italy operate without legal personality. With a total of more than 1.5 million, the SRL is by far the most common form of legal persons created in Italy.30 This is mainly due to the lower minimum capital requirement (€10,000 as opposed to €120,000 for the SPA and SAPA) and organizational flexibility.

Table 2

Italian Businesses without Legal Personality

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86. NPOs are composed of 68,349 incorporated associations and 6,220 foundations.31

87. The majority of Italian companies are medium-sized (in terms of capital) and domestically owned. Detailed information is provided in Annex 3.

88. Two types of legal arrangements generally referred to as “trust companies” may be established under Italian law, namely: (i) the “static fiduciary” which includes a nominee working under a direct mandate executed on behalf of the client. Static fiduciaries do not actively manage assets; and (ii) the “Dynamic fiduciary” which has a mandate to actively manage assets on behalf of the customer. Both are subject to AML/CFT requirements.32 In practice, such arrangements are not a widespread activity: there are 282 static fiduciaries, all of which are very small arrangements, and less ten dynamic fiduciaries currently operating in Italy. The 2014 NRA highlights that they are highly vulnerable to misuse. However, considering that they are under the authorities’ supervision, that their numbers are limited and in decline, and that they do not appear in major ML schemes investigated so far, the net risk of domestic legal arrangements appears low.

89. Italy is a party to Hague Convention of July 1, 1985 on the recognition of trusts, and foreign trusts are established—under another jurisdiction’s law—and managed by Italian FIs and DNFBPs. Although there are no precise figures on the number of foreign trusts managed in Italy, the authorities noted an increase in instances where Italian FIs or DNFBPs act as trustees of a foreign trust. Providers of services to trusts are explicitly mentioned in the AML Law as being subject to its requirements, including the obligation to identify the beneficial owner of a trust. Significant shareholdings in Italian companies held by trusts must also be declared to the CONSOB. Trustees are not required to disclose the fact that they are acting as trustee, but, like any other customer, must provide reporting entities with all the necessary information, including information on the beneficial owner (see write-up for IO.4 for more details).

90. Recent reforms in the Italian bureaucracy have improved Italy’s ranking in terms of ease of doing business.33 Company formation, in particular, has been considerably improved and may now be completed within a matter of days. Nevertheless, Italy is not an international center for the creation and administration of legal persons or arrangements. Although Italy is well connected with other European and non European countries, only a small portion of corporate vehicles have foreign ownership: according to the Infocamere database, some 0.62 percent of Italian legal persons are partly owned by foreign legal persons and 0.47 percent by foreign legal arrangements (i.e. a total of some 17,618 of the total number of legal persons). The most frequent foreign owners are legal persons from China, Morocco, Romania, Albania, Switzerland, Germany, Bangladesh, and Egypt, and most own shares in relatively small companies active in the retail business. While limited in number, these companies employ some 1.3 million persons and generate an estimate a turnover of 458 billion.34

91. While not many legal arrangements are established in Italy under another jurisdiction’s legislation, the authorities noted that their numbers are on the rise.

92. Italy is part of the European Business Register (EBR) private sector initiative that seeks to allow a unified access by all its 27 members35 to an agreed minimum amount of information related to limited liability companies in domestic Business Registers.36 Access to the information registered in Italy is granted online through the Infocamere database.37

Overview of Supervisory Arrangements

93. Under the SSM the ECB is responsible for the supervision of significant banks, which in effect are the 13 largest banking groups in Italy. The BoI is responsible for the prudential supervision of the remaining banks and the AML/CFT supervision of all banks as well as prudential and AML/CFT supervision of e-money institutions, payment institutions (PIs), Poste Italiane SPA, financial intermediaries, and Cassa Depositi e Prestiti SPA. The BoI also undertakes the prudential as well as AML/CFT supervision of investment firms, asset management companies, stock brokers and Società di Investimento a Capitale Variable (SICAV) whereas the CONSOB is responsible for market conduct supervision and also undertakes some AML/CFT supervisory activities with respect to capital market licensees, on behalf of the BoI. IVASS is responsible for the supervision of insurance entities while the GdF is responsible for the supervision of trust companies and bureaux de change. The BoI can delegate GdF to carry out inspections at PIs (including the Italian branches of EU PIs), and non-bank financial intermediaries. The OAM is responsible for the supervision of loan brokers and finance agents but AML/CFT supervision of these entities rests with the GdF. Due to the newness of the SSM, the BoI, and the ECB have held discussions with the objective of ensuring the effectiveness of the new supervisory arrangements. Discussions have focused on ensuring effectiveness with respect to the flow of information between the supervisory agencies and coordination generally including with respect to enforcement actions. The ECB is currently consulting with the LEGCO Committee to verify the legal basis for the exchange of AML/CFT supervisory information. BoI indicates it has adopted a pragmatic approach to the exchange of information and the coordination of supervisory action relying in part on the powers it has a both prudential and an AML/CFT supervisor.

94. GdF is responsible for the AML/CFT supervision of a wide range of DNFBPs including (i) lawyers; (ii) accountants; (iii) notaries; (iv) casinos; (v) specified categories of persons engaged in manufacture, intermediation, and commerce including exporting and importing precious objects; (vi) trust and company service providers; and (vii) real estate agents. It shares responsibility for the supervision of chartered accountants, notaries, and lawyers with their respective professional associations. It is also the supervisor of a number of DNFBP sectors that fall outside of the scope of the standard. CONSOB is responsible for the AML/CFT supervision of auditing firms PIE auditors. The UIF is responsible for verifying compliance of all obliged entities with regard to the reporting of suspicious transactions. The GdF’s role as the primary supervisor of DNFBPs is supplemented by professional associations which, under the provisions of the AML Law, have a responsibility to foster and verify their members’ compliance with the law.

95. The AML Law gives all supervisory authorities the power to undertake off-site and on-site inspections of supervised persons. The law also sets out a number of sanctions that can be imposed by supervisors on covered persons for breaches of its requirements.

Overview of International Cooperation

96. International cooperation is a focus matter for Italy in light of the high risk of organized-crime groups laundering abroad the criminal proceeds generated by predicates offenses committed in the country. Italy has ratified the Vienna, Palermo, CFT and Merida conventions and has a strong framework for international cooperation which includes a range of bilateral and multilateral conventions for MLA and extraditions. Where international conventions are lacking, the CPC provisions on dual criminality apply. The Central Authority for MLA and extradition, is the Ministry of Justice.

National AML/CFT Policies and Coordination

A. Key Findings

The authorities have largely succeeded in identifying, assessing, and understanding the ML and TF risks. A risk-based approach (RBA) has been applied to varying degrees, and a nationally coordinated AML/CFT strategy informed by a national risk assessment (NRA) is being developed. Domestic policy cooperation and coordination is relatively strong.

LEAs and prosecutors are able to undertake large and complex financial investigations and prosecutions, and considerable amounts of illegal assets of all types have been removed from the hands of criminals. However, current efforts are mainly aimed at the predicate offenses and some related third party ML, at the expense of standalone ML cases and ML of proceeds of foreign predicate offenses.

Investigative and prosecutorial resources do not seem commensurate with nature and scale of the ML/TF risks.

Financial institutions, and the banks, in particular, have a good understanding of the ML risks. However, it is not clear how robust are the banks’ measures to deal with tax evasion, which is the biggest single ML threat. The understanding of ML/TF risks within the DNFBP sectors is very mixed, but, overall, is not as sound as within the financial sector.

B. Recommended Actions

Italy should:

  • Complete the update on TF risks expeditiously.

  • Extend the scope of the national risk assessment to cover remaining areas (e.g., art galleries and ship-based casinos).

  • Continue to monitor, review, and orient policies and activities in line with the NRA.

  • Implement more forceful policies and strategies for pursuing stand-alone ML cases, ML generated by foreign predicate offenses, and complex ML cases involving legal persons with a view to disrupt major ML networks and facilitators.

  • Review current investigative, prosecutorial and judicial resources and ensure that they are commensurate with the nature and level of the identified ML/TF risks.

  • Continue to adapt supervisory tools and operational practices to the identified risks.

  • Work closely with the financial sector to help improve the latter’s understanding of tax evasion typologies.

  • Issue secondary legislation (or, at least, guidance) to cover all the DNFBP sectors, and raise awareness on AML/CFT.

  • Ensure that exemptions from CDD are based on a proper assessment of ML/TF risks.

  • Collect and maintain more granular statistics on financial investigations and international cooperation.

The relevant Immediate Outcome considered and assessed in this chapter is IO.1. The recommendations relevant for the assessment of effectiveness under this section are R.1–2.

C. Immediate Outcome 1 (Risk, Policy and Coordination)

Country’s Understanding of its ML/TF Risks

97. In general, Italy appears to demonstrate a high level of understanding of its risks. Notwithstanding some data gaps noted above, the NRA provided to the assessment team was of high quality in relation to ML risks. Although the TF component of the NRA appears to be less sophisticated than the ML component as a result of the different available underlying information and data, it is of good quality and has yielded reasonable findings. The NRA has involved close coordination among concerned agencies, and uses multiple sources of information. It represents a shared view among the authorities on risk and priorities. The private sector and academics were also consulted. The UIF also contributed to the understanding of risk by conducting several strategic analysis studies. Following the adoption of the NRA and its publication, Italy has not yet articulated nationally coordinated and prioritized AML/CFT strategy to deal with the different threats and vulnerabilities identified in the risk assessment.

National Policies to Address Identified ML/TF Risks

98. The FSC is responsible for overall policy setting and coordination of the AML/CFT regime and assessment of risk. Its members have very good understanding of risks. Going forward, the FSC will be involved in updating the risks related to TF and developing a strategy.

99. All supervisors were involved in the NRA and demonstrate a good understanding of the threats and vulnerabilities identified during that process. This has permeated their dialogue with reporting entities that, with some variability, have an overall good understanding of the major ML/TF risks. Italy advises that resource allocation at the BoI is based on RBA. The annual planning takes into account intermediaries’ features, and the need for in-depth controls emerged while performing supervisory tasks, and (macro- and micro-) ML/TF risks. Notwithstanding this level of awareness, supervisors have not fully adapted their tools and operational practices to reflect the identified risks.

100. Historically, the authorities have separately been applying an RBA, but it is not clear whether this has led to a formalized process for a coherent macro-level allocation of the resources in line with ML/TF risks.

101. The UIF demonstrates a high level of understanding of the risks, but could further improve its policies and activities to focus more on high-risk areas. The UIF contributed significantly to the national risk assessment by providing qualitative and quantitative data and strategic analysis that allowed the identification of risks. The guidance on the manner of reporting provided to the reporting entities also focused on the high-risk areas identified in the risk assessment.

102. Italian LEAs and prosecutors seem to have a good understanding of the risks which affect their specific areas of focus that are supported by the NRA. Measures have been adopted to mitigate the main ML risks identified, for example, focusing on asset seizure in the fight against mafia-type criminal organizations, or the designation of specialized law enforcement units focused on the investigation of financial and organized crime. That said, current efforts are mainly aimed at sanctioning the predicate offenses, and some related third-party ML (for further details, please refer to IO.7) and confiscating related assets at the expense of standalone ML cases and those generated by foreign predicate offenses. The lack of criminalization of self-laundering until January 1, 2015 meant that the AML framework could not be used to its fullest extent, notably in the fight against tax evasion. Although the new provision is a significant step forward, it is too soon to tell how they will work out in practice. Finally, these measures have not been commensurate with the extent of the main ML threats, and the activities of different LEAs and prosecutors have not yet fully been adapted to this. This may be due in part to the lack of sufficient resources.38

103. The Italian authorities deem the risk of TF as relatively low. Domestic extremist groups are very fragmented and, at present, do not seem to pose a significant risk of terrorism or TF. The most significant emerging risk is the international religious terrorism and the potential support of Italian residents travelling to conflict zones abroad to help foreign terrorist groups. In the last five years, none of the investigations carried out found evidence of TF activities and the terrorist activities detected, related to both domestic and foreign terrorist groups, were conducted by small, self-financed cells. As a result of the global rise in the threat of terrorism, the authorities are updating their national assessment of the TF risk. Italy has established the Strategic Counter-Terrorism Analysis Committee (CASA), which coordinates the response to specific terrorist and TF threats at strategic level.

Exemptions, Enhanced and Simplified Measures

104. The authorities have not sought to apply any exemptions from the AML/CFT requirements for any of the financial activities covered by the FATF standard. On the contrary, they have extended the obligations to a variety of other activities and entities not addressed within the standard (e.g., public administration, clearing and settlement services, security transport businesses, gaming enterprises,39 auditing firms, antiques traders, auction houses and art galleries). For the most part, these are based upon an analysis of the risk within each activity (e.g., public administration in light of its exposure to corruption), but the auditors were included primarily on the basis that they have a close insight into the activities of their clients, such that they may be able, in particular, to identify and report suspicious activity.

105. On the other hand, the exemptions from CDD provided for under the AML are not based on a proper assessment of risks but are the result of the transposition of the EU Directive.

Objectives and Activities of Competent Authorities

106. Although supervisors have a reasonably good understanding of risk at the national level, they generally would benefit from having better supervisory tools that would provide them with comprehensive, timely, and consistent data on the nature and quantum of inherent risk at the level of individual institutions. While a new risk-based supervisory methodology currently under development by the BoI will represent an improvement over existing arrangements, there are some concerns about its limitations in capturing comprehensive data relevant to the most significant inherent risk in the financial sector, such as data related to exposure to PEPs.

107. The objectives and activities of LEAs are generally consistent with the ML/TF risks, but could be improved further to have a greater impact. The LEAs are focused on investigating organized crimes and other related financial crimes, but to a lesser extent on launching parallel investigations related to money laundering.

108. The UIF adapts regularly its policies based on the results of its strategic analysis. In addition, based on the results of the NRA, it recently underwent restructuring to focus more on analysis.

National Coordination and Cooperation

109. The FSC and the CASA are well managed for their specific missions, but there appears to be a lack of policy coordination between these two functions. Agencies describe the work of both bodies as autonomous; however MEF reports that they have on occasion joined CASA meetings to collaborate with CASA’s law enforcement and intelligence agencies and integrate CASA’s cases into the work of the FSC.

110. There has been good collaboration among BoI, CONSOB, and IVASS in developing approaches to exercising oversight of the institutions they supervise, but less so between the GdF and the professional associations with which it shares oversight responsibility for a number of DNFBP sectors.40

111. There are good communication channels and exchanges of information between the UIF and other competent authorities. Cooperation among regulators and supervisors is governed by a series of MOUs and appears to work well. Although LEAs cooperate and coordinate amongst each other, the sheer number of them, coupled with overlapping responsibilities, requires a significant investment in operational coordination in which there have been some lapses. Cooperation and coordination among the LEAs, and feedback from them to UIF could also be improved.

112. For NPO oversight, Italy lacks a proper mechanism for domestic cooperation and coordination that would allow for information to be shared among authorities and organizations that hold relevant information on NPOs.

113. Appropriate to Italy’s volume of trade, coordination for combating proliferation financing is focused on the risks related to Iran. The FSC and the Interagency Dual-Use Export Council coordinate on the application for export of dual-use goods and the respective financial payments. The authorities are able to identify potential sanctions evasion activities and prevent payment for goods or shipment of goods.

Private Sector’s Awareness of Risks

114. The authorities have shared the results of the NRA with FIs, DNFBPs, and NPOs which as a result, are generally aware of the main ML risks and to a lesser extent TF risks and how the identified risks relate to their institutions in the context of their business models. Both supervisors and SRBs have undertaken initiatives to provide guidance to reporting entities and to generally raise awareness of ML/TF risks.

115. The financial sector, in general, and the banks, in particular, has a good understanding of the ML risks in Italy. The sector was consulted in the preparation of the NRA, and the FIs consider that the conclusions of the NRA broadly reflect their own perceptions that the proceeds of tax crimes, corruption, organized crime, drug trafficking, loan sharking and usury are the key threats that they face. That said, it was not clear how robust are the banks’ measures to deal with the particular complexities of tax evasion, which is widely recognized as the biggest single threat. Moreover, their appreciation of the TF risks appears to be somewhat less developed, there being a general sense that the risks are low, although the basis for this conclusion was not as well articulated as was the case with respect to the ML risks.

116. The understanding of ML/TF risks within the DNFBP sectors is very mixed, but, overall, is not as sound as within the financial sector. With the exception of notaries and PIE auditors, there appears to have been less engagement by the authorities with the DNFBPs, and, unlike the financial sector, they are still not subject to any secondary legislation or guidelines to support the 2007 AML Law. Such regulations or guidance might be expected to enhance their appreciation of the risk-based approach, as was clearly the case with the financial sector and PIE auditors following the introduction of the BoI, CONSOB, and IVASS regulations, and notaries following the adoption of their CDD guidelines.

Overall Conclusions on Immediate Outcome 1

117. Italy is achieving IO.1 to a large extent. It has a generally good understanding of the main ML/TF risks, and generally good policy cooperation and coordination to address its ML/TF risks. The NRA, which is of good quality, is a further and the most recent demonstration that it has identified and assessed its risks.

118. Although competent authorities have for some time separately been applying an RBA to varying degrees based on their respective understanding of risk, Italy has not yet developed a nationally coordinated AML/CFT strategy which is fully informed by the ML/TF risks in the NRA. Although several initiatives have been launched in its wake, its results are only beginning to have an impact on the shape of the AML/CFT strategy.

119. Supervisors have not fully adapted their tools and operational practices to reflect the identified risks. The UIF could further improve its policies and activities and better use its resources to focus more on high-risk areas. Current efforts are mainly aimed at sanctioning the predicate offenses, and some related third-party ML, and confiscating related assets at the expense of standalone ML cases and those generated by foreign predicate offenses. The lack of criminalization of self-laundering until January 1, 2015 meant that the AML framework could not be used to its fullest extent against one of Italy’s highest risk areas, i.e., tax evasion. Although the new provision is a significant step forward, it is too soon to tell how they will work out in practice. Moreover, their efforts have not been commensurate with the extent of those risks. Although the authorities deem the risk of TF as relatively low, they are updating their assessment of the TF risk, as a result of the global rise in the threat of terrorism.

120. Going forward, the FSC will need to ensure that policies and activities are fully aligned with and prioritized according the identified risks.

121. The authorities have shared the results of the NRA with FIs and DNFBPs which as a result are generally aware of the main ML risks and to a lesser extent TF risks and how the identified risks relate to their institutions in the context of their business models. The financial sector, in general, and the banks, in particular, has a good understanding of the ML risks in Italy. The understanding of ML/TF risks within the DNFBP sectors is very mixed, but, overall, is not as sound as within the financial sector.

122. Italy has achieved a substantial level of effectiveness for IO.1.

Legal System and Operational Issues

A. Key Findings

Italy has a comprehensive framework of LEAs responsible for investigating ML, TF, and predicate offenses. The authorities have adequate powers and expertise. Financial investigations are conducted in every investigation into serious asset generating crimes. There is, however, a risk of duplication of efforts among the different LEAs in the initial stages of an investigation.

The UIF produces good analysis that serves the GdF and DIA well in launching investigations. However, the UIF does not have sufficient access to law enforcement information which weakens the filtering of STRs and analysis. It also lacks the ability to disseminate some information more selectively and beyond the GdF and DIA to other relevant agencies. Customs does not proactively send suspicious declarations to the UIF.

LEAs and prosecutors are able to successfully undertake large and complex financial investigations. The authorities have been successful in a number of high-profile cases, and in some of have successfully disabled criminal enterprises.

However, current efforts are mainly aimed at the predicate offenses and some related third party ML, at the expense of standalone ML cases and ML of proceeds of foreign predicate offenses. In some cases, the complexity of the ML investigations and the overall length of the criminal process significantly reduce the likelihood of successful outcomes.

B. Recommended Actions

Italy should:

IO.6:

  • To enhance the UIF’s operational analysis, (i) provide it with the power to access law enforcement information, and allow it in practice to access additional administrative information (e.g., the land registry); (ii) and finalize its data mining (“Warehouse”) IT tool.

  • Enable the UIF to disseminate selected information and the results of its analysis beyond the DIA and GdF NSPV to additional LEAs and concerned agencies (e.g. TF cases). The UIF should refrain from sending all the STRs to LEAs, and improve the dissemination of selective information to allow the recipient agencies focusing on relevant cases and information.

  • Provide DNFBPs with comprehensive guidance on reporting jointly developed by the UIF and supervisors.

  • Require recipient agencies to provide regular feedback on the quality of disseminated intelligence to the UIF.

  • Amend the AML Law to provide an explicit reference to the UIF powers in relation to predicate crimes.

IO.7:

  • Place a greater focus on detecting and pursuing self-laundering, standalone ML, ML generated by foreign predicate offenses, and complex ML cases involving legal persons.

  • Ensure that sanctions applied are dissuasive.

  • Consider streamlining the judicial procedures to shorten the criminal process.

  • Improve the collection of statistics related to ML investigations, prosecutions and convictions.

  • Improve coordination between LEAs during the initial phases of investigations.

IO.8:

  • Ensure that seizure and confiscation of assets located abroad are pursued on a systematic basic;

  • Continue asset recovery (both in criminal proceedings against ML and the main predicates and administrative proceedings to recover unpaid taxes), especially with respect to the main ML threats (organized crime, corruption and tax crimes), to ensure that crime is made unprofitable.

  • Increase their efforts to detect cross-border movements of cash and other BNIs suspected of being linked to ML, and to domestic as well as foreign predicate offenses. The authorities are recommended to consider implementing the FATF Best Practice paper and to target their efforts to a greater extent on key transit points (such as the border with Switzerland) and higher-risk individuals;

  • Introduce a mechanism to monitor assets more closely through the different stages of the criminal or administrative processes for seizure and confiscation;

  • Share assets confiscated in Italy with foreign countries, in the case where predicate offenses have been committed abroad.

The relevant Immediate Outcomes considered and assessed in this chapter are IO.6–8. The recommendations relevant for the assessment of effectiveness under this section are R.3, R.4, and R.29–32.

C. Immediate Outcome 6 (Financial Intelligence ML/TF)

Use of Financial Intelligence and other Information

123. The concerned authorities have access to a very broad range of financial and other information. The UIF receives a wide range of STRs and other information, and can access a wide range of administrative and financial information.

124. The UIF receives STRs from reporting entities as shown in the tables below. The number of STRs received is increasing. Most STRs are filed by banks and the UIF considers them to be of good quality. DNFBPs, except notaries, send very few reports. In light of the risks of different DNFBPs sector, this affects the quality of information received, analysed, and disseminated by the UIF to different LEAs (Please refer to section IO.4c for more details on the level and quality of reporting).

125. It also receives aggregated data from FIs. The number of aggregate reports is high due to the requirement of financial intermediaries to submit, on a monthly basis, aggregated data on their activities. The UIF conducts a targeted analysis of this data in order to detect possible ML/TF anomalies in specific geographical areas.

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Table 3

Anti-Money Laundering Aggregate Reports—Descriptive Statistics—2014 (Estimate)

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126. The UIF receives the STRs through an electronic platform (“RADAR”) dedicated to the collection, storage, and management of reports. The system notably identifies instances where a particular natural or legal person has been previously reported. The UIF can and does also request additional information from reporting entities. Most of the additional requests are directed to banks but in few instances other reporting entities were also asked to provide additional information.

127. In addition to STRs, the UIF can obtain information from the customs database which contains the cross border currency and bearer negotiable instruments declarations collected from travelers and gold transactions. However, customs do not notify the UIF about suspicious crossborder transportation incidents. This is particularly important in the case of Italy because of the high risks of laundering through cash couriers.

128. It can also access the following administrative and financial information:

  • a) Administrative: (1) Tax registry (article 6(6)(e)), which contains, on a national scale, data and information resulting from tax declarations and complaints and related verifications, as well as other data and information of possible fiscal relevance (article 1 of Italy’s DPR n. 605/1973;(2) Commercial register (Infocamere off-site and Cerved on-site; (3) central tax reports database (CEBIL) that contains ID tax data and tax declarations held by the tax agency; (4)) Local administrators database (municipality, district and region).41

  • b) Financial: (1) Central electronic archive (article 37 of the AML Law) for CDD information from some FIs; (2) the central database of bank accounts; (3) central credit register on the debt of banks and other FIs’ customers managed by BoI (accessible on line); (4) TARGET2 (Trans-European Automated Real-Time Gross Settlement Express Transfer System), which stores all the data pertaining to wire transfers in the Euro Area; (5) Database containing information about the restituted funds in case of impossibility to complete CDD pursuant to article 23 para.1 bis of the AML Law.42

  • c) Open source and other commercial databases like World-check; and Orbis (international business database).

129. The UIF makes regular and timely use of these sources for the purposes of its analysis of STRs. It does not have access rights to law enforcement databases, but can obtain information from LEAs in order to respond to requests for information it receives from foreign FIUs. In addition, the UIF sends the STRs to the GdF, which then cross checks them with the information contained in its databases and, on this basis, gives the UIF monthly feedback about the “level of relevance” of the STRs. This monthly feedback notably classifies the reported persons by level of risk, and allows the UIF when relevant to prioritize its analysis of STRs. While useful, the monthly feedback from LEAs is limited in its content and is not provided on a timely basis. It does not constitute a substitute for granting the FIU with direct and timely access to law enforcement databases that would undoubtedly bolster its operational analysis. Moreover, while the UIF has access to a number of administrative information, there are other administrative databases that would prove useful for its analysis, such as the one maintained by the land registry.43 This would be particularly useful in light of the vulnerability of the real estate sector. Finally, it appears that the UIF seeks access (indirectly i.e. through the fiscal database) to the Central database of bank accounts (which contains information about the accounts held by natural and legal persons) in a limited number of cases only, whereas more regular access may prove useful.

130. The AML Law does not specifically enable the UIF to receive STRs related to the predicate crimes. In practice, however, the UIF does receive, analyzes them and disseminates to either the GdF- Special currency unit (NSPV) and DIA. The GdF-NSPV and the DIA have direct access (without the need to a prior judicial authorization) to an even broader range of information than the UIF. In addition to the information noted above, they have access to various law enforcement databases (e.g., tax database held by GdF, criminal records, information about criminal proceedings and suspects).

TF case: Distance adoptions-related donations performed by foreign terrorist fighter

The account at an Italian bank of an organization based in Northern Italy promoting charitable activities (e.g., distance adoptions) in Syria received cash deposits and wire transfers (mostly involving small amounts) sent by numerous individuals and entities in located in Italy and Europe. Once credited, funds were sent to Turkey, where they would be withdrawn for their final legitimate use (most descriptions associated with the transactions referred mainly to “adoptions”). At a later stage, with reference to a limited number of transfers, investigations revealed that one of the donors was a member of an extremist group located in the North of Italy aimed at recruiting people to engage in violent extremism. Financial analysis eventually showed that this individual, who subsequently died fighting in Syria, used the organization as unwitting conduit for fund transfers possibly connected to his terrorist activity.

131. LEAs routinely access and use financial intelligence and other information, to identify and trace proceeds, and to support investigations and prosecutions of predicate offenses and to a lesser extent of ML. All of the LEAs and prosecutors met are adequately focused on pursuing financial investigations and recognized the value of “following the money,” but the development of evidence and tracing criminal proceedings are more often related to domestic predicate offenses, than to self-laundering (since it was criminalized recently), and standalone ML investigations, or to foreign predicate offenses (refer to write-up under IO.7 for more information).

STRs Received and Requested by Competent Authorities

132. The UIF receives STRs and a broad range of other information. UIF advises that, in general, these reports and additional information are of high quality, and are used to support its strategic and operational analysis functions. STRs are mostly filed by FIs. A very limited number of STRs are filed by DNFBPs, mainly notaries. In 2014, the UIF requested additional information from reporting entities in some 25 percent of cases: it sent some 19,000 requests to banks and non-bank FIs, and only around 100 to DNFBPs. The aggregated data it receives is found to be very useful and is frequently used to develop studies and strategic analysis (e.g., financial flows from tax evasion, financial flows connected to NPOs or loan sharking activities). The UIF does not provide feedback on the quality of STRs to reporting entities, but is developing and testing a feedback system. It publishes annual reports which contain comprehensive statistics and information about its activities including trends and typologies.

133. The customs integrate the cash declarations into a database that can be accessed by the UIF, but does not send to the UIF declarations that appear suspicious. Considering that the proceeds of tax evasion and other crimes are often transported in cash across the border, Customs is in an ideal position to identify potential cases of ML. Customs should therefore, as a matter of priority, inform the UIF of suspicious declarations.

Operational Needs Supported by FIU Analysis and Dissemination

134. The UIF disseminated more than 92,415 STRs in 2013, and 75,858 in 2014 to the DIA and GdF-NSPV. Over the period 2009–2014, there has been a steady increase in disseminations. STRs that are closed are also forwarded to the GdF and DIA for inclusion into their databases and further “pre-investigation.”

Table 4

Number of Suspicious Transaction Reports Received, Analyzed, and Dismissed

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135. The UIF has an advanced reporting system that has some data mining features but is still enhancing its analytical tools. The reporting and management system RADAR is very advanced and allows a classification of STRs by risks, cross checking, and tracking them until they are disseminated. The RADAR currently has some features that allow a comparison of the STR information with that held in other databases.

136. The current systems allow, in some instances, to analyze multiple STRs, aggregated on the basis of identified connections and interactions between targets and possible proceeds of crimes. The disseminated technical report sent to the GdF and DIA includes an analysis of the financial flows with identification of the economic reasons and motivations underlying the operations and assessment of the origin of the funds. A scale of the risk linked to the STRs is also assigned by way of LEA feedback based on different criteria (i.e. recurring patterns of behavior, risks exposure of sectors, and vulnerability of certain payment instruments). To assist the LEAs in conducting their investigations, the UIF also includes a mention of the potential predicate crime involved. The main offenses “identified” by the UIF’s analysis are tax evasion, fraud, participation in organized crime, drug trafficking, illegal disposal of toxic waste, and human trafficking. The UIF sometimes uses its power to suspend the execution of relevant transactions for a maximum of five days to give the LEAs sufficient time to launch their investigations and impose provisional measures (refer to text under IO.9 for additional information).

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Table 5

GdF Investigations Resulting from Technical Notes and STRs

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Table 6

DIA’s ML and associated predicate crimes investigations triggered by STRs classified by relevant criminal organization

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137. The UIF is finalizing the “Warehouse” project,44 an IT platform which will allow for the consolidation of all the information gathered from STRs with the other information received and data contained in other databases accessible by the UIF. The project is in its roll-out phase. Once finalized, the “Warehouse” will provide analysts with better tools for data mining and identification of specific targets to follow particular activities or transactions, as well as to determine the links between those targets and possible proceeds of crime.

138. The GdF and DIA receive all the STRs, technical reports (analysis reports) and other information from the UIF with a final risk score, and then conduct a pre-investigation to confirm or dispel the UIF findings. UIF’s disseminated technical reports and STRs may be used only as financial intelligence (i.e., they have no evidentiary value). Unlike most FIUs, he UIF is also required to make to recipient agencies (i.e. the GdF and the DIA) the STRs that it deems irrelevant and that it has therefore closed. The GdF and DIA ensuring “pre-investigation” includes verifying the information provided by the UIF with the information contained in LEA databases. The closed STRs do not undergo a “pre-investigation” in all cases but are made available to GdF and DIA if this appears necessary on a case-by-case basis. As explained above, the technical reports are comprehensive and useful, however, closed STRs are made available in bulk and not selectively, and therefore they do not allow the recipient agencies to focus on relevant cases and information but constitute instead an overload and repetitive work.

139. The GdF and DIA are well-equipped to undertake an effective analysis because they have specialized analysts and IT tools (e.g. SIVA - the Sistema d’Intelligenza Valutaria - and MOLECOLA, both described in the Box 3 below) with greater access to law enforcement information, as noted above. However, providing the UIF with access to LEA information and allowing it to close the STR without making them available would prove particularly beneficial: it would enhance the UIF’s operational analysis capacity, prevent the repetition of analysis/ duplication of efforts by LEAs, lead to a better use of resources, and allow the UIF to improve further the dissemination of selective information only and the recipient authorities to focus on the most relevant cases/information.

140. Intelligence disseminated by the UIF generally leads to successful investigations into ML/TF and related predicate offenses by recipient agencies. The AML Law does not allow the UIF to disseminate its technical reports to other GdF specialized units and other concerned agencies. As far as the GdF is concerned, the information disseminated is nevertheless made available to other units (because the NSPV enters all the STRs and related information into the SIVA system, which is accessible by other GdF specialized agencies as well), but not necessarily on a targeted and timely basis. However, enabling the UIF to disseminate intelligence to competent authorities beyond the GdF-NSPV and DIA would lead to greater use of financial intelligence and, ultimately, greater results. More specifically, a direct dissemination of the UIF’s technical reports to other LEAs would ensure that these units and agencies are alerted to potential crimes on a timely basis and enable them to take the necessary actions in a quicker fashion. In addition, in instances of suspicions of tax offenses and/or corruption, the dissemination of technical reports to the revenue agency and ANAC, respectively, would assist these agencies in focusing their audits and other activities. This would bolster the preventive framework, which seems particularly important in light of the high risk of tax crimes and corruption in Italy.

Figure 1.
Figure 1.

The Financial Analysis Process

Citation: IMF Staff Country Reports 2016, 043; 10.5089/9781475539370.002.A001

Strategic Analysis conducted by the UIF45

  • STRs featuring connections with tax havens or offshore financial centers

  • Statistical indicators to evaluate banks activity and risk-exposure in different provinces

  • Econometric model on anomalous use of cash at Municipality level

  • Econometric analysis of banks’ compliance with suspicious transaction reporting activity

  • STRs connected to suspected loan-sharking activity

  • STRs connected to pre-paid cards; and analysis on financial flows connected to NPOs

141. The intelligence provided by the UIF to the GdF-NSPV is centralized and managed using the SIVA. The SIVA (described in Box 3 below) notably allows for greater prioritization of investigations and their geographical allocation to local GdF units. Financial investigations focus on assets seizure, establishing and identifying targets through preliminary inquiries and other GdF IT tools such as SCICO-Geo Loc. Another powerful and useful tool used in financial investigations and financial analysis is MOLECOLA (described in Box 3 below). The combination of these different IT tools (also described in Box 3 below) allows for better and faster results in building financial investigation cases.

IT tools for financial analysis and investigations

The SIVA (Sistema d´Intelligenzia Valutaria) is an intelligence management and analysis system developed by Currency Police Special Unit of the GdF in order to manage all phases of the investigation of STRs disseminated by the UIF. SIVA provides an “automatized” analysis of the information contained in the STRs by linking the information from Law enforcement data bases and open sources (such as the Register of companies, worldcheck). It provides intelligence output that permits to highlight financial flows, major proceeds generating offenses, as well as identify new trends and new information to start investigations. The analysis through SIVA also enables the prioritization of investigations and the distribution of the intelligence among the territorial investigative units. DIA has a similar tool called ELIOS (Elaborazioni Investigative operazioni sospette).

SCICO Geo-Loc: This system includes information on every investigation performed by the GdF, permits the geographical localization of areas of influence of different organized criminal groups and to prioritize and focus on certain areas of higher risk. This aspect is especially positive as it enables the GdF to prioritize investigations and to concentrate its efforts in certain specific areas. The SCICO is widely used and, according to the GdF, particularly useful in practice.

MOLECOLA: This tool is used in financial investigations with software integrated within GdF and DNA. MOLECOLA imports electronically bulk information from different databases (e.g., the various law enforcement databases, tax administration database, land register, company register and information from other open sources). The information is analyzed according to the operational activities investigated, allowing to elaborate standardized reports suitable for investigations and also operational analysis reports detecting links between people and financial operations, and the disproportion between incomes and expenses of the persons that are under investigation.

Cooperation and Exchange of Information/Financial Intelligence

142. The UIF and other competent authorities cooperate and exchange information and financial intelligence on a regular basis. The GdF and DIA receive the STRs from the UIF that lead to investigations in ML, associated predicate offenses and TF. The UIF and the GdF-NSPV and DIA use secure channels for exchanging information, and protect the confidentiality of information exchanged or used. The UIF significantly enhanced its controls and developed specific procedures governing the exchange and subsequent use of information from local counterparts.

143. The GdF and DIA do not provide feedback to the UIF about the actions taken in relation to the received STRs and technical notes. Such feedback would, however, allow the UIF to improve the quality of its technical notes and provide feedback to reporting entities about the outcome of the STRs. Closer coordination and meetings between the UIF analysts and GdF and DIA officers would also improve the exchange of information and enhance the use of financial intelligence in ML/TF investigations.

UIF Resources

144. The UIF resources have been increased to take into consideration the higher workload. The UIF staff increased from 121 in 2012 to 130 in 2014, and is projected to increase further to 141 in 2015. Most of the new staff work as analysts due to the increase in the number of STRs. The costs (i.e. salaries, HR management, e-learning platform) are directly covered by the BoI. The budget to cover additional expenses (mostly related to training requested by the UIF) is also granted by the BoI. It was €172,000 in 2012 and increased to €197,000 in 2014. The UIF director can authorize the expenditures. The UIF structure seems adequate especially after the recent allocation of additional staff to the analysis division.

Overall conclusions on Immediate Outcome 6:

145. In general, the UIF and LEAs collect and use a wide variety of intelligence and other relevant information to investigate ML, associated predicate offenses, and TF. The competent authorities, more specifically the UIF, the GdF, and DIA have the necessary resources and skills to use the information to conduct their analysis and financial investigations, to identify and trace the assets, and to develop operational analysis.

146. The UIF is a well-functioning financial intelligence unit. It produces good operational and high quality strategic analyses that add value to the STRs. Its technical notes serve the GdF-NSPV and DIA in launching ML, associated predicate crimes, and TF investigations.

147. Overall, Italy has achieved a substantial level of effectiveness with IO.6.

D. Immediate Outcome 7 (ML Investigation and Prosecution)

ML Identification and Investigation

148. Italy’s main law enforcement policy objective is to disrupt and deter crimes, including through ML investigations and prosecutions. The Italian LEAs focus on what they consider to be the main three proceeds-generating predicate risks (organized crime, corruption, and tax offenses). However, Italy should expand its focus to ensure that a greater number of cases of ML (including self-laundering) are being investigated and subject to effective and dissuasive sanctions. At the time of the on-site visit, no investigation into self-laundering had been concluded46 due to the recent enactment (a few weeks prior to the onsite) of the new self-laundering provision. The new provision had, therefore, not had an impact on the overall effectiveness of this outcome.

149. Italy has a comprehensive institutional framework for ensuring that ML, and associated offenses are properly investigated, prosecuted and sanctioned. They have appropriate powers to obtain access to available information and evidence, especially in the context of the fight against organized crime. The four police forces with responsibility of ensuring that ML and predicate offenses are properly investigated: the GdF, Carabinieri, the State Police, and the DIA have good expertise in “following the money”, and other associated asset-generating crimes. The DIA and GdF-NSPV have been explicitly designated as the special police units in charge of investigating the facts included in the UIF’s STRs and technical reports. Outside the organized crime context, investigations into other predicates crimes are developed through parallel investigations.

150. Coordination between the various LEAs at the strategic level takes place within the Security and Public Order Committee (housed in the MoI). Coordination at the operational and intelligence levels is developed through the data processing center of investigations SDI (Sistema d´Indagine), administered by the MoI, which includes information related to investigations, as well as through the sharing of police databases. However, due to the structure of these databases and the fact that information on the initial stages of investigations (i.e. before a case is referred to the prosecutor’s office) are not included in the SDI, there is a risk of duplication of law enforcement efforts during the initial stages of an investigation. Different LEAs may indeed be conducting similar activities (such as gathering and analyzing information, for example) with respect to a same natural or legal person without any knowledge of what the others are doing. Repetitive investigative work is only effectively avoided once the Prosecutor’s office leads the investigation. The Prosecutor’s office must be called upon when more “intrusive” measures are called for, such as wire-tapping, for example. From then on, the prosecutor in charge of the investigation coordinates the different LEAs’ activities during the inquiries.

151. Investigations into organized crime activities are coordinated by the DIA, a special interforce investigative body with specific powers under the Anti-Mafia Code, which brings together staff from the GdF, Carabinieri, and State Police with practical experience in financial and organized crime investigations. The DIA develops two types of investigation, namely one focused on judicial police investigations on mafia- type crimes, and another focused on financial flows of people linked to mafia-type organizations. The financial investigation focuses mainly on the identification of the structure of the criminal organization, and gathering evidence of illicit financial activities about the assets held by the members of the organization in order to seize them. However, additional efforts in pursuing legal persons and their ultimate beneficial owners in order to obtain effective convictions and dismantle the whole financial infrastructure of the criminal organizations would prove useful. The LEAs efforts are based on their assessment of the threat and are focused on domestic predicate crimes and the laundering activities. In light of the cases discussed with the authorities, additional attention to the laundering of foreign proceeds and to cross-border laundering activities (e.g., outgoing cash couriers and remittances) is however warranted.

152. Customs sometimes also assist in detecting ML activities through smuggling or other predicate crimes. These cases are investigated with the assistance of GdF. The declaration system is, however, not being used effectively to detect and disrupt suspicious transportation of cash and bearer negotiable instruments and false declarations.47

153. Information obtained in the context of the GdF AML supervisory activities may also result in police investigations when these activities reveal enough evidence. This was notably the case in the “Money River Operation” highlighted in the Box below. Special attention is therefore placed on the results of inspections, in particular in the context of monitoring of money transfer services.

Case Study: Money River Operation—December 2014

Money transfer service play a significant role in Rome’s economy and include a large number of operators from foreign communities. An AML inspection of a money transfer agent carried out by the GdF revealed abnormal operations, which led to a two-year criminal investigation. The case involved multiple criminal associations operating through the Rome branch of the Payment Institution (a U.K.-based multinational company specializing in worldwide money transfers) as well as seven money transfer agencies operating within the network headed by the Payment Institution. The association members include branch managers, AML compliance officers, and front-office staff.

The investigation identified that the agents transferred abroad (principally to China) approximately €1 billion, representing the proceeds of several predicate offenses: import and sale of counterfeit goods, market fraud, sales of industrial products with false or misleading trademarks, and tax evasion. The money was transferred through a large number of illicit cash transfers. The operations were performed using fictitious names, and names belonging to deceased persons or to unsuspecting customers already registered in the Payment Institution’s database. Transfers were always made below the applicable cash transaction threshold (i.e., €4,999 up to August 12, 2011 when the threshold stood at €5,000; €2,499 up to December 5, 2011 when the threshold was €2,500; and, most recently, €999 when the threshold stands at €1,000. Those requesting the transfers were Chinese entrepreneurs and traders, with a history of criminal convictions for smuggling, counterfeiting and tax evasion. The money transfer operators were indicted for transnational criminal association and money laundering, and 18 persons were arrested. The GdF seized assets worth over €13 million, which represented the total profits made from the illicit transactions.

154. All LEAs are authorized to pursue the investigation of potential ML in the context of an investigation lead in parallel to their investigation into the predicate offense. LEAs are not requested to refer the case to one dedicated agency to follow-up with such investigations. As indicated under IO.6, sophisticated IT tools (e.g. MOLECOLA) are available and used by LEAs that provides them with good intelligence to target suspects and their assets.

Consistency of ML Investigations and Prosecutions with Threats and Risk Profile, and National AML Policies

155. As indicated above, the main asset-generating activities in Italy are tax offenses, mafia-type organized crime and corruption. The types of ML activities investigated and prosecuted are generally consistent with Italy’s risk profile and the results of the NRA. The following paragraphs describe actions taken by different LEAs in respect to the main ML threats:

156. Tax Offenses: Italy’s LEAs, especially the GdF, have been successful in investigating complex tax fraud cases. According to the authorities, the largest tax fraud schemes takes place in northern Italy, notably in light of the fact that 30–35 percent of the largest Italian companies are located in the area of Milan. Investigations are notably based on a risk analysis of companies in order to identify potential tax fraud and money laundering schemes. Many of the financial investigations into tax crimes include information derived from STRs. The authorities have been successful in bringing a number of cases to justice, including large, complex tax fraud cases such as the “Green Fees” case described below. Nonetheless, it is important to stress that the risk of people evading taxes through “simple” tax evasion (as opposed to through complex fraud schemes) is high in Italy, and that the proceeds of tax evasion are often carried in cash (see IO.8) or transferred through banks to be laundered in neighboring countries. Although the volume of cash related to tax evasion and transported outside Italy is important, customs do not detect and forward suspicious cases to the UIF (see IO.6 and 8).

Operation “Green Fees”

The investigation started in 2012, carried out by the Public Prosecutor’s Office in Milan and by the GdF, started through the analysis of different STRs and other financial information including from abroad, that identified illegal exchanges of emission allowances (CO2 certificates) using a system of intra-Community VAT carousel fraud in the emission of trading market.

The fraud committed through complex company scheme, including foreign ones, affected the supply of CO2 certificates. In particular, it was found that some companies were, in practice, “empty boxes” and after a brief period of activity, had ceased to operate without paying the necessary taxes. The operating companies benefited from a significant tax credit that was used for requesting refunds or compensation of tax debts. This enabled them to acquire CO2 certificates at competitive prices and to occupy significant portions of the market, thereby distorting competition between traders.

Arrest warrants were issued against 11 people and 82 individuals were reported for conspiracy, transnational in nature, aimed at tax evasion and money laundering; Major bases for VAT to €659,727,230.83 were established and supplies of money to €80,302,998 were impounded.

157. Organized crime: Specific mechanisms were established to counter organized crime, namely the DNA and the DIA (a specialized inter-force investigative body entrusted with fighting specific mafia-type organizations and with special investigative powers (as explained under R.30 of the TC annex). Some of the measures initially conceived to fight organized crime can now also be used to fight ML, tax crimes, or other crimes when committed on a habitual basis, as well as TF. According to the authorities, most of the main crimes committed in Italy are closely linked to the activities of organized crime. The special anti-mafia mechanisms and powers are therefore frequently implemented in practice. The following indicates the results of the DIA’s investigative activities, including those triggered by STRs:

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158. Through the analysis of intelligence and police investigations, the Italian authorities have been able to identify the ML typologies used by mafia-type organizations. The “Middle World” case described in the Box below also revealed a previously unknown organized criminal group. This indicates that the authorities do not focus only on traditional mafia groups, but also react to the threat posed by new criminal groups.

“MIDDLE-WORLD” (December 2014)

The “Middle-World” case is a large-scale joint investigations carried out by the Carabinieri and the GdF against a previously unknown mafia-type organization characterized by the exercise of strong power of intimidation as well as a strong hierarchical structure and stringent secrecy code. The investigation was initiated in 2012 and was developed through joint investigation teams, one focused on the predicate offenses committed by the organized group, and the other on the group’s financial activities.

The investigation revealed criminal activities and modus operandi similar to those observed in traditional mafia-type organization, and permitted the detection of a corruption network at the local level. It also revealed that the criminal organization was involved in projects funded by the city of Rome and related municipal companies, which included the management of nomad camps and facilities for foreign asylum seekers, as well as waste collection, and maintenance of public parks. During the operation, 37 suspects were arrested in December 2014 for participation in mafia-style criminal organization, extortion, usury, bribery, bid rigging, false invoicing, fraudulent transfer of assets and money-laundering, with the aggravating circumstance of mafia-type and armed association. The investigation also led to the seizure of the assets (including companies, real estate and cash) held by the suspects, for overall €204 million. As a result of these efforts, the new organized crime group was effectively dismantled.

159. Corruption48 is mainly linked to contracts for construction of public works, services or supplies, generally affecting local and regional public administrations. In corruption cases, the relationship between mafia-type organizations, corrupt politicians and officials is often very tight. The statistics related to the number of individuals arrested for corruption in the public administration and the numbers of individuals convicted on this charge are indicated in the table below. The table shows that, despite the differences due to the period of time needed to bring the trials to conclusion, most of the individuals brought before to court are convicted. Despite these successes, the risk of ML related to corruption is still significant and LEAs efforts could be strengthened further to focus on laundering of proceeds of corruption (see statistics related to ML convictions below).

Table 7

Number of People Arrested and Convicted by Final Sentence in Italy for Corruption Against Public Administration (Articles 314, 317, 318, 319, 319 TER, 320, 323 Criminal Code)

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160. Overall and in all above mentioned crimes, LEAs could further improve the AML policy by determining objective criteria that would allow them to prioritize ML cases related to major proceeds-generating offenses and those related to foreign predicates.

Types of ML Cases Pursued

161. Prosecutions and convictions of ML are focused on cases related to proceeds of domestic predicates offenses, and to a lesser extent to those related to foreign predicate crimes. There were no prosecutions and convictions related to self-laundering due to its recent criminalization.

162. The ML activities investigated are generally the result of the identification a related predicate offenses. In some cases, the ML investigation led to the detection of predicate offense (see for example the Money River Operation above). There are few standalone ML investigations conducted by the GdF and other LEAs. According to the authorities, this is due to the fundamental legal principle according to which criminal action is mandatory (and any suspicions of a predicate must therefore also be investigated) and to the fact that illegal proceeds are, in most cases, generated in Italy rather than abroad. The predicate offenses identified by the GdF in the last few years are the following:

Table 8

Natural Persons Arrested by GdF for ML—Linked to PO (Articles 648 BIS and 648 TER CC)

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163. All the GdF investigations into ML that were triggered by STRs are also connected to an investigation into a predicate crime. Until December 2014, these cases were all related to third-party money launderers (because until then, self-laundering was not criminalized). The DIA’s financial investigations efforts focus on attacking the financial structure of “profit-oriented criminality,” and their funds. In response to the growing threat posed by mafia-type organized crime groups, special measures were adopted (in the 1980s and thereafter) to provide the authorities with more powers to trace and confiscate assets (e.g., preventive seizures, confiscation per equivalent, described below). The special measures are now also available outside the context of organized crime, such as in instances where ML or self-laundering is committed habitually.

164. Italy has vast experience in prosecuting complex cases that mainly involve the laundering of proceeds of predicate crimes committed in Italy. ML as a standalone offense is not often investigated. It is more frequent to find combined investigations of the predicate offense and the laundering activities. It is not necessary to prove any links to specific predicate offenses to be able to prosecute ML, the very high number of investigations linked to associate predicate crimes indicates that investigations and prosecutions are not pursued unless the link to the predicate offenses is well established.

165. The structure of the public prosecution’s office varies across the different regions of Italy. Their composition and configuration is based on the criminality profile of their area of competence. In each region, specialized pools of Prosecutors are dedicated to different crimes, for example, as it has stated above, in Milan, due to the characteristics of the criminality of the region (i.e. the predominance of financial crimes), the prosecutor’s office includes prosecutors specialized in the prosecution of tax crimes and other financial crimes. The authorities informed the team that criteria are often used by prosecutors to prioritize cases, including ML cases.

166. The number of prosecution for ML (including the number of natural persons)—article 648 bis—money laundering, complemented by article 648 ter—use of money, goods or assets of illicit origin—of the Criminal Code and article 12 quinquies D.L. 306/92-conducted is as follows:

Table 9

Number of Prosecutions and Number of People Included for the Requests of Prosecution for the Related Crimes

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167. The average of prosecutions initiated decreases slightly from 2011 to 2012, after an increase in 2010. ML prosecutions are generally linked to the predicate offense and there are fewer prosecutions for the ML as a standalone crime. Foreign predicate offenses are not frequently prosecuted from the ML perspective—because Italy does not consider that foreign predicate offenses are major predicates for ML in Italy, however there are suspicions about foreign organized crimes laundering their funds in Italy.

168. Up until January 1, 2015, the lack of criminalization of the self-laundering meant that only third-party laundering could be prosecuted. This not only entailed that the author of the predicate offense could not be sanctioned for laundering the proceeds of that offense but, in many instances, also hindered the sanctioning of the activities performed by some third parties, more specifically certain groups of professionals (e.g. accountants in the case of tax crime). This is due to the fact that any involvement on their part in the ML activities (which was a frequent occurrence in practice), even a minor one, led judges to conclude that this was an instance of self-laundering that could not be punished. A conviction was therefore based only on their participation in the predicate crime (as accomplice or accessory to the main crime), which generally carries a lower penalty than ML.

169. As a result of the recent introduction of the self-laundering offense, some authorities foresee an increase in ML cases -but none seem to consider this sufficient ground to seek for additional resources. While the new self-laundering offense clearly opens additional avenues to fight crime and provides opportunities for greater international cooperation, it has not been tested by the prosecutors and courts and the impact it will have on the effectiveness of Italy’s AML efforts is still subject to courts’ jurisprudence.49

170. The number of ML cases with final verdict are as follows:

Table 10

Definitive Convictions by Type of Crime

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Table 11

Number of ML Prosecutions Compared to Total Number of Prosecutions (2010–2012)

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Table 12

ML Investigations

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171. According to the authorities, the number of prosecutions and convictions for standalone ML and for ML related to foreign predicate offences is difficult to compile due to the fact that that foreign predicate offenses are also often considered as domestic (due to links with Italy). The number of final convictions is low when compared to the number of cases investigated. Italy does not have available up-to-date statistics on sanctions of legal persons. Only one case where a legal person was sanctioned was provided. Overall, Italy has improved in terms of obtaining ML convictions since the last assessment and is achieving reasonable results. However, in light of the magnitude of the risks, the overall results are lower than they should be. In addition, the numbers have been slightly decreasing in recent years whereas the risks seem to remain at the same level. Furthermore, the number of ML prosecutions is generally low compared to the overall number of prosecutions in associated predicate crimes.

Effectiveness, Proportionality and Dissuasiveness of Sanctions

172. Some statistics reveal that most of the ML cases (article 648 bis) were sanctioned with a penalty of imprisonment of 2 to5 years, with some higher terms of imprisonment of 5 to 10 years; cases of receiving (article 648) were sanctioned with a penalty of imprisonment of less than one year; the use of money, goods or assets of illicit origin (article 648 ter) were sanctioned with penalties of imprisonment of 2–5 years, with some individuals sentenced to 1–2 years of imprisonment. Discussions with LEAs also revealed that a large number of persons sanctioned for ML and predicate crimes are repeat offenders. This would tend to indicate that the sanctions applied are not sufficiently dissuasive but, according to the authorities, is more indicative of a lack of adequate rehabilitation.

173. Legal persons have not been often prosecuted for ML offenses despite the fact that, as highlighted in the NRA, they are misused to a relatively large extent for ML purpose. It appears therefore that this option is not adequately considered or pursued. Statistics on sanctions imposed on legal entities are not available, but cases shared with the assessors (see Middle World Case for example) indicate that sanctions are applied in some cases. Shares have notably been confiscated in instances where companies were involved in the illegal activities of or were owned by criminals. At the time of the assessment, no sanctions had been imposed on charges of self-laundering due to the recent entry in force of the offense. Overall and in conclusion, legal persons are not sufficiently prosecuted for ML activities. The complexity of the criminal activities under scrutiny, the complexity of the court procedures, together with the combination of the existence of two courts of merit and one of legitimacy—Corte di Cassazione (the Supreme Court), contribute to prolonging the proceedings, which, in turn, could undermine the efficacy of the judicial system. Some authorities expressed concerns over the procedural aspects of the Italian judicial system, in particular with respect to the statute of limitation.5152 (No precise information on the length of criminal proceedings was provided, but it was clear from discussions with the authorities that ML cases, especially complex ones, take several years from the beginning of the investigations to the final sentence. The average of the limitation period for article 648 bis CC runs for 18 to 24 years which appears adequate, and is not affected by the limitation period for the predicate crime. Some prosecutions raised concerns to corruption activities conducted before the implementation of Law 190 of 2012 and the 2015 anti-corruption regulation approved in May 2015 mentioned above. The recent Law amended some provisions of the CC, including the regime of statute limitation for corruption crimes. Prior to those regulations the limitation period for corruption cases was shorter and some criminal activities could go unpunished.

Extent to Which Other Criminal Justice Measures Area Applied Where Conviction is not Possible

174. It is possible to use plea bargaining during the process (in limited circumstances also for repeat offenders), and in most of the crimes punished with final penalties less than five years of imprisonment (article 51 of CPC). Plea bargaining is available but can only be used in limited circumstances. For instance it cannot apply to organized crimes cases. Authorities mentioned it is possible to implement plea bargaining for ML cases with the above mentioned limitations.

175. The data provided under IO.8 reveals that the LEAs and the public prosecutors make great use of the different provisional and confiscation measures, including non-conviction based confiscation provided by the Italian law to deprive criminals from the proceeds of crime and instrumentalities.

176. Resources are generally available for LEAs, prosecutors and courts. However, lack of financial resources for prosecutors and courts in some provinces is an issue. LEAs could benefit from additional training about the ML offense.

Overall Conclusions on Immediate Outcome 7

177. Italy demonstrates many of the characteristics of an effective system for investigating and prosecuting ML offenses. ML cases, including large, complex cases, are investigated through specialized teams, using sophisticated and well-developed IT tools, as well as a range of investigative techniques. The anti-mafia toolbox, in particular, has proven particularly useful in practice including in cases unrelated to organized crime. These important features of Italy’s law enforcement efforts as well as the quality and expertise of police officers and prosecutors have led to a good number of ML activities being investigated and prosecuted and offenders sanctioned. Nevertheless, in light of the high risk of ML in Italy, some moderate improvements are necessary to further enhance the prospect of detection, conviction and punishment is dissuasive against potential criminals when carrying out proceeds generating crimes and ML.

178. Italy has achieved a substantial level of effectiveness for IO.7.

E. Immediate Outcome 8 (Confiscation)

Confiscation of Proceeds, Instrumentalities and Property of Equivalent Value as a Policy Objective

179. The confiscation of criminal proceeds, instrumentalities, and property of equivalent value is a clear policy objective that the Italian authorities pursue to a large extent in the context of their proceedings. This is notably highlighted by the large amounts and variety of assets seized and confiscated. The authorities take a “follow the money” approach based on a comprehensive framework for both conviction-based and non-conviction based confiscation. Asset recovery is considered as the best way to fight organized criminal groups, in particular the mafia-type groups, not only to remove the assets from the hands of the criminals and disrupt their activities, but also to send a strong “symbolic” signal.

Confiscations of Proceeds from Foreign and Domestic Predicates, and Proceeds Located Abroad

180. Italy has a developed a strong asset recovery system which includes a variety of tools and involves a number of actors. The framework is characterized by the availability of (i) conviction-based confiscation (issued within criminal proceedings and includes both criminal and “extended” confiscation), and (ii) preventive confiscation (which was developed specifically to target serious and organized crime offenses, and which can used outside criminal proceedings; See Box on the so-called Anti-mafia measures, below).

Preventive seizure and confiscation measures provided by the Anti-Mafia Code

Alongside the “traditional” seizure and conviction-based confiscation made available by the criminal procedure code for a wide range of crimes (including but not limited to serious and organized crime), the LD No. 159/2011 (the Anti-Mafia Code) provides for a number of so called “preventive” measures specifically aimed at facilitating the recovery of assets linked to the specific serious crimes and depriving criminals of the assets at their disposal.

Originally designed in 1982 to fight the mafia, these measures are now available in other contexts as well, including ML when conducted on a “habitual” basis and TF. They target the assets of persons who (i) are linked to organized and non-organized crime; (ii) “habitually” conduct criminal activities (including ML), i.e., persons who, in light of their conducts(s) and standard(s) of living, appear to be living, even in part, on the proceeds of criminal activity; or (iii) are suspected of funding terror (including natural and legal persons designated by the UNSC).

These measures can be applied independently from the prosecution include, in particular, the confiscation per equivalent. The key prerequisite for its application is the potentially socially dangerous conduct of the subject (e.g., potential affiliation to a criminal organization or involvement in certain serious crimes). The main benefit of the preventive confiscation is the reversal of the burden of proof. It is not necessary for the prosecution to bring a proof that the person targeted has committed an offense. It must only be established that the person is habitually engaged in criminal activities or is living, even in part, from the proceeds of criminal activity. A wide range of financial crimes is captured such theft, robbery, extortion, fraud, usury, third party ML or self-laundering, and tax offenses. It is up to the person affected by the measure to demonstrate the legitimacy of the assets seized or confiscated. Preventive confiscation may also be applied in instances where the person is deceased.

In anticipation of confiscation, provisional measures may be applied, such as the preventive seizure (“sequestro di prevenzione,” i.e. the seizure of goods under the direct or indirect control of the accused person) and early seizure (“sequestro anticipato,” i.e. the seizure of assets in tangible danger of being consumed, misappropriate or transferred for confiscation which may be ordered before setting a hearing).

181. In practice, the authorities pay adequate attention to the confiscation of assets (of all types) in the course of their investigations and trials. This is in particular the case for assets in Italy as highlighted by the case and statistics provided. During their investigations into domestic predicate offenses, the LEAs carry out financial investigations with a view to identifying assets that can be seized and confiscated. The SCICO (i.e., the GDF Unit against organized crime) notably uses the MOLECOLA platform (described in Box 3 above) to identify all the assets owned by a suspect or third persons linked to him/her. All types of assets are seized and confiscated, including bank accounts, shares of legal persons, real estate, businesses, cars and luxury goods. Alongside law enforcement measures, the UIF also has the power to suspend momentarily suspicious transactions and to implement freezing measures. From 2009 to 2014, it has suspended 238 transactions, for a total value of €313.80 million.

182. The Italian authorities provided numerous examples of implementation of the “preventive” measures provided by the Anti-Mafia Code, such as the “Middle-World” case (described in Box 6). The statistics provided by the DNA (See Annex 4) show that these measures are frequently and effectively applied against a great variety of assets representing important amounts, not only on the grounds of predicate offenses but also ML. The statistics also reveal that preventive measures are more often implemented in the south of Italy, more specifically in Calabria, Campania, and Sicily, both in terms of number of assets and amounts that they represent.53 This is line with the Italy’s risk profile as these three regions are those in which the most important and powerful organized crime groups are still established, namely, the N’drangheta in Calabria, the Camorra in Campania (notably in Naples), and the Cosa Nostra in Sicily.

183. The charts provided by the GdF and DIA indicate similarly large amounts seized for ML or for the predicates, on the basis of the Anti-Mafia Code or of the general seizure and confiscation provisions. (See Annex 4).

184. The following table attempts to consolidate the statistics on seizures and confiscations provided by some authorities (i.e., GdF, DIA, and DNA):

Table 13

Conviction and Non-Conviction Based Seizures and Confiscations54 (€ Millions)

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177. The cases provided (notably the “Green fees” case described in Box 5 above)59 indicate that the authorities are proactive in seeking other jurisdictions’ assistance in seizing and confiscating assets (including proceeds, instrumentalities of crime and property of equivalent value) located abroad, and that, on the basis of these collective efforts, large amounts of proceeds of crime have been repatriated to Italy. Limited statistics are, however, available in this respect. The only statistics provided deal with the number of requests for police cooperation sent through the “ARO” (the Asset Recovery Office located within the Home Office), a supranational network at the EU level.60 The figures provided for 2012 and 2013 indicate a clear increase in the number of requests for cooperation in the tracing illicitly acquired assets in foreign territories (37 requests were sent abroad in 2012 and 68 in 2013), but no detail was provided on their outcome. In these circumstances, while it is clear that the authorities have been successful in a number of instances, it was not established that they target assets abroad as systematically as assets located in Italy. To date, Italy has not shared assets generated by an offense committed abroad and seized in Italy during a national investigation (i.e., predicate offense committed abroad and ML offense committed in Italy), but there was no indication at the time of the assessment that this may have undermined the effectiveness of Italy’s efforts.

178. The assets seized and confiscated in Italy are managed by three agencies:

  • The National Agency for the Management and Allocation of Seized and Confiscated Assets to Organized Crime (ANBSC)61 which is the authority in charge of the administration, management and custody of assets other than funds definitely confiscated (i.e. with final judgement) in the context of organized and mafia-related crimes.

  • The Fondo Unico Giustizia (FUG), which is in charge of the administration of seized and confiscated funds.

  • The Agenzia del Demanio, which is the central authority in charge of the administration, management and custody of public property. It is in charge of confiscated real estate nonrelated to organized-crime cases.

185. The ANBSC, in particular, manages a large portfolio of assets of different kinds. As of January 2015, it notably managed 1,491 companies and 8,713 real estate. Where necessary, public administrators are appointed to run companies and businesses, and where possible, assets are sold by auction. The authorities indicated that, due to the stigma attached to organized crime, real estate previously owned by mafia groups are difficult to sell. In these cases, the assets are used for the public good (for example, some properties have been converted into barracks for LEAs). As for the FUG, from 2009 to September 30, 2014, it had transferred €905,037,225 to the State budget. The ANBSC and FUG figures complete the information provided by the GdF and DIA with respect to assets seized (see above), but the link between them is nevertheless unclear. More specifically, the information provided does not enable to establish the percentage of seizing orders or preventive confiscation orders that ultimately result in final confiscation.

Confiscation of Falsely or Undeclared Cross-Border Transaction of Currency/BNI

186. Italy has established a declaration system for cross-border transportation of currency or bearer negotiable instruments (BNI) that applies to both inter- and intra-European transfers equal to or above €10,000. Italy is one of the few EU Member States (together with France, Spain and Germany) which has implemented a declaration obligation for intra-European movements of currency/BNI.

187. In instances where currency/BNI are not properly declared, the authorities seize amounts equal to 30 or 50 percent of the amounts transferred over €10,000, depending on the value of the undeclared amounts.62 Persons who fail to comply with the declaration obligations are either subject to an immediate plea, or to an investigation that results in a seizure, as indicated in the table below.

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188. These statistics show a steady increase in the issuance of sanction decrees, while the overall amount collected remains steady. This does not appear to demonstrate that the regime is sufficiently dissuasive in curbing the problem. The level of amounts seized and/or paid related to illegal cross-border movements of cash is low in comparison with the number of controls, and not consistent with the fact that the number of the cross-border cash movements has increased significantly.

189. The two main Italian agencies responsible for implementing the declaration system are the Customs and the GdF. While they implement the system independently pursuant to their respective authority, there is limited cooperation beyond the one-way transfer of reports from the Customs to GdF. Between 2011and 2014, Italy’s Customs Agency transmitted: 2,603 reports (of which 2,599 related to Customs checks carried out along Italy’s borders with Switzerland) to Italy’s IRA, with regard to subjects undergoing border controls for possible violations of tax laws in force (tax evasion); 41 reports to the GdF about 208 subjects. Reports made upon specific request of the GdF are 41 in total, 39 of these relate to specific subjects, 2 refer to massive queries related to declarations made to/from Switzerland and the Vatican City State; and 3 reports upon request for specific query presented respectively by: (i) DIA; (ii) Carabinieri; and (iii) IRA.

190. Controls carried out by the GdF in major airports are tailored to the specific operating environment. At the Malpensa Milan Airport, for example, a GdF Group uses timely statistical information made on currency-related offenses for the period 2008–2014, which allowed the GdF to develop risk profiles associated with currency couriers, and thus provided operational guidance to the military representatives operating in the currency field, on the occasion of each control activity performed.

191. The authorities mentioned three specific cases in particular where seizing was performed during Customs’ controls on the grounds of suspected ML. All three cases were then notified to the judicial authorities. The information acquired in the course of cross-border controls on currency circulation is further investigated and enhanced: as soon as the conditions permit (existence of criminal records, detectable connections with crime-related subjects, obvious disproportion between available funds illegally possessed and official incomes, methods of concealment of the sums carried, recurrent name within SIVA, etc.), the relevant judicial authority orders the necessary interim measures in relation to the predicate offenses. In other cases, the relevant Department (Reparto) is notified for further investigation. In 2014, 1,720 informative notes were transmitted to the relevant local departments by the operational units operating at border zones (ports, airports, etc.).

Consistency of Confiscation Results with ML/TF Risks and National AML/CTF Policies and Priorities.

192. The confiscation results reflect the assessments of ML/TF risks to a large extent: organized-crime groups (both of mafia and non-mafia type) are clearly targeted by confiscation efforts as a matter of priority. The proceeds of corruption have also been seized and confiscated albeit to a lesser extent. Efforts to curb tax crimes modest in comparison with the risk but have greatly increased over the past years and this positive trend is producing significant results: Italy’s NRA has estimated the average value of annual tax evasion around €140 billion. The methodology for this estimate was subsequently refined: A 2015 MEF report published estimates a tax gap (which does not necessarily reflect fiscal crimes only but may also include mere negligence) of some €90 billion for 2014. This new estimate suggests that the situation may have improved but remains problematic. Over the last years, Italy has significantly increased its efforts to recover unpaid taxes (in general, i.e. in instance of mere negligence as well as of tax crimes). In its 2015 report, the MEF highlights that the tax administration had recovered a total of € 38.3 billion of unpaid taxes from 2011 to 2013 and €14.2 billion in 2014 (i.e. an increase of 8.4 percent compared to 2013). These figures and the positive trend that they reflect are important (especially in a time of economic recession) and indicate the authorities’ willingness to curb tax evasion.

Overall Conclusions on Immediate Outcome 8

193. Italy’s system demonstrates many characteristics of an effective system. The authorities focus strongly on provisional and confiscation measures, at domestic and international levels, applying a “follow the money” approach in order to tackle crime. They target organized crime as a matter of priority, and have made significant efforts to recover the proceeds of other crimes as well, including corruption and tax crimes. The case studies and statistics provided indicate that they make good use of available tools, in particular the Anti-Mafia Code’s preventive measures, to confiscate a range of assets linked to crime. These efforts are particularly effective with respect to assets located in Italy; due to loopholes in the statistical data, the authorities could not be established that they target assets abroad quite as systematically and as aggressively as assets located in Italy, but the cases provided nevertheless demonstrated that they have successfully sought international cooperation to trace and repatriate abroad. As a result of the authorities’ actions, criminals have been deprived of large amounts of proceeds, including in the higher risk regions of the country. The total amount of assets confiscated in Italy varies between some 12.3 percent to 1.7 percent of the estimated total amount of proceeds (which, as mentioned above, ranges between 27 and 194 billion). These results are encouraging and should be maintained. Despite these efforts, organized crime remains a significant concern in Italy, carrying out varied criminal activities (not only in the South but on the entire national territory as well as abroad), generating enormous amounts of proceeds to be laundered. Similarly, corruption and tax crimes remain significant problems. This seems, however, to be due to the shortcomings identified under IO.7 rather than to any significant shortcoming in the implementation of the confiscation framework.

194. Overall, Italy has achieved a substantial level of effectiveness with IO.8.

Terrorist Financing and Financing of Proliferation

A. Key Findings

The authorities demonstrate a good understanding of TF risk. Anti-terrorism efforts focus on detecting and disrupting terrorist cells, and include parallel financial investigations. No evidence of TF has been identified and, as a result, there have been no prosecutions for TF.

The two lead bodies (i.e., the CASA, which coordinates the response to specific terrorist threats, and the FSC, which coordinates the management of targeted financial sanctions - TFS) appear to be well managed but there is no policy coordination between them.

Italy has effectively implemented TFS but new listings are not actively communicated to FIs and DNFBPs. The FSC has nominated more than 90 individuals and entities for UN listing, and is effective in its management of assets of listed persons but its mandate and means for information sharing are not sufficiently wide. Italy has also adopted national measures to remedy the deficiencies in the EU framework for UN 1267/1989 and 1988 sanctions, although not all of these have been tested.

Italy does not have a targeted, interagency coordinated approach to supervising the non-profit organization (NPO) sector. The ministry in charge of NPOs (i.e., the MLSP) is not integrated into the FSC’s work. Limited outreach has been undertaken to the sector.

Italy actively mitigates the proliferation financing (PF) risk emanating from Iran, and is aware of the risk emanating from trade with North Korea but could not demonstrate that TFS can always be implemented without delay.

B. Recommended Actions

Italy should:

  • Conduct additional outreach to the financial and non-financial sector with regards to the risk of PF and TF.

  • Establish a system to actively notify reporting entities of new sanctions listings and ensure that new listings/designations for TF and PF are systematically implemented without delay.

  • Adopt a more strategic mandate to address TF risk by discussing typologies and methodologies of TF. The authorities should also consider modalities to better integrate the activities of CASA and FSC to better exploit the use of sanctions to better mitigate TF risk. The FSC should consider whether additional legislative reforms are necessary to ensure a smooth flow of information across agencies, so as to further mission of the FSC.

  • Continue current efforts to detect possible TF offenses and, if detected, proactively investigate and prosecute TF activities.

  • Adopt a targeted, coordinated, RBA to oversight of higher risk NPOs and conduct additional outreach to and awareness raising for NPOs.

The relevant Immediate Outcomes considered and assessed in this chapter are IO.9–11. The recommendations relevant for the assessment of effectiveness under this section are R.5–8.

C. Immediate Outcome 9 (TF Investigation and Prosecution)

195. The Italian authorities demonstrated a good understanding of TF risk. Risks are influenced mainly by international tensions and conflicts, particularly in Iraq, Libya and Syria. The most significant emerging risk is the potential support of Italian residents travelling to conflict zones abroad to help foreign terrorist groups. The terrorist activities detected, both for domestic and foreign terrorist groups, are based mainly in small, self-financed cells.

196. The CASA coordinates the response to specific terrorist threats at the strategic level. It is composed of the GdF, Carabinieri, and State Police, as well as the Intelligence Services. In CASA, information on terrorism is shared and analyzed periodically by its members in order to take decisions on the planning of preventive actions. CASA focuses on the assessment of terrorist threats at domestic and at international level.

197. Counter-terrorism strategies have enabled Italy to identify terrorists and terrorist support networks. TF investigation is part of the counter-terrorism strategy. The cases shared with the assessment team indicated that the competent authorities systematically investigate the financial aspect of terrorists’ activities (i.e. how the activities are financed, or the incoming and outgoing flows). Financial intelligence is a source to initiate and develop investigations by identifying other persons involved or detecting the existence of networks. The authorities use all the means of investigation available to them, including access to banking information, wire-tapping, searches and observation.

198. The authorities established that they also make an effective use of international cooperation channels, in particular, with neighbouring countries.

199. As a result of LEA’s activities, several individuals were arrested on terrorist activities charges over the last five years. No evidence of TF activities was found;63 all the cases related to self-financed cells and involved relatively small amounts. Similarly, none of the investigations revealed potential misuse of NPOs. Prosecutions were therefore initiated for terrorist activities (article 270 bis CC), but not TF. The statistics provided are the following:

Table 14

Number of Requests for Prosecution Initiation or Filing for Terrorism (Article 270 BIS CC)

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200. The number of persons convicted are the following:

Table 15

Persons Convicted by Final Sentence (270 BIS CC)

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201. Some statistics shared with the assessment team (but not consolidated for publication in this assessment report) revealed that most of the cases of terrorism are sanctioned with a penalty of imprisonment of 5–10 years, with some individuals sentenced to 2–5 years of imprisonment.

202. In some instances, Italy deported from its territory foreign residents deemed to pose a potential threat as a means to disrupt potential terrorist activities.64 The deportation was ordered by the MoI when there was no evidence of terrorism or TF but possible links to such activities. Three individuals were deported on these grounds in 2012, two in 2013 and one in 2014.

Overall conclusions on Immediate Outcome 9

203. Italy exhibits many characteristics of an effective system for investigating and prosecuting those involved in terrorist actions. The legal framework for the investigation and prosecution of TF is generally sound. Every counter-terrorism investigation includes an investigation into potential TF. While some convictions on terrorist activities have been secured, no recent TF convictions were produced due to the characteristics of the people cases (small self-financed terrorist cells). Italy also uses other measures to address the most relevant emerging terrorist activities.

D. Immediate Outcome 10 (TF Preventive Measures and Financial Sanctions)

Implementation of Targeted Financial Sanctions for TF without Delay

204. As a member of the EU, Italy is reliant upon the EU framework for implementing designations under United Nations Security Council Resolutions (UNSCR) 1267/1989 and 1988, EU Regulations 881/2002, and 753/2011, respectively. Italy subsequently adopted national legislation for implementing TFS (LD 109/2007 and Ministerial Decree (MD) 203/2010). Through this framework, Italy has implemented a national mechanism to propose designations, manage frozen assets, and delist identified persons and entities. These measures will be described in the subsequent paragraphs.

205. Italy has national measures available to supplement the EU freezing framework via the Anti-Mafia Code and the joint MEF/MFA decree (LD 109/2007). Through the Anti-Mafia Code, Italy can freeze the assets of “EU Internals”, and supplement a gap in the EU framework. Italy, through national measures, has also supplemented the EU framework via LD 109/2007 to include “assets” that are “owned or controlled” by a listed person within the scope of the freezing measures. In a recent case, the authorities froze a bank account and company registered in name of the spouse of a listed UNSCR 1267/1989 person, thus demonstrating that they can affect assets indirectly owned by designated persons.65

206. Accounts/assets located in Italy at the time of UN designation: Through pre-designation coordination amongst UN member states, Italy receives notification of pending designation proposals usually a few weeks before UN listing. On this basis, the UIF conducts searches through the database of assets to determine whether the listed person or entity maintains any accounts or property in Italy. If the UIF locates assets, it notifies the FSC which can then request a joint MEF/MFA decree or public prosecutor’s freezing order under the Anti-Mafia Code, please see R.6 for further analysis. These measures have not been tested in practice, as there have been no instances where the UIF has located relevant assets of the person or entity that will be designated. Their effectiveness therefore cannot be determined. In particular, it could not be established that freezing can occur “without delay.” The joint MEF/MFA decree was used one time and it took several months to conclude under non-emergency conditions.

207. For transactions transiting Italy, given the time delay between the UN designation and EU action, transactions involving listed entities or persons could be processed. In the time between the UN listing and EU listing, a transaction could be processed through the Italian financial system as EU listings can be delayed by days due to the EU implementation process. The authorities note that in advance of a new EU listing, the UIF alerts financial intermediaries to the new UN listing, so that they do not to process a transaction. While this approach aims to mitigate the UNSCR 1267 requirement to prohibit the provision of financial services to listed persons, it is unclear to what extent the UIF’s alert is binding on the financial intermediaries. While these national measures for both accounts in Italy and transactions transiting Italy are available, they have not been used in practice, as the need for such measures has not arisen yet, and therefore the effectiveness cannot be assessed.

208. Italy has nominated 80 individuals and 16 entities to the UNSCR 1267 Al Qaeda Sanctions Committee. The statements of the case accompanying these nominations provided enough information for a successful listing of the targeted individuals and entities. Italy has not made any requests foreign states under UNSCR 1373, but has received one request, which the authorities referred to the EU’s CP 931 Committee. Italy has also nominated 16 individuals and one entity to the EU CP 931 Committee.

209. Pursuant to UNSCR 1267, Italy has frozen approximately $110,000 in assets related to 53 transactions/accounts and 38 persons/entities to date. Since 2007, it has also placed four companies listed by the UN’s Al Qaeda Sanctions Committee under controlled management by the State Property Agency. In addition, between 2005 and 2007, it dealt with the freezing of a hotel in Milan through an ad hoc procedure.

210. Supervision of the implementation of TFS appears to be functioning well. Italy’s TF-related supervision of TFS includes checks conducted by the UIF, during both on-site and off-site supervision of all reporting entities. Between 2012 and 2014, the UIF identified nine potential sanctions breaches which resulted in three final sanctions issued by the MEF, namely one €500 fine in 2012 and two fines for a total of €900 in 2013. The most frequent violation was the transfer of funds to subjects listed (article 5.4); in one case the UIF was not informed of freezing adopted (article 7.1) and in another case information related to listed persons was not passed to the UIF (article 7.2).

211. The authorities have issued guidance in 2001, 2002, 2009, and 2010 for FIs and DNFBPs related to their obligations on TF asset freezing measures. In addition, the UIF’s website contains references to the specific freezing obligations.

212. Italy does not have a mechanism for actively notifying FIs and DNFBPs of newly listed individuals and entities. Currently, the UIF includes links on its webpage to the UN, EU, and U.S. sanctions lists, as well as an overview of obligations for institutions under LD 109/2007; however, the Italian authorities do not reach out to obliged entities when a name is added to the UN Consolidated list. Obliged entities and individuals are responsible for informing the UIF when they have identified asset related to the EU framework. The authorities indicate that individual firms can subscribe to a European Commission RSS feed that provides designation updates. The use of external service providers, such as World-Check, by most FIs and larger DNFBPs may mitigate the risk that a firm is unaware of a new listing. While the authorities have not conducted any checks to verify the contents and robustness of these commercial databases, they indicate that they inspect the commercial databases of the financial intermediaries to monitor for new listings. These commercial databases are also used daily for real-time transaction monitoring by FIs and some DNFBPs. As such, these commercial databases update their information with new sanctions listings as it becomes available. Therefore, if a bank using this software did not check the EU’s website on a regular basis, it could still be alerted to potential transactions that may involve listed entities.

213. Italy has an effective system for the management of frozen assets and companies, and for receiving and vetting requests for unfreezing funds, as well as for monitoring frozen assets. The FSC is responsible for managing the assets of all persons and entities sanctioned by the UN under the EU’s framework. Since 2010, the FSC has granted four of the seven requests received for unfreezing terrorist assets under the basic expenses exemption of UNSCR 1452, which mainly dealt with health-related expenses. The authorities report that they have instituted a system of funds tracing to ensure that the unfrozen funds are used for their intended purpose. Through the State Property Agency, Italy has developed a system for the management of designated companies to ensure that the designated persons does not benefit from the profit of these entities, while also preserving the employment of the individuals at the firm.

214. Amongst those designated by Italy (alone or jointly with other countries) under the sanctions regime for Al Qaeda, 27 individuals and 16 entities were subsequently delisted. There was also one case of an individual whose assets had been accidentally frozen due to homonymy. The Italian authorities resolved this case through coordination with a third country via diplomatic channels, and the individual’s assets were unfrozen.

Targeted Approach, Outreach and Oversight of At-Risk Non-Profit Organizations

215. Italy’s non-profit sector is composed of over 300,000 entities that take a variety of legal forms. NPOs do represent some risk to the Italian financial sector, but the NRA found that the NPO sector represents a low TF risk. The authorities stated that the primary risk from NPO is for tax evasion, due to the decreased tax regime that these entities enjoy. The FIs met by the evaluation confirmed this belief/understanding, noting historic cases where NPOs were used for ML purposes, but not validating their potential risk for TF purposes. While the GdF has access to information on NPOs’ financial activities, it does not appear that the authorities have conducted a targeted risk-based analysis in order to prioritize the implementation (monitoring, enforcement) of NPOs, per R.8. Since 2010, the UIF has received and analyzed a total of 26 STRs all sent by financial intermediaries regarding activities of non-profit entity account holders.66 According to the authorities, many of these reports were of an “investigative interest,” and several of these cases are on-going. (See Text Box under IO.6 for an example.).

216. Italy does not have a targeted, interagency coordinated approach to supervising the NPOs with the highest risk, such as those operating overseas and those controlling the largest amount of financial resources in the NPO sector. With multiple ministries, regions, and law enforcement agencies exercising authorities over different aspects of the NPO sector, Italy’s NPO monitoring lacks effective national coordination, particularly related to identifying TF threats in the sector While the MLSP is the Ministry that is responsible for non-profit oversight, it does not appear to have established a mechanism with respect to the counterpart ministries, law enforcement agencies, and regional governments to oversee the sector and ensure that the TF threat is adequately mitigated using a risk-based approach. In turn, the MLSP has only a limited involvement in both the FSC and CASA, having participated in a limited number of activities.

217. The authorities are able to identify instances of abuse in the course of their daily activities and take enforcement actions against NPOs if TF or other abuse is identified. These enforcement actions are carried out by the GdF and IRA, as well as other ministries. Since 2010, the GdF has inspected 224 NPOs for potential tax crimes under LD 74/2000. None of these inspections revealed potential signs of TF. These measures appear to be in line with the low risk of TF identified by the authorities.

218. The MLSP is responsible for publishing guidance and conducting outreach, such as recent engagement with NPOs to discuss the NRA results. However, Italy has only conducted limited engagement and outreach to maintain regular dialogue with its domestic NPO sector about TF risks to the NPO sector, the potential TF risk in Italy and TF-specific risk mitigation best practices. One example provided related to outreach conducted to the NPO sector with respect to the NRA results. The MLSP has not published any guidance with respect to the TF threat to the charitable sector.

219. The assessment team did not have the opportunity to discuss these issues with the NPO sector.67 It is therefore unclear if NPOs understand TF vulnerabilities, risk mitigation measures to protect themselves from the threat of terrorist abuse, or the efforts taken by the authorities to protect the NPO sector from abuse using a risk-based approach.

Deprivation of TF Assets and Instrumentalities

220. Italian anti-terrorism investigation efforts are mainly targeted on disruption while parallel investigations are also conducted but have revealed assets in limited instances only and therefore few provisional measures were ordered.

Consistency of Measures with Overall TF Risk Profile

221. Given Italy’s focus on disrupting terrorist cells and limited number of TF evidence, Italy’s law enforcement uses TFS for TF less actively than in the past as a tool to prevent terrorists, terrorist organizations, and terrorist financiers from using the international financial system.

222. While the authorities have a forum for deliberating and developing designation proposals, the system is not currently actively used to propose nominations to the EU and UN. From 2001–2006, the FSC has nominated 80 individuals and 16 entities to the 1267/1989 Al Qaeda committee. Italy’s last successful terrorism designation proposal was in 2006, when 16 individuals and 1 entity were listed.

223. As the overall AML/CFT policy coordinator, the FSC adequately manages frozen assets, but its effectiveness to implement TFS could be improved by considering additional strategic initiatives through an expanded mandate, such initiatives could include a typology discussion. While no confidentiality clause hinders the sharing of information amongst FSC member agencies, information sharing is often limited to the listing, delisting, and freezing related measures under deliberation.

224. Individuals traveling to high-risk areas for work or pleasure are at risk of terrorist kidnapping for ransom operations. Italian citizens, including journalists, aid workers, and others, have indeed been taken hostage by terrorist groups, included those linked to Al Qaeda, in the Sahara, Afghanistan/Pakistan, Syria, Iraq, and Libya over the past 15 years. As the FATF typology on Piracy/Kidnapping for Ransom (KFR) discusses, terrorist groups are increasingly relying on KFR to raise monies. Despite the above, kidnapping is only addressed in the NRA as it relates to domestic, organized-crime driven activity. Italy’s MFA does provide a website for Italians to register their travel abroad to crisis areas. The MFA also provides information on crime, security, as well as issuing travel warnings for high-risk areas.

Overall Conclusions on Immediate Outcome 10

225. Italy demonstrates some characteristics of an effective system in this area. While the authorities have augmented the EU framework for TFS with national measures, some of these national measures have not been tested in practice and some deficiencies remain with respect to implementing freezing without delay, in particular the prohibition related to ongoing financial services. Italy has passive system of notification to the FIs and DNFBPs for new listings, and the authorities have not conducted outreach to obligors or published guidance recently. NPOs are an area for improved efforts and specific action. There has been a lack of a targeted TF-related outreach and TF-related monitoring of NPOs, thus leaving NPOs potentially vulnerable to misuse by terrorist organizations. Although there are parallel financial investigations for terrorism cases, Italy has taken few provisional measures due to its context and risks.

226. Italy has achieved a having moderate level of effectiveness for IO.10.

E. Immediate Outcome 11 (PF Financial Sanctions)

227. As a member of the EU, Italy is reliant on the EU framework for implementing restrictive measures against Iran and North Korea, as its legal system and processes for implementing UNSCRs 1718 and 1737 are the same as for UNSCR 1267 and successor resolutions. As noted above, Italy has implemented national controls to supplement the EU regime which provide for the designation of EU internals and affect assets that are owned and controlled by designated persons/entities; however, the same deficiencies as outlined in R.6 and IO.10 also apply to PF-related financial sanctions, including the inability to freeze without delay and the lack of an active notification regime. In order to implement these measures, the authorities expanded the FSC’s mandate in 2007 to cover Iran sanctions and invited the Ministry of Economic Development and the Customs Agency into its membership in order to coordinate activities on trade in dual use goods and the corresponding financial transactions between the respective ministries. To date, Italy has been successful in freezing a large number of assets for Iran, as well as the Rome branch of the UN-designated Bank Sepah.

Table 16

Italian Trade with Iran and North Korea in 2014 (In Euros)

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228. Historically, Iran was Italy’s leading trade partner, but today trade with Iran has dropped considerably. As of 2014, it consisted of imports of €441 million and exports of €156 million, including €6 million in dual use goods, compared to a global dual-use export trade of €683 million. The major categories of Italian exports to Iran include industrial and manufacturing equipment, electronics, and automobile parts.

229. Despite minimal trade flows with North Korea, the Italian authorities are conscious of North Korean interest in goods barred under UN sanctions. In 2012, Italy’s trade with North Korea was over €6 million in exports and €1 million in imports, whereas by 2014 this trade dropped to €919,000 in exports and €427,000 in imports. The major category of both import and export trade is in manufactured goods. Despite this marginal trade, there have been examples of North Korea attempts to obtain Italian goods, in particular luxury goods banned under the UNSCR 1718 regime.68 Per UNSCR 1718 and successor resolutions, which are implemented by EU Regulation 329/2007, dual-use trade with the North Korea is banned throughout the EU.

Implementation of Targeted Financial Sanctions Related to Proliferation Financing without Delay

230. In response to UNSCR 1747 (2007), the BoI in collaboration with the FSC placed the Italian subsidiary of Bank Sepah under special administration pursuant to the procedure set in the CLB’s Crisis Procedures in March 2007, a month before the EU listing. Over the course of a weekend, Italian authorities established a legal mechanism to permit the continued operation of the bank under strict controls. The authorities believed that freezing the bank’s assets could compromise the sound management of the entity, so the bank was allowed to continue to operate, but under strict Italian government scrutiny by BoI, GdF, and the UIF. Since 2007, the branch has only conducted transactions authorized by the UN sanctions committee, to include payment of current expenses, legal fees and expenses related to the extraordinary administration, as well as payments in favor of individuals and entities not listed relating to contracts concluded before the listing of Bank Sepah.

231. With regards to new designations, the FSC is also responsible for proposing new listings to the respective UN and EU bodies. However, the effectiveness of the regime has not yet been tested in practice.

Identification of Assets and Funds Held by Designated Persons/Entities and Prohibitions

232. The FSC has effectively managed the sizeable assets frozen under the Iran sanctions program. Italian FIs have frozen 60 accounts and transactions of 14 individuals subject to EU and UN sanctions on Iran totalling an amount of approximately $13 billion. No funds have been frozen pursuant to DPRK sanctions.

Table 17

Funds and Assets Frozen Pursuant to PF-Related Sanctions

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233. As described above, the FSC is responsible for authorizing requests to frozen funds for basic expenses per UNSCR 1737. To date, no basic expense authorizations have been approved under EC Regulation 267/2012.

234. The FSC is also responsible for pre-authorizing transactions under the EU’s Iran sanctions program. Pursuant to EU Council Regulation 267/2012, the Italian government must pre-approve all financial transactions involving Iranian persons and entities worth more than €40,000 (which was subsequently increased). Authorities report that since the beginning of the Joint Program of Agreement in January 2014, when the pre-approval threshold was increased to €400,000, they have reviewed fewer transactions. Nonetheless, in 2014 the FSC reviewed over 4,700 transactions. In order to effectively manage these resources, Italy has developed an innovative IT solution for dealing with the both the submission process and the interagency review.

FIs and DNFPBs’ Understanding of and Compliance with Obligations

235. Italy’s FIs demonstrate knowledge of PF risk and are filing PF STRs. The BoI’s UIF published guidance to aid reporting entities in filing suspicious transaction reports related to proliferation and PF activities. Since 2009, there have been 206 PF STRs submitted, all of which were provided by banks (See box below). In total nine provinces reported PF STRs, the responses were concentrated in the industrial regions of Italy (Emilia-Romagna and Lombardia). While banks submitted STRs for transactions involving UN or EU listed persons, the majority of these reports are the result of banks reporting for reasons not related to transactions involving listed parties. The most frequent reasons for FIs filing STRs relate to irregularities with respect to the commercial counterparts (recipients, consignee, and banks) involved, the mis-coding of export goods, and the delivery to a destination that is not the shipper’s.

236. In addition to UIF’s guidance, the MEF has also issued interpretive guidance to the obliged entities on compliance with EU sanctions.

Competent Authorities Ensuring and Monitoring Compliance

237. During the last two years, UIF inspectors have visited two financial intermediaries holding frozen accounts/transactions and verified that the internal controls and procedures regarding these funds were in place. Neither on-site inspection revealed any violation. More frequent on-site inspections are necessary to ensure effective compliance by FIs and DNFBPs.

238. This table shows the decrees issued by MEF for violations of CTF/CPF targeted sanctions.

Table 18

Final Sanctions by MEF for Proliferation Violations (2012–2014)

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239. Both the MEF and MISE have conducted outreach to the financial and DNFBP sectors on the risk for PF. MISE and Customs have been active in engaging the export manufacturing sector on potential PF risks. The authorities note that in addition to the FSC’s outreach to Confindustria, Italy’s leading industrial association, they have daily contact with the financial sector on the legal interpretation issues with regards to changes in the EU’s PF sanctions regime.

240. The authorities can detect sanctions evasion activities through tracking dual-use trade via interagency coordination, as well as their analysis of trends in exporter activity. Dual-use trade is monitored through both the FSC, which authorizes the financial transaction, and the MED-led interagency dual-use export council, which is responsible for approving the dual-use good export applications. Either body can suspend their authorization at the request of the other body. MED and MEF report that they have both been alerted by the other body to potential evasion activities using this dual-track approach of monitoring. This technique can be used to detect trade sanctions and TFS evasion. Through MED’s analysis of trends in dual-use exports, the authorities have also been able to identify potential sanctions evasion activities through third countries, when recurrent exporters to Iran have diverted trade to third countries.

Overall Conclusions on Immediate Outcome 11

241. Italy demonstrates many characteristics of an effective system in this area. The issues listed under IO.10 and that relate to UN sanctions implementation also apply to IO.11. Even though IO.11 shares certain deficiencies with IO.10, IO.10 has additional shortcomings vis-à-vis the NPO sector that do not apply to IO.11. Italy has frozen a substantial volume of assets and other funds pursuant to the PF sanctions programs. Italy’s FIs demonstrate knowledge of PF risk and are filing STRs related to potential PF. The authorities appear to have established adequate domestic cooperation mechanisms in relation to sanctions evasion with regards to the PF country sanctions programs for Iran and North Korea. While the BoI on-site examinations do include PF among the issues assessed, the Italian authorities do not conduct frequent on-site inspections of FIs outside the BoI’s purview (such as insurance companies) nor of DNFBPs. Considering, however, that the main potential risk is linked to the banking sector, this deficiency does not appear to have a material impact in the context of this assessment.

242. Italy has achieved a substantial level of effectiveness for IO.11.

Preventive Measures

A. Key Findings

Generally, the FIs have a good understanding of ML threats, but their appreciation of TF risk is much less developed. The DNFBP sectors are far less attuned to risk, partly because updated secondary legislation has not been issued since the introduction of the AML Law.

Banks are potentially most vulnerable to ML, but despite some failings, the larger ones appear to be strongest in their defenses. It is not clear how well they are managing the overall risk of being the conduit through which the proceeds of tax evasion are channeled.

An area of major concern is the provision of remittance services by agents acting on behalf of companies that have benefited from the EU passporting arrangements under the Payment Services Directive. Investigations have revealed large-scale abuses of the cash reporting requirements. The authorities have been instrumental in having the supervisory framework addressed within the EU’s 4th Money Laundering Directive.

CDD measures are well embedded in the financial sector, but there is an over-reliance by some sectors on the due diligence undertaken by the banks when accepting business through agency arrangements. There is also a lack of consistency in the detailed processes for ascertaining beneficial ownership, and undue reliance on registry information, and customers’ selfdeclarations.

The obligation to identify domestic PEPs has only been extended to the financial sector so far. In view of their awareness of the threats of corruption, many institutions have extended their PEP risk profiling well beyond the scope of the regulations to include regional and local politicians and administrators.

Suspicious transaction reporting by the banks has improved over the years, but questions remain about the promptness of reporting. The results among the other parts of the financial sector are more mixed. Reporting by DNFBPs is generally poor, especially among lawyers and accountants, but is improving in the case of notaries.

B. Recommended Actions

Italy should:

  • Issue secondary legislation (or, at least, guidance) to cover all the DNFBP sectors in consultation with the relevant professional associations, and engage in an outreach program on AML/CFT obligations (in particular, CDD and the submission of STRs, and the application of the RBA).

  • Work closely with the financial sector to help improve the latter’s understanding of tax evasion typologies, and improve the reporting of suspicious transactions.

  • Extend the obligations with respect to domestic PEPs and persons holding positions of influence in international organizations to all FIs and DNFBPs; and consider extending the definition of domestic PEPs to include relevant persons at regional and local level.

  • Provide further guidance and education to reporting entities’ on steps needed to identify the ultimate beneficial owner of a customer, and clarify that reliance on the customer’s selfdeclaration is not, in itself, sufficient.

  • Explicitly require the filing of STRs in relation to the proceeds of criminal activity (and not just ML/TF); and stress the importance of the prompt filing of STRs.

  • Consider what measures might be taken to require banks to strengthen their procedures for dealing with correspondent banks within the EU to ensure that they take account of the true risks that exist when dealing with different institutions in the EU.

The relevant Immediate Outcome considered and assessed in this chapter is IO.4. The recommendations relevant for the assessment of effectiveness under this section are R.9–23.

C. Immediate Outcome 4 (Preventive Measures)

Understanding of ML/TF Risks and AML/CTF Obligations and Application of Risk Mitigating Measures

243. All the FIs interviewed perceived tax evasion (estimated in the NRA at €140 billion per annum) to be the number one challenge they faced, with the proceeds of corruption, organized crime, drug-trafficking, loan-sharking and usury also being very significant issues. In many cases, these challenges center on the broad issue of organized crime. In practical terms, this frequently translates into treating the following as higher risk: business conducted in specific geographical areas in Italy (especially the south and north-west); engagement in real estate transactions; transactions with customers that are party to public works projects; cash transactions; and interaction with certain other financial intermediaries that, historically, have a reputation for shielding the identity of clients, especially the trust companies.

244. The banking sector (including BancoPosta), which dominates the financial services industry, recognizes that it is the most vulnerable to these threats, if only because of the scope and breadth of its operations. The inspection work undertaken by the various regulators appears to show a gradual improvement over the years in the application of the preventive measures (see, for example, the table below with respect to the BoI findings), and the banks showed a good degree of awareness of their position as “gatekeepers.”

Figure 2.
Figure 2.

AML Deficiencies by Type (BoI Inspections)

Citation: IMF Staff Country Reports 2016, 043; 10.5089/9781475539370.002.A001

*The BoI regulation on intermediaries’ AML organization entered into force in September 2011.

245. However, it was far from clear how robust are the banks’ measures to deal with the particular complexities of tax evasion, which is widely recognized as the biggest single threat. For example, there are valid questions to be answered about the implications of the 2010 tax amnesty that led to the repatriation of €97 billion, of which €67 billion came from Switzerland alone. While the banks appear to have applied appropriate procedures when dealing with the repatriation of the funds by their clients (including filing STRs where relevant), it must be the case that a very substantial part of the repatriated funds was transferred out of Italy, in the first place, through the financial system to a jurisdiction that had been classified domestically as high risk for receiving the proceeds of tax evasion. These flows continue, as more recent data collected by the UIF show that, in 2013, wire transfers totaling €36 billion were made to Switzerland on behalf of Italian domestic households and commercial businesses (excluding banks and governmental agencies), although it has to be acknowledged that Switzerland is one of Italy’s major trading partners, with exports of €15 billion in 2013, and is also a major center for wholly legitimate investment activity.

246. The FIs had a near-common view that the risks relating to TF were low with respect to both domestic and international terrorism. Again, this view matched the conclusions of the NRA, but it was not possible to determine whether FIs have reviewed their policies and safeguards in the light of the developments in Iraq and Syria, in particular, since mid-2014.

247. The understanding of ML/TF risks within the DNFBP sectors is mixed, but is generally significantly less well developed than in the financial sector. This situation is not helped by the fact that secondary legislation to support the AML Law has not yet been issued for all the DNFBPs. As was clearly the case with the financial sector, such regulations would provide the DNFBPs with a much clearer appreciation of the appropriate risk-mitigation procedures.

248. Notaries play a key role in the AML framework. They operate often in sole practices, offering a highly standardized service, i.e., authenticating customer identification. The Council of Notaries has a good sense of the high-risk transactions, identifying both real estate and corporate deed transfers as the transactions giving greatest concern. Despite this awareness, notaries demonstrated less sensitivity to address the requirements for high-risk customers, such as PEPs. Real estate agents, who work directly with notaries in property transactions, generally have a low awareness of ML issues, despite the high-risk nature of the real estate sector.

249. Lawyers view their ML/TF risk as limited only to those in their profession engaging in financial/business consultancy activities. Almost 80 percent of Italy’s 180,000 active lawyers are litigators operating in law firms with fewer than 6 professional staff, and so the market for business/financial lawyers is limited in size. There is no common appreciation of lawyers’ vulnerability to being used by ML facilitators, although most agreed that risks are highest in real estate transactions, advising on project capital, and/or providing tax advice.

Application of Enhanced or Specific CDD and Recordkeeping Requirements

250. The CDD procedures across much of the financial sector are surprisingly uniform, and appear to be well embedded. Discussions with representatives of a number of FIs and their professional associations showed that, for the most part, they have a good appreciation of both their obligations and the challenges in meeting them.

251. It is clear from the BoI data (see previous table on “AML Deficiencies by Type”) that the number of occasions in which CDD deficiencies are being identified during inspections across the financial sector is declining. However, as the following table also indicates, the pattern of those deficiencies remains fairly consistent, with cases of incorrect or incomplete CDD averaging 44 percent of the total over the last three years.

Figure 3.
Figure 3.

CDD Deficiencies by Type (BOI Inspections)

Citation: IMF Staff Country Reports 2016, 043; 10.5089/9781475539370.002.A001

252. However, these data should be treated with some care, as the recorded deficiencies relate to both isolated failures within an institution, and failures that have more systemic implications for an institution. Therefore, it is not possible to draw any firm conclusions about the true depth of the weaknesses, although the regulators were of the opinion that the overall quality of the banks’ CDD procedures has been improving in the last two years. A particular challenge has been in trying to complete the CDD procedures for clients that were on the books prior to the introduction of the AML Law. The BoI estimates that about 90 percent of these have now been successfully processed.

253. A very high proportion of customers access the broader financial system by way of the banking sector, through which about 50 percent of the life insurance business is sold, and virtually all the business handled by the asset managers and card-issuing payment institutions is channeled. While, in principle, the institutions that take client funds through the banks are required to perform their own CDD, they do so almost entirely on the information supplied to them by the banks, and talk in terms of being “shielded” by the strength of the banks’ own CDD procedures. In a number of cases, this reliance on a third party has resulted in problems for the customer profiling by the insurers and asset managers, either because not all the relevant information is being passed across by the bank, or because the recipient institution is not undertaking any further analysis. The challenges are even greater when insurers rely on non-bank agents. One insurer indicated that a sample of CDD files passed from its agents revealed discrepancies in approximately 18 percent of the cases. The authorities believe that the new IVASS regulations on CDD that came into force on January 1, 2015 will help address the problem by providing more guidance.

254. Interviews with a cross-section of FIs and DNFBPs revealed different perceptions of what the law requires with respect to the identification of beneficial ownership.69 First, there is a lack of consistency in applying the principle that any legal or natural person that holds 25 percent or more of the shares at each level of the ownership chain should be regarded as a potential beneficial owner. Second, the distinction between beneficial ownership and shareholding is not always fully appreciated. The financial regulators have recognized both these issues, and clearer statements than exist in the primary law have been included in the BoI and IVASS regulations that came into force on January 1, 2014, and January 1, 2015, respectively. No similar regulations or guidance have been issued for the DNFBP sectors, with the exception of the PIE auditors who are addressed by CONSOB secondary regulations, and notaries who have received guidelines from their professional body. It is understood that the implementation, in due course, of the EU’s 4th Money Laundering Directive may help to address these issues.

255. Many institutions place undue reliance on the Chambers of Commerce database (Infocamere) when seeking to identify the ultimate natural person who controls a customer. Some institutions indicated that, where the ownership chain is comprised purely of Italian-incorporated companies, they can rely intrinsically on the database to track the ultimate beneficial owner. However, the Infocamere holds only shareholding interests, and is not able to indicate whether the ultimate shareholder of record is also the beneficial owner. Although notaries, when processing the paperwork for company formations, are required to identify and record the true beneficial ownership, this information does not form part of the Infocamere database, and cannot, therefore, be accessed by users.

256. There also appears to be an over-reliance on the customer’s self-declaration when the ownership chain starts to become complicated. This is particularly the case for those FIs that have less sophisticated systems, and for most DNFBPs. Some institutions seemed to regard the declaration as a safe-harbor statement for them, thereby avoiding the need to spend time and energy on their own independent checks. It is an offense under the AML Law for a customer to provide incomplete or false information on beneficial ownership, and the authorities have provided some examples of cases where prosecutions have been brought, but the practice of placing ultimate reliance on the completeness and accuracy of the self-declaration is questionable.

257. The issue of domestic PEPs is of particular concern to FIs in Italy due to the relatively high levels of corruption across the public sector. While the primary legislation only addresses foreign PEPs, both the BoI and IVASS have extended the definition to persons resident in Italy, and require a risk-based approach to dealing with such persons. In practice, many of the FIs interviewed consider the scope of the definition in the regulations to be far too narrow, and, in consultation with their regulators, have extended their internal profiling to include a broad range of regional and local politicians and administrators. This is clearly a sensible approach and reflects a good understanding, in general, of the risks faced at a local level when dealing with officials involved in public works and administrations. Unfortunately, the respective authorities responsible for the oversight of the DNFBP sectors (apart from the PIE auditors) have not extending CDD requirements with respect to domestic PEPs, and most firms appear to take the view that they should be following the letter of the law only.

258. Banks do not apply enhanced or even basic CDD measures when establishing correspondent-banking relationships with other EU institutions, as is permitted under the AML Law in line with EU principles. The banks indicated that their practice was simply to verify that the respondent institution is established and regulated in a Member State, in order to be exempted from all the measures applicable when dealing with non-EU entities. At the same time they recognized that the risks posed by individual respondents in different member states were far from homogeneous.

259. The NRA identifies money remitters as a weak link in the AML/CFT framework in terms of compliance with the preventive measures, and many within the financial sector share this view. The majority of the remitters do business in Italy under the EU “passporting” arrangements (as provided under the Payment Services Directive), which places primary responsibility for regulation in the hands of the home country supervisor. Where such businesses operate through a permanent establishment in Italy (as opposed to remotely), they do so through a large number of agents based in otherwise unregulated businesses (e.g. corner shops, petrol stations, etc.). Although these entities are subject to the Italian AML/CFT laws, the authorities have limited powers to exercise any broader regulatory permissions or oversight over their activities; but, ultimately, the MEF can prohibit their operations if the home country regulator fails to address any problems reported to them by the Italian authorities. The Italian authorities were instrumental in having specific provisions included within the EU’s 4th Money Laundering Directive to help strengthen the regulatory framework for such entities. A case study of the challenges that the authorities have had to face with respect to this sector is shown by the Money River Operation, summarized in the box included in the previous discussion of IO.7.

260. Italian remittance businesses argue that they are at a competitive disadvantage to EU passported firms, in view of what they see as an imbalance in the regulatory regime. They report that clients will regularly decide to take their business to such other firms on the basis that the client will not be subject to the level of CDD measures applied by the Italian businesses.

261. The approach to CDD within the DNFBP sectors tends to be less nuanced than in the financial sector. Basic identification and verification is the norm, with many of those interviewed expressing the opinion that they were not well positioned to go beyond the client’s self-declaration on beneficial ownership, or to monitor for foreign PEPs (the requirement to identify domestic PEPs not having yet been extended to these sectors). In general, the application of a risk-based approach to CDD is a less familiar concept to them, and is a process on which they appear to have received little guidance from their regulators, with the exception of the PIE auditors who are covered by CONSOB secondary regulations, and the notaries who work under guidelines issued by their professional association and endorsed by the authorities. Of note, in the casino sector there appear to be customer identification procedures, but no means for verifying customer identification.

262. Real estate transactions are widely recognized as a key ML risk in Italy, an issue that is compounded by the fact that the construction sector has a significant degree of involvement by organized crime. Real estate agents are a third party to transactions, and represent neither the vendor nor the purchaser. Many of the approximately 31,681 active agents are small- and mediumsized entities that do not have the capacity to undertake all the required CDD measures, a challenge that is recognized within the industry itself.

263. Generally, there appears to be a good level of record-keeping across the financial sector. Most institutions are required to maintain a Single Electronic Archive (Italian acronym “AUI”) dedicated solely to specific AML/CFT data, which must be run in parallel with their normal recordkeeping framework. Both the AUI and the more general records must be maintained for at least ten years, and the regulators routinely check for compliance with this principle in their inspection procedures. In earlier years, the authorities regularly identified deficiencies in the transfer and updating of information in the AUI, but these cases are now declining in number as the institutions address the technological challenges of running their two systems in parallel. The authorities had no criticism of the quality of the more general record-keeping procedures.

Reporting Obligations and Tipping Off

264. The UIF is generally of the view that there has been a significant improvement in the quality of the STRs that it has received from the banking sector in recent years, and that progress is being made with respect to the insurance sector. Where structural problems still do exist within the banking system, it tends to relate to weaknesses in the processes for centralizing internal reporting by banks with extensive branch networks. Despite this, the UIF believes that, in general, the big banks have better STR controls than many of the regional institutions. In most cases there is a marked increase in reporting following an inspection, but some institutions suggested that this may include an element of “defensive” reporting, as they feel that the regulators are often applying 20/20 hindsight when sanctioning them for earlier non-reporting. The following table shows the pattern of reporting by each sector over the past three years.

Table 19

Number of STRs Filed by Financial Institutions and DNFBPs

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265. The FIs indicated that unexplained cash transactions continue to be a core component of their reports, and UIF data for 2014 show that such transactions account for about 30 percent of the total number, but only 13 percent by value. The AML Law specifically cites certain types of cash transactions as grounds for suspicion, and there may be the potential for this to lead towards a large number of cash-related reports, not all of which are based on suspicion. In addition, the Law only requires the reporting of suspicions of ML and TF, and does not extend explicitly to the proceeds of criminal activities, more generally. In terms of the type of economic activity linked to the reports, there is a common perception that transactions involving the real estate market are one of the key triggers for reporting. Several institutions that were generally low-volume reporters indicated that a reasonable percentage (and, in some case, a significant number) of their STRs arise from requests for information from law enforcement agencies in the course of criminal investigations (i.e., reactive rather than spontaneous reporting).

266. Outside the core retail banking sector, the picture of STR-filing is very mixed. Trust companies and asset managers file relatively few reports. Inspections by the UIF show this to result primarily from weak customer profiling by the institutions. However, the activities within the financial sector that give greatest concern about the adequacy of reporting are the money remittance services provided under the EU passporting arrangement. The failure to report, despite the relatively high-risk business (in terms of cash transactions and dealings with high-risk jurisdictions) is attributed by the authorities to the use of non-professional agents to administer transactions, and a lack of proper control exercised by the parent company outside Italy.

267. With the exception of the notaries (for whom guidelines have been developed by their national association in conjunction with the authorities), the filing of STRs by the DNFBP sectors is very low. In relative terms, the notaries’ performance (an average of just under 2,000 STRs for each of the past three years) vastly outstrips that of other DNFBPs, and reflects a close engagement by the authorities with this key sector. However, given that the transfer of real estate is widely seen to be the most common ML typology, the assessors are unconvinced about the adequacy of the notaries’ level of reporting, since the notaries play a central role in authenticating documents that are fundamental to most commercial and private transactions (involving over three million documents each year).

268. Although the number of reports filed by all other professionals (lawyers, accountants, auditors, etc.) has doubled since 2012, it still only reached just over 200 in 2014. The professional associations attribute this, in part, to a lack of updated secondary legislation and guidance, but some authorities believe that it reflects, in particular, the nature of the independent professionals’ relationship with their clients.

269. As indicated, reporting levels among the financial sector are improving, but there are concerns about the timeliness of the reports. Analysis by the UIF in 2013 showed that only 65 percent of reports were being filed within two months of the execution of a suspicious transaction, and nine percent were filed more than seven months after the event. In 2014, these figures showed improvements, with 72 percent of reports filed within two months and six percent filed more than seven months after the event. In the DNFBP sectors, there was also some improvement in timeliness of reporting, with 80 percent being filed within two months in 2014, compared with 70 percent the previous year. What these data do not show is how much of the delay is genuinely accounted for by the internal investigation process by the institutions, but, although the recent improvement in timeliness is welcome, the timeframes remain difficult to reconcile with the notion of “prompt” reporting, and must have an impact on the immediate value of the reports to the UIF.

Internal Controls and Legal/Regulatory Requirements Impending Implementation

270. The BoI data on the deficiencies identified during inspections show that there has been a marked drop in the problems identified in relation to the overall systems and controls. A key aspect of the control framework is an obligation imposed on an institution’s internal governance bodies under section 52 of the AML Law (underpinned by criminal sanctions). This requires them to report to the authorities all failures to comply with any relevant regulations issued by the supervisory bodies. Generally, this pushes institutions in the direction of having structured compliance functions that report routinely to senior management, so that the latter may report matters to the authorities. In the four years to end-2014, approximately 450 such reports were made. However, the authorities have indicated (and the FIs have confirmed) that the vast majority of these reports relate to individual cases where an existing procedure has not been followed properly, rather than to systemic failures in the control structure. The criminal sanction provides a strong personal incentive at top management level to report every specific case identified.

271. In broad terms, the FIs consider that the biggest challenge they face is trying to keep their technology up to date with the rapidly changing regulatory environment caused by the bringing into force of new regulations over the past two years. While the bigger banks have, in principle, been better placed to accommodate the required changes, the scale of their operations has often meant that adjustments have taken longer than expected. In general, the regulatory authorities considered that the systems and controls were improving and that there were no significant or consistent problems being identified through their inspection program.

272. Outside the banking sector, no generic concerns have been identified in the control environments within the financial sector, with the exception of the money remitters operating under the EU passporting arrangements. As regards this sector there are considerable concerns about the controls maintained by the agents and about the oversight exercised by some of the parent companies.

273. The standards of AML/CFT internal controls within the DNFBP sectors fall well short of those applied by most FIs. For instance, a recent survey by one of the lawyers’ professional associations revealed that fewer than 40 percent of the firms that responded had routine AML/CFT training programs for their staff. As previously indicated, some of the professions and businesses feel that the lower standards result from a lack of new secondary legislation to support the principles laid down in the primary law; others simply attribute it to the fact that they are not well placed to handle the complexities of the AML/CFT requirements. Some professional associations are working with their members to develop guidance that might be promoted as a standard for their profession, but they report difficulties in engaging with their respective regulators and the MEF because the associations are not seen to be part of the regulatory oversight network.

Overall Conclusion on Immediate Outcome 4

274. It is a strong point that there is generally a good level of understanding of the ML risks in the core financial sector, with the banks, which dominate the sector, being particularly attuned. The appreciation of TF risks is less developed. There is significantly less understanding of both ML and TF risks in the DNFBP sectors, where the general awareness of the risk-based approach is much more limited, with the exception of the PIE auditors and the notaries, who have received specific input from their regulators. This distinction between FIs and DNFBPs is carried forward into the relative robustness of the preventive measures employed within the different sectors. Evidence suggests that the large domestic banks and BancoPosta have taken measures to strengthen the core elements of their CDD, record-keeping and STR filing in recent years, but they are faced with an important challenge of how to mitigate the risk in relation to tax evasion by the clients, given the endemic nature of this problem in Italy. More generally, there are marked variations in the understanding among FIs and DNFBPs about what is required in terms of establishing ultimate beneficial ownership. This is a key area of concern to the assessors. The passporting arrangement under the EU Payment Services Directive has given rise to a large number of remittance agents in Italy, some of which the authorities have evidence to suggest are systematically failing to implement proper AML/CFT controls. While this issue can only be addressed at the EU level, it does have a material impact on the robustness of the AML/CFT framework in Italy. Among the DNFBPs, the approach to the preventive measures appears to be somewhat mechanical, with relatively little attempt made to identify high-risk situations and to take appropriate measures. Finally, it has to be noted that certain of the deficiencies as regards technical compliance with the FATF standards have an adverse impact on effectiveness, particularly those relating to CDD exemptions, correspondent banking, PEPs and wire transfers.

275. Italy has achieved a moderate level of effectiveness for IO.4.

Supervision

A. Key Findings

Financial sector supervisors and the UIF generally have a good understanding of the ML/TF risk associated with the FIs they oversee.

Sound arrangements are in place to prevent criminals from participating in the ownership, control, and /or management of FIs and DNFBPs.

The supervisory tools of financial sector supervisors fall short of providing comprehensive, timely and consistent data on the nature and quantum of inherent risk at the level of individual institutions. While a new risk-based supervisory methodology currently under development by the BoI will improve the situation, some concerns remain about its limitations in capturing information relating to exposure to PEPs.

The framework governing the supervision of EU PIs operating in Italy under EU is in place, the robust and ongoing supervisory cooperation between the OAM and home country supervision that is essential for these arrangements to be effective is not operating as well as it should. Cooperation between OAM and the GdF with respect to the supervision of these entities is not as effective as it should be.

The BoI, IVASS, and the MEF apply sanctions for violations of the AML Law and related regulations. However the BoI’s inability to sanction natural persons including removing a member of the board of directors or senior management is a concern.70 Sanctions are not commensurate with the institutions’ size and financial capacity and, in the case of insurance licensees, are not imposed in a timely manner.

While the GdF, which has supervisory responsibility for most DNFBPs, has developed a risk-based approach, the model in place is biased towards law enforcement-type indicators and does not sufficiently integrate indicators that are better aligned with ML/TF risk in Italy.

B. Recommended Actions

Italy should:

  • The BoI should continue the development of its new risk-based supervision model and IVASS should commence the development of a more robust model than the one currently in use. Both models should take full account of the specific risks to which supervised entities are exposed and the quality of their risk management practices. The models should generate outputs that can clearly prioritize institutions for supervisory oversight.

  • To support effective operation of the models, supervisory returns/reports should be developed that would require institutions to periodically submit information on the type and quantum of inherent risk implicit in their operations and the type of risk mitigation measures that have been adopted. The requirements for coverage of inherent risk should be aligned with the major threats identified through the NRA and other credible processes. For the joint AML/CFT oversight of capital market licensees, CONSOB should, where relevant contribute to the design of the risk based model being developed by the BoI.

  • Increase the dissuasiveness of sanctions for noncompliance with AML/CFT obligations; IVASS should endeavor to reduce the current two-year period required to impose a sanction. Until such time as the 4th AML Directive is implemented, the authorities should clarify if sanctions available under the CLB can be applied to banks subject to the ECB’s prudential oversight. In addition to criminal sanctions, ensure that DNFBPs are subject to administrative sanctions.

  • The GdF should develop a risk-based model that places less emphasis on law enforcement-type intelligence and is better aligned with the inherent risk implicit on the operations of the range of DNFBPs which it supervises. GdF should also develop mechanisms that would allow supervised persons to periodically report on the inherent risk and their risk management practices, particularly for the oversight of the larger and more sophisticated entities/persons in this sector.

  • The GdF should better integrate OAM into the planning process for its on-site inspections of the agents of PIs operating under an EU passport. It should also work more closely with industry associations to strengthen its understanding of the risks to which their members are exposed.

  • The OAM should strengthen cooperation with home country supervisors of PI agents who operate in Italy under an EU passport.

The relevant Immediate Outcome considered and assessed in this chapter is IO.3. The recommendations relevant for the assessment of effectiveness under this section are R.26–28, R.34 and 35.

C. Immediate Outcome 3 (Supervision)

Licensing, Registration and Controls Preventing Criminals and Associates from Entering the Market

276. Italy has a comprehensive program in place for the licensing of FIs. The BoI, CONSOB, and IVASS undertake fit and proper assessments of shareholders, members of the board of directors, and managers of entities seeking to be licensed as FIs. The process includes an assessment of the integrity of persons in the above-mentioned categories which includes reference to any criminal proceedings or convictions.

277. Beyond the licensing phase, FIs are responsible for undertaking fit and proper assessments when there are changes in the persons subject to the these reviews. Such assessments must be reviewed and confirmed by institutions’ board of directors and all relevant information must be submitted to the supervisor. The supervisor reviews all of the information received and on a selective basis makes its own enquiries with law enforcement and relevant supervisory authorities to verify the accuracy of the information.

278. Since the supervisors do not undertake the fit and proper assessments after the licensing stage and only review the processes undertaken by licensees, with a selective verification of the assessments, this process is less robust than the one undertaken at the time of licensing and is likely to be less effective. Agents who provide services on behalf of Italian PIs and EMIs are subject to a fit and proper assessment undertaken by the OAM.

279. Lawyers, accountants, and notaries are enrolled in registers maintained by their national professional associations and are subject to on-going oversight and monitoring. Persons subject to criminal convictions are not allowed admission to these registers. In the case of lawyers and accountants, on-going monitoring is undertaken by their local professional associations. The ongoing monitoring includes oversight of conduct, with a specific emphasis on meeting high ethical and integrity standards. The four casinos operating in Italy are public entities operated by municipalities under the oversight of the Ministry of Interior (MoI). Persons involved in the management of casinos are subject to fit and proper assessments undertaken by the MoI.

280. The authorities are aware of instances where persons have been providing financial services without the appropriate authorization. The incidence of this appears to be highest in the MVTS sector. Where the authorities have become aware of such operations in any sector they have taken steps to terminate their activity.

Supervisors’ Understanding and Identification of ML/TF Risks

281. All supervisors were involved in developing the NRA and therefore demonstrate a good understanding of the threats and vulnerabilities identified during that process. At the level of predicate criminal activity, there is considerable focus on threats arising from tax evasion, corruption, and the activity of organized crime groups among others. In terms of risks arising from an institution’s business model, supervisors generally pay attention to cash transactions, wire transfers, (particularly those that involve high risk countries), correspondent banking, activities related to PEPs and high net worth individuals, and the geographic regions with relatively high levels of criminal activity. Some primary determinants of risk in the insurance sector are considered to be the nature of the products, the size of the distribution network and the quantum of premium income. With respect to the allocation of supervisory resources across all FIs there is a heavy focus on the supervision of banks as this sector accounts for 85 percent of financial sector assets.

Risk-Based Supervision of Compliance with AML/CTF Requirements

282. AML/CFT supervision within the BoI is the responsibility of the recently formed Consumer Protection and Anti-Money Laundering Unit within the Bank Supervision Department (BSD). The unit, which was formed approximately one year ago, has a staff of 43 and has access to other BSD staff resources in undertaking its AML/CFT supervisory responsibilities.

283. The BoI has started to develop and apply experimentally a new risk-based methodology. It is currently being tested and has not been officially adopted. It was used as a basis for identifying some FIs for targeted supervisory meetings and inspections conducted during 2014 and in January 2015 and is expected to be fully introduced over the next year. This analysis is therefore based on the system that was in place at BoI during the on-site visit and which has been the basis of AML/CFT supervision over the past few years.

284. The BoI uses both off-site surveillance and on-site inspection modalities in undertaking its AML/CFT supervisory functions. The BoI’s Risk Assessment System (RAS) which is used for its overall supervisory activities incorporates AML/CFT risk as a component of reputational and operational risk which is one of nine risk factors71 used to assess a bank’s overall risk profile. The Guide to Supervisory Activities—Circular 269/2008 indicates that each of the nine factors is rated on a scale of 1 (the best score) to 6 (the worst score). The score is determined after assessing both quantitative and qualitative factors, but the full range of scores can only be used with respect to qualitative factors where relevant information has been obtained through an on-site inspection. Under the RAS ML/TF risk is assessed in the context of “anomalies from on-site analysis including the level of compliance with ML/TF legal and regulatory requirements. The RAS uses mainly information obtained through on-site inspection and focuses more on risk mitigation than it does indicators of inherent ML/TF risk. Significance is attached to the size of an institution, with larger and more systemically important institutions being subject to more intensive supervisory oversight.

285. BoI’s AML/CFT offsite activity is centered on the review of information obtained from a number of sources. These include relevant information contained in prudential returns such as balance sheet and income statement data by economic sector and geographic location. Returns also include some information on distribution channels. Other sources of information include the annual reports which institutions are required to submit outlining specific violations of obligations under the AML Law, information arising from previous supervisory activity and information received from UIF, GdF, and other agencies. The BoI also uses a number of indicators to develop a view on the level of an institution’s inherent risk. These include analyses of an institution’s relative level of cash transactions, transactions to high-risk countries (including wire transfers), and the relative levels of occasional transactions. It has developed a methodology for prioritizing bank branches for on-site inspections. Taking geographic risk into account the methodology prioritizes areas with higher levels of criminal activity and relies on data obtained from LEAs in this regard. This approach takes account of the number of STRs, the number of investigations prompted by the STRs, the level of transfers to tax havens, the total amount of cash transactions, and the incidence of criminal activity such as extortion and usury. Greater resources are dedicated to institutions which have a large branch network. Since the RAS as described in Guide to Supervisory Activities—Circular 269/2008, does not include an analysis of inherent risk, some indicators of inherent risk are taken into account in addition to the outputs of the RAS. Together they are used to make decisions with respect to establishing AML/CFT supervisory priorities.

286. The BoI aims to undertake three to four targeted AML/CFT inspections annually at major banks or banking groups and has established a four to five year supervisory cycle for “minor” banks which account for approximately 450 institutions. During the period 2010 to 2013, the BoI undertook approximately 1,070 AML/CFT inspections at offices of regulated entities. These consisted of targeted AML/CFT inspections undertaken at institutions’ head offices, instances in which AML/CFT was included as a component of a prudential inspection and inspection activity at branches which accounted for one- third (347) of AML/CFT on-site inspections.

287. The BoI provided some examples of AML/CFT on-site inspections that were undertaken to address specific concerns that arose about the level of ML/TF risk and weaknesses in the quality of risk management at particular institutions. Some of these inspections were triggered by law enforcement concerns, while others arose from concerns that were identified during BoI’s on-site and off-site AML/CFT and prudential supervisory activity. BoI also periodically conducts thematic reviews to address issues related to the effective management of ML/TF risk. Such reviews have, for example, covered issues related to the management of the risk associated with PEPs, trusts and fiduciaries, and the effectiveness of identifying beneficial owners of legal persons. BoI’s on-site inspection procedures include a question aimed at assessing bank’s compliance with a requirement for contractors, subcontractors, and concessionaires to use dedicated accounts for all transactions used for public works and services. Apart from addressing supervisory concerns that arise during such reviews, important issues arising from the findings are generally shared with the industry. During the period 2013–2014 BoI also conducted a series of short on-site inspections of payment institutions and electronic money institutions to assess the effectiveness of their risk management frameworks. BoI requires PIs to have their agents connected directly to their information systems to ensure that the agents operate within established limits set by the PI. Where PI’s do not have the ability to do this they are not authorized to engage agents. Where a PI fails to meet this requirement but already has agents it is not allowed to engage new agents and is requested to suspend the operations of existing agents. Where concerns emerge about the internal control measures in place at a PI the BoI can require the PI to provide all relevant internal audit reports related to its agent network. On at least two occasions when BoI was concerned about the level of ML/TF risk it has intervened at an early stage, and objected to plans of EU countries to establish branches of PIs in Italy. In one case the home country supervisor revoked the PIs authorization to operate, and in the second case, the home country supervisor restricted the PI’s operations to the home country.

288. CONSOB undertakes AML/CFT on-site inspections of capital market licensees on behalf of the BoI. It does so as a component of an inspection with a wider focus or as a standalone inspection. As its acts as an agent of the BoI in this context, it uses the BoI’s supervisory tools and methodologies to undertake such inspections. It contributes to the development of AML/CFT risk profiles for capital market licensees by providing the BoI with information it considers relevant for this purpose. This would include information about the nature of the licensee’s core operations, its general risk management practices, and any concerns that may relate to integrity and standards of ethical conduct.

Table 20

On-site Inspections Conducted by Bank of Italy (2010–2014)

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289. IVASS also uses both on-site and off-site methodologies to undertake its AML/CFT supervision. In addition to the results of previous supervisory activity, the outcomes of a review of reports submitted by licensees under article 52 of the AML Law and ISVAP regulation of 20/2008 are major inputs into the process of prioritizing licensees for supervisory oversight. The reports contain information on the licensee’s violations of requirements related to CDD, record keeping, internal organization and controls and also provide some information on the licensee’s AML/CFT risk management function. In assessing the relative level of inherent risk across insurance entities IVASS takes account of the geographic areas in which licensees operate, the size of the entity’s distribution network, the types of contract sold, the volume of premium income, and the number of STRs filed with UIF.

290. IVASS employs a risk-based model for its overall supervisory activity and is in the process of finalizing a handbook which is expected to be issued during the first quarter of 2015. The model covers the major risks faced by insurance entities including, (i) underwriting, (ii) financial, (iii) strategic, (iv)operational, and (v) counterparty. ML/TF risk is assessed as a component of operational risk. During an onsite inspection IVASS reviews the institution’s ML/TF risk profile against the information it has on file, and undertakes an assessment of the risk mitigants in place.

Table 21

On-site Inspections Conducted by IVASS (2011–2014)

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291. Over the four-year period 2011–2014, IVASS undertook on-site inspections of 23 insurance entities and 9 intermediaries. During this period the number of insurance entities remained relatively stable at 64 institutions. During 2013 and 2014 no intermediaries were subject to on-site inspection reflecting a change in IVASS’ strategy to focus on-site inspections almost exclusively on insurance institutions where it believes it will be able to identify any deficiencies in monitoring their intermediary networks. Under this revised strategy on-site inspections of intermediaries is undertaken where such deficiencies are identified at the principle institutions. The new strategy has resulted in an increase in the number of insurance institutions inspected annually. Between 2011 and 2012 IVASS inspected 8 insurance institutions while this number increased to 15 between 2013 and 2014. Over the period 2011–2012 inspections accounted for 13 percent and 32 percent of the industry’s premium income on a solo and group basis respectively. Over the period 2013–2014, inspections accounted for 29 percent and 33 percent of premium income on a solo and group basis respectively. Over the four-year period, the corresponding figures were 42 percent and 56 percent. Despite the increase in the number of principal institutions inspected annually between 2013 and 2014, these on average represented 12 percent of all life insurance entities. The significant reduction in the on-site inspections of intermediaries (9 inspections over a four year period out of a total 5,285 brokers and 35,942 agents )72 raises concerns that deficiencies which are not effectively identified by the monitoring systems of the principle institution are likely to go unnoticed by IVASS. IVASS it is currently in the process of revising a number of its internal processes and hopes to generally reduce the time required to undertake various aspects of its supervisory activities.

292. The financial sector supervisors and particularly the BoI have undertaken a large number of on-site inspections over the past four years including full scope, limited scope and thematic inspections. They have also undertaken off-site analyses to assess institutions’ inherent ML/TF risk and the measures they employ to mitigate their exposures. However there were some deficiencies in the supervisory approach used by the BoI, CONSOB and IVASS at the time of the on-site visit. The RAS, which is the main risk assessment model used by BoI, does not give prominence to ML/TF risk. This risk is analyzed as a component of reputational risk which is itself a component of operational risk. BoI does however have regard to indicators other than those captured by the RAS. Much of the data originates for example, from returns which are primarily intended for prudential purposes. While this information has some utility for ML/TF risk assessment purposes, it is not clear that there is currently a model in place which uses the prudential data submitted by Italy’s 667 banks and analyzes it so that meaningful comparisons can be made across all banks for the purpose of assessing ML/TF risk. Furthermore there is no guidance that sets out how data extracted from prudential returns should be analyzed to produce a rating that can be integrated into the rating generated by the RAS, bearing in mind that the rating generated by the RAS relates to operational risk more broadly and not to ML/TF risk specifically. It is therefore difficult to conclude that the system used to prioritize institutions for AML/CFT oversight is sufficiently and consistently driven by appropriate ML/TF risk indicators. The authorities have confirmed that the system in place does not generate a rating or ranking of institutions in the context of ML/TF risk. In addition the systems in use do not adequately capture all of the inherent risks to which institutions are exposed. The supervisors are therefore not in a position to adequately assess an institution’s customer, product/service, geographic and delivery channel risks. While, for example, corruption is widely accepted to be a major predicate crime in Italy, there are no mechanisms in place to inform supervisors of each institution’s exposure to PEPs and other customers who may create a direct exposure to this criminal activity. An important contributory factor is the absence of off-site supervision tools that would allow institutions to periodically provide this information to the supervisors. While the methodology currently under development by the BoI will represent an improvement over existing arrangements, assessors have suggested further refinements to capture comprehensive data relevant to the most significant inherent risks in the financial sector.

293. The BoI, CONSOB and IVASS currently receive information from institutions that contributes to their understanding of the quality of risk management in place at licensees. By law each supervisor must receive an annual report from institutions AML/CFT compliance functions and their Boards of Auditors, and Supervisory Boards are required to inform supervisors of instances of violations of the preventive measure provisions of the law. While this is a useful mechanism to provide the supervisors with some information relative to the effectiveness of an institution’s risk management practices, there are deficiencies in these arrangements. The report submitted by institutions’ AML compliance functions is received annually and there are no specific requirements for its content and structure. Some institutions provide this information on a quarterly basis but this is not required by the BoI. It can, therefore, be challenging to make meaningful comparisons across institutions that can be used to develop profiles of relative effectiveness of their risk management practices. As a result of the deficiencies in the arrangements to consistently collect comprehensive and good quality information of institutions’ levels of inherent risk and the quality of their risk management, the supervisors are not in a position to develop reliable rankings of net ML/TF risk for all institutions.

MVTS

294. While the OAM has the general supervisory responsibility for agents of payment institutions, GdF is the AML/CFT supervisor. The OAM is notified by the central contact point when a passported agent commences operation. On a quarterly basis the OAM provides the GdF with a list of financial agents operating in Italy on behalf of EU e-money and payment institutions. GdF has identified agents of payment institutions as priorities for AML/CFT oversight. GdF’s level of cooperation with the OAM in the context of the supervision of MVTS is suboptimal. With respect to criminal investigations the OAM cooperates with the relevant Comandi Provinciali and the GdF. With respect to overall AML/CFT supervision the GdF provides OAM with a copy of its on-site supervision reports, but does not consult with the OAM prior to undertaking its inspections. The on-site inspection planning process does not therefore benefit from input from the OAM, which as the overall supervisor of MVTS agents, could have valuable information that could influence the scope and main focus of the inspection.

295. The authorities have some concerns about the operation of passported agents who operate under the PSD which came into effect in Italy in 2012. There are currently in excess of 1,7,500 agents and 22,500 stores operating in Italy of which only 1,000 are registered by the OAM.73 The vast majority of passported PSD agents are affiliated to U.K. and Ireland-based entities. Others are affiliated with entities licensed in Spain, Romania and Belgium. The effectiveness of supervisory arrangements for these entities depends heavily on the supervision undertaken by the home country and the effectiveness of cooperation between the home supervisor and the OAM.

296. While the OAM and the GdF do not have powers to exercise AML/CFT oversight of these entities the GdF can undertake on-site inspections of these agents and can inform the OAM of any violations of AML/CFT requirements that are identified. Under such circumstances the OAM would inform the home country supervisor of the violations. If the OAM deems that the home country supervisor has not taken appropriate action it can ask the MEF to impose sanctions on the agent. The authorities did not identify any instances in which the MEF was requested to impose such sanctions. There has been one instance in which an order of application of precautionary measures was adopted by the Court of Rome against a British payment institution and some of its agents.

297. In one instance in 2014, GdF, acting under the authority of a prosecuting agency uncovered AML/CFT violations at a passported agent and the relevant information was provided to the home country supervisor. Notwithstanding this example of cooperation, there is room for improvement in the arrangements between the OAM and the home supervisors of the agents operating under the EU Passport. The authorities did not identify any instances in which a home country supervisor has undertaken an on-site inspection of any agents operating in Italy and the operational interaction between the OAM and the home country supervisors is limited. In light of the very large number of agents operating under the PSD and the concerns the authorities have about their operations it is important for the OAM, the GdF and the home country supervisors to strengthen arrangements for on-going supervisory cooperation. Deficiencies in the GdF’s supervision which are described in the following paragraphs also apply to its supervision of passported agents.

298. In summary, with respect to the supervision of passported agents, the OAM is notified by the central contact point when a passported agent commences operation, but there is very limited interaction between OAM and the home country supervisor in the context of on-going supervision of these persons and the authorities did not identify any instances in which a home country supervisor undertook an onsite inspection of a passported agent.

DNFBPs

299. With respect to the supervision of DNFBPs the GdF has developed a risk-based approach which focuses on relative levels of exposure to predicate offenses among the persons it supervises. In establishing its supervisory priorities, it uses information from a number of sources in