The Financial Action Task Force (FATF) conducted a mutual evaluation of Italy's Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) regime against the FATF's 40+9 recommendations and special recommendations. The FATF published its findings in a 2006 report, in which it concludes that Italy is compliant with 17 FATF recommendations and special recommendations; largely compliant with 13; partially compliant with 11; non compliant with 6; and two recommendations are not applicable to Italy. The report notes that the overall AML/CFT framework in Italy is extensive and mature, and achieves a high degree of compliance with most of the FATF's recommendations. Nevertheless, there are some areas where Italy's AML/CFT regime could be enhanced. For example, the enforcement of AML/CFT measures in financial institutions needs to be strengthened. The reporting of terrorism financing-related suspicious transaction reports is not explicitly required by Italian law. Furthermore, although the Anti-Money Laundering Law (Legislative Decree No. 143 of May 3, 1991) covers all designated non financial businesses and professions (DNFBPs), the implementing regulations are not in force. As a result, DNFBPs are not obliged to comply with AML/CFT requirements. As reported by the 2008 U.S. DoS report, the Italian Foreign Exchange Office (UIC), was the Italian Financial Intelligence Unit (FIU) until January 2008, at which point it was to be replaced by the new FIU unit at the Bank of Italy. However, there is no further information publicly available regarding the functioning of this new FIU. Legislative Decree No. 231 of November 21, 2007 implements elements of the European Union's Third Money Laundering Directive. This Directive contains the requirement that all EU member states implement the FATF's recommendations and special recommendations.

General Overview

The Financial Action Task Force (FATF) conducted a mutual evaluation of Italy's Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) regime against the FATF's 40+9 recommendations and special recommendations. The FATF published its findings in a 2006 report, in which it concludes that Italy is compliant with 17 FATF recommendations and special recommendations; largely compliant with 13; partially compliant with 11; non compliant with 6; and two recommendations are not applicable to Italy. The report notes that the overall AML/CFT framework in Italy is extensive and mature, and achieves a high degree of compliance with most of the FATF's 40+9 recommendations. Nevertheless, there are some minor areas where Italy's AML/CFT regime could be enhanced. For example, the reporting of terrorism financing-related suspicious transaction reports (STRs) is not explicitly required by Italian law. Furthermore, although Legislative Decree No. 143 of 1991 (the Anti-Money Laundering Law) covers all designated non financial businesses and professions (DNFBPs), the implementing regulations are not in force. As a result, DNFBPs are not obliged to comply with the AML/CFT requirements. According to a 2008 report by the U.S. Department of State, Law No. 15 of January 29, 2006, gave the Italian government authority to implement the European Union's (EU) Third Money Laundering Directive (Directive 2005/60/EC). Legislative Decree No. 231 of November 21, 2007 implements elements of the Third Money Laundering Directive. This Directive contains the requirement that all EU member states implement the FATF's recommendations.

Money laundering is criminalized pursuant to Article 648 bis of the Italian Penal Code and is punishable by four to twelve years of imprisonment, and by fines of a maximum of €15,240. According to the 2008 U.S. DoS report, with approximately 600 money laundering convictions a year, Italy has one of the highest rates of successful prosecutions in the world, thus confirming the effectiveness of the Italian anti-money laundering regime.Terrorist financing is criminalized pursuant to Article 270 bis of the Italian Penal Code, which also requires financial institutions to report suspicious activity related to terrorist financing and facilitates the freezing of terrorist assets. Under Article 270 bis, prison terms range from seven to fifteen years. A testament of the effectiveness of Italy's terrorism financing legal regime is that Italy is second in the EU only to the United Kingdom in the number of individual terrorists and terrorist organizations the country has submitted to the United Nations (UN) 1267 Sanctions Committee for designation (U.S. DoS 2008).

The FATF report points out that Italian law provides for a comprehensive confiscation, seizure and freezing system. Article 270 bis of the Italian Penal Code facilitates the freezing of terrorist assets. Law No. 15 of January 29, 2006, gave the government authority to issue provisions enabling the freezing of non-financial assets belonging to listed terrorist groups and individuals. Italy also implements UN Security Council directives on the freezing of terrorist assets through national mechanisms and EU Regulations 2580/2001 and 881/2002. As of December 2004, 57 accounts had been frozen belonging to 55 persons, totaling $528,000 under UN resolutions relating to terrorist financing.

Created in 1997 as an autonomous body under the Bank of Italy (BoI), the Italian Foreign Exchange Office (UIC) was Italy's Financial Intelligence Unit (FIU) until January 2008. According to information provided on the UIC website, as of January 1st, 2008, the UIC ceased to exist and was replaced by the BoI per Legislative Decree No. 231 of November 2007. As noted on its website "UIC's tasks relating to the prevention of money laundering and the financing of terrorism will be performed, in full autonomy, by the Bank's new, independent Financial Information Unit. The other functions of UIC will be taken over by the corresponding offices of the Bank." The UIC's primary responsibility was to collect, analyze and disseminate all suspicious transaction reports (STRs) submitted by entities subject to the AML Law to either the Anti-Mafia Investigative Unit (DIA) or the Guardia di Finanza (GdF, the Financial Police) for further investigation. According to the FATF report, this operation will be transferred to the new FIU. The reporting system benefits from a very elaborate computerized system to analyze aggregate data sent by banks. The 2008 U.S. DoS report states that, in 2005, the UIC received 8,576 STRs related to money laundering and 482 related to terrorist financing. Law enforcement opened 328 investigations based on STRs, which resulted in 103 prosecutions. Through October 2004, Italian law enforcement seized more than 160 million euros (approximately $U.S. 233 million) in forfeited assets due to money laundering and as of December 2004, 57 accounts had been frozen belonging to 55 persons, totaling U.S. $528,000 in regards to terrorism financing.

The FATF report commends Italy for the efficiency and thoroughness of its AML/CFT law enforcement and prosecution regime, particularly noting that Italy's three main police organizations, the State Police, the Financial Police and the Carabinieri (or gendarmerie), under the coordination of the Ministry of Interior (MoI), are sufficiently staffed and fully equipped with the legal powers to prosecute all forms of money laundering and terrorism crimes. Regarding participation in international conventions, the FATF report noted that, as of the release date of the report in February 2006, Italy had yet to ratify the Palermo Convention (the UN Convention against Transnational Organized Crime) and had yet to fully implement the UN International Convention for the Suppression of the Financing of Terrorism on the definition of the terrorism financing offence. However, the 2008 US DoS report observes that Italy is party to the Palermo Convention.

The Principles

1. Legal Systems and Related Institutional Measures

CP

The 2006 FATF report finds Italy compliant with Recommendation (R) 1 regarding the money laundering offence and compliant with R 2 on its mental element and corporate liability. Money laundering is criminalized pursuant to Article 648 bis of the Italian Penal Code, which is complemented by two other offences which punish the possession or acquisition of proceeds from crime, or its use for economic or financial purposes. Money laundering is punished by four to twelve years of imprisonment, and by fines of a maximum of €15,240. Law No. 15 of January 29, 2006, gave the government authority to implement the EU's Third Money Laundering Directive (Directive 2005/60/EC), which contains the requirement that all EU member states implement the FATF's recommendations. According to the 2008 U.S. DoS report, Legislative Decree No. 231 of November 21, 2007 implements elements of the Third Money Laundering Directive. The report also notes that with approximately 600 money laundering convictions a year, Italy has one of the highest rates of successful prosecutions in the world, thus confirming the effectiveness of the Italian anti-money laundering regime.

Italy is largely compliant with Special Recommendation (SR) II on the criminalization of terrorist financing as noted in the 2006 FATF report. Terrorist financing is criminalized pursuant to Article 270 bis of the Italian Penal Code, which also requires financial institutions to report suspicious activity related to terrorist financing and facilitates the freezing of terrorist assets. Under Article 270 bis, prison terms for terrorism financing crimes range from seven to fifteen years. In October 2001, Italy adopted a law that created the Financial Security Committee (FSC), which coordinates all Italy's efforts at tracking terrorist financing. FSC members include the Ministries of Finance, Foreign Affairs, Home Affairs, and Justice; the BoI; the UIC; the Companies and Stock Exchange Commission (CONSOB, Italy's securities market regulator); GdF; the Carabinieri; the National Anti-Mafia Directorate (DNA); and the DIA. A testament of the effectiveness of Italy's terrorism financing legal regime is that Italy is second in the EU only to the United Kingdom in the number of individual terrorists and terrorist organizations the country has submitted to the UN 1267 Sanctions Committee for designation. However, regarding deficiencies in Italy's terrorism financing legal framework, the FATF report recommends that terrorism financing be extended to individual acts and defined clearly in the Penal Code. The report states that the definition of terrorism financing under Article 27 0bis of the Penal Code is not fully consistent with the existing FATF standards, since some key elements of the offence (i.e. "terrorism" or "financing") are not defined and do not extend to individual acts of terrorism.

Concerning confiscation, freezing and seizing of proceeds of crime (R 3), the FATF's mutual evaluation rates Italy as largely compliant. The FATF report points out that Italian law provides for a comprehensive confiscation, seizure and freezing system, even though it also recommends that the definition of assets be broadened and the confiscation of assets held by third parties be made possible. Otherwise, according to the 2006 FATF report, Italian law enforcement agencies are equipped "with more than adequate legal means to identify, trace and seize criminal and terrorist assets and the statistics illustrate the efficiency of the system in place" (p. 4). Per the 2008 U.S. DoS report, through October 2004, Italian law enforcement seized more than 160 million euros (approximately $U.S. 233 million) in forfeited assets in connection with money laundering.

With regards to SR III relating to the freezing of terrorist financing-related assets, the FATF mutual evaluation rates Italy as largely complaint, noting as a particular weakness in Italy's terrorism financing confiscation and seizure regime, inadequate freezing mechanisms for assets other than bank accounts. The FATF report also recommends that the rights of bona fide parties be fully protected. Article 270 bis of the Italian Penal Code facilitates the freezing of terrorist assets. Law No. 15 of January 29, 2006, gave the government authority to issue provisions enabling the freezing of non-financial assets belonging to listed terrorist groups and individuals. Italy also implements UN Security Council directives on the freezing of terrorist assets through national mechanisms and EU Regulations 2580/2001 and 881/2002. As of December 2004, 57 accounts had been frozen belonging to 55 persons, totaling US$528,000 under UN resolutions relating to terrorist financing.

In terms of the financial intelligence unit (FIU) and its functions, the FATF report classifies Italy as largely compliant on R 26; largely compliant on R 30 about resources, integrity and training; and largely compliant with R 32 on statistics keeping. Created in 1997 as an autonomous body under the BoI, the UIC was Italy's FIU until January 2008, when Italy opened a new FIU unit at the BoI that was expected to assume the responsibilities of the UIC on January 1st, 2008. According information provided on the UIC website the "UIC's tasks relating to the prevention and contrast of money laundering and the financing of terrorism will be performed, in full autonomy, by the Bank's new, independent Financial Information Unit. The other functions of UIC will be taken over by the corresponding offices of the Bank." The UIC's primary responsibility was to collect, analyze and disseminate all suspicious transaction reports submitted by entities subject to the AML Law to either the Anti-Mafia Investigative Unit or GdF for further investigation. In fact, Italian law requires this. The reporting system benefits from a very elaborate computerized system to analyze aggregate data sent by banks. The U.S. DoS report states that, in 2005, the UIC received 8,576 suspicious transaction reports related to money laundering and 482 related to terrorist financing. Law enforcement opened 328 investigations based on STRs, which resulted in 103 prosecutions. Through October 2004, Italian law enforcement seized more than 160 million euros (approximately $U.S. 233 million) in forfeited assets due to money laundering. Regarding terrorism financing, as of December 2004, 57 accounts had been frozen belonging to 55 persons, totaling U.S. $528,000.

The FATF's mutual evaluation observes that Italy is compliant with R 27 on law enforcement authorities; compliant with R 28 on the powers of competent authorities; largely compliant on resources, integrity and training; and largely complaint on statistics. The FATF report commends Italy for the efficiency and thoroughness of its AML/CFT law enforcement and prosecution regime, particularly noting that Italy's three main police organizations, the State Police, the Financial Police and the Carabinieri (or gendarmerie), under the coordination of the Ministry of Interior, are sufficiently staffed and fully equipped with the legal powers to prosecute all forms of money laundering and terrorism crimes. As a result, with approximately 600 money laundering convictions per year, Italy has a record of prosecutions in money laundering cases which scores among the best in the region. Regarding terrorism financing, Italy recorded a relatively modest 29 convictions from 2000-2004. A legislation passed in July 2005 is expected to help improve the rate of terrorism financing prosecutions and convictions.

2. Preventive Measures - Financial Institutions

EN

The 2006 FATF report finds Italy partially compliant with R 5 relating to customer due diligence (CDD) and non-compliant on R 6 concerning politically exposed persons. On correspondent banking (R 7), Italy is non-compliant, and on new technologies and non face-to-face business (R 8), Italy is rated as compliant. The FATF report highlights some key deficiencies with Italy's CDD regime. For example: (1) there is no requirement in Italian law for the identification of customers regarding occasional transactions of wire transfers below the Euro 12,500 threshold; (2) there is no requirement in Italian law to verify that the person purporting to act on behalf of the customer is so authorized and there are no requirements to verify the legal status of a customer that is a legal person; and (3) other than for telephone and internet banking, and electronic money, there is no requirement in Italian law for enhanced due diligence in higher risk situations, such as for nonresident customers and private banking. For R 6 regarding politically exposed persons (PEP), the FATF report noted a major shortcoming, namely "the absence of specific requirements for the identification of PEPs and senior management approval for establishing a business relationship with a PEP" (2006, p. 101). On correspondent banking (R7), the FATF report particularly noted the absence in Italian law or regulations of specific requirements concerning procedures (i.e. gathering information on the respondent) for the opening and operation of cross-border correspondent banking relationships.

The FATF's mutual evaluation rates Italy compliant with R 10 on record keeping, and non-compliant with SR VII on wire transfer rules. The primary shortcoming cited for the non-compliance rating for Italy on SR VII was the absence in Italian law and regulations of the requirement that financial institutions have effective risk-based procedures to identify and handle incoming wire transfers that are not tagged with account number and address information.

The FATF mutual evaluation rated Italy partially compliant with R 13 relating to suspicious transaction reporting and compliant with R 14 about protection and no tipping-off. With regards to R 13, the evaluation noted as deficiencies: (1) the reporting of terrorism financing-related STRs is not explicitly required in Italian law (it is, however, required in circulars issued by the UIC); and (2) the money laundering reporting requirement for STRs is not being adequately implemented by bureaux de change, the postal bank, stockbrokers, investment companies, trust companies and insurance companies. On R 19 regarding other forms of reporting, the mutual evaluation rates Italy as compliant, and Italy is given a partially compliant rating with R 25 on guidelines and feedback. The evaluation also rates Italy as partially compliant with SR IV relating to suspicious transactions reporting linked with terrorism. As with R 13, the FATF report attributed this incomplete assessment to the fact that the reporting of terrorism financing-related STRs is not explicitly required in Italian law.

The 2006 mutual evaluation finds Italy largely compliant with R 15 relating to internal controls, compliance and audit. While the Anti-Money Laundering Law requires supervised financial institutions to establish adequate internal controls and to provide training for their staff, the FATF report also notes that such internal control requirements are far less developed and implemented in other sectors. On R 22 addressing foreign branches and subsidiaries, Italy is rated as partially compliant. This low rating was due to two main shortcomings, namely: (1) there are no specific provisions in Italian law or regulations mandating the application of AML/CFT principles to foreign branches of financial institutions other than of banks or to majority-owned foreign subsidiaries of Italian financial institutions; and (2) there are no requirements in Italian law or regulations for foreign representatives of Italian financial institutions to notify competent authorities of their inability to comply with AML/CFT principles, when this is prohibited by the laws or regulations of the host country. Italy was adjudged partially compliant with R 18 pertaining to shell banks. According to the FATF report, while the Banking Law bans the establishment of shell banks in Italy, there are no specific provisions in the Law banning local financial institutions from beginning or continuing correspondent banking relationships with shell banks or with foreign financial institutions that permit their accounts to be used by shell banks.

According to the 2006 FATF report, Italy is partially compliant with R 17 regarding sanctions and R 23 relating to regulation, supervision and monitoring. On R 29 about supervisors, Italy is rated largely compliant. Regarding R 17, the FATF report notes that the Italian sanctions regime is "not as effective, proportionate and dissuasive as it should be and is relatively complex" (2006, p. 8). Also, the number of sanctions administered each year for violation of key FATF recommendations is relatively low in proportion to the number of entities subject to these requirements. Pertaining to regulation, supervision and monitoring (R 23), the FATF report cites as a primary limitation, inadequate AML/CFT supervision and on-site inspections of the securities and insurance sectors, as well as non-prudentially supervised financial intermediaries registered under Article 106 of the Banking Law, such as Bancoposta.

3. Preventive Measures - Designated non-Financial Business and Professions

NC

The 2006 FATF report found that Italy is non-compliant with R 12 on CDD and record keeping obligations for DNFBPs. Italy's CDD and record-keeping requirements (as set out in R 5, R. 6, R 8 and R 11) do not sufficiently apply to some DNFBPs (as stipulated by the Anti-Money Laundering Law), such as internet casinos, dealers in precious stones and dealers in precious metals. Furthermore, although the Anti-Money Laundering Law covers all DNFBPs, the implementing regulations are not in force. As a result, DNFBPs are not obliged to comply with the AML/CFT requirements. As of June 2006, no further information as to the implementation of these regulations is available.

On R 16 about STRs for DNFBPs, Italy is rated as non-compliant. Similarly, concerning R 24 about DNFBP regulation, supervision and monitoring, the 2006 FATF mutual evaluation rates Italy as non-compliant. Primarily, as with R 12, the evaluation attributed this R 16 rating to the fact that the implementing regulations of the AML Law as it pertains to STRs for DNFBPs has yet to be enforced. Regarding R 24, the FATF report noted that the authorities have not yet designated a supervisor for the DNFBPs, nor have they arranged additional supervisory capacity and resources that will be required. As such, casinos and other DNFBP's are not monitored for AML.

According to the 2008 U.S. DoS report, since the 2006 FATF evaluation, the Government of Italy (GoI) has enacted a decree to broaden the category of institutions and professionals subject to anti-money laundering regulations. The list now includes accountants, debt collectors, exchange houses, casinos, real estate agents, brokerage firms, gold and valuables dealers and importers, auction houses, art galleries, antiques dealers, labor advisors, lawyers, and notaries. Ministerial Decrees No. 141, 142 and 143 of 2006 were implemented regarding AML measures for DNFBPs. The DoS report also notes that, in Italy, "money launderers predominantly use nonbank financial institutions for the illicit export of currency, primarily U.S. dollars and euros, to be laundered in offshore companies".

4. Legal Person and Arrangements & Non-Profit Organizations

CP

The 2006 FATF mutual evaluation reports that Italy is compliant with R 33 relating to legal persons and access to beneficial ownership and control information. However, Italy is only partially compliant with the FATF's recommendation on legal arrangements and beneficial owners (R 34) since even though Italy has ratified the Hague Convention on the law applicable to trusts and their recognition, Italian legislation does not specifically provide for legal arrangements like trusts. The FATF report recommends that Italian authorities take steps to: (1) guarantee the transparency of foreign trusts operating in Italy; and (2) ensure access to adequate, accurate and timely information on the beneficial ownership and control of these trusts. On SR VIII relating to non-profit organizations, the mutual evaluation finds Italy compliant.

5. National and International Co-operation

CP

The 2006 FATF report finds Italy largely compliant with R 31 on national cooperation, and largely compliant with R 32 on statistics. Regarding the rating assigned to R 31, the FATF report states that "the Ministry of Home Affairs (MHA) appears to effectively coordinate, through the Department of Public Security and its General Director, the law enforcement efforts of the five national police forces belonging to the different ministries" (2006, p. 9). Also, the DNA, Italy's anti-Mafia prosecutorial outfit, coordinates and supports the efforts of the regional organized crime prosecutors.

The 2006 mutual evaluation rates Italy as partially compliant with R 35 regarding the ratification of international conventions, and largely compliant with SR I on implementing UN instruments. Most importantly regarding R 35, the FATF report notes that, as of the release date of the report in February 2006, Italy had yet to ratify the Palermo Convention (the UN Convention against Transnational Organized Crime). However, a subsequent report, namely the 2008 U.S. DoS report notes that Italy is party to the Palermo Convention. Italy is also a party to the 1988 UN Drug Convention, and the Council of Europe Convention on Laundering, Search, Seizure, and Confiscation of the Proceeds from Crime. Italy has also signed, but has not yet ratified, the UN Convention against Corruption. Also, the UIC belongs to the Egmont Group. Regarding SR I on implementing UN instruments, the FATF report observes that Italy had yet to fully implement the UN International Convention for the Suppression of the Financing of Terrorism on the definition of the terrorism financing offence. The 2008 U.S. DoS report notes that Italy is party to the UN International Convention for the Suppression of the Financing of Terrorism

According to the 2006 FATF report, Italy is compliant with R 36 concerning Mutual Legal Assistance (MLA). The 2008 U.S. DoS report notes that Italy has a particularly long history of signing MLAs with the United States. The U.S. and Italy have signed a customs mutual assistance agreement, as well as extradition and mutual legal assistance treaties. In May 2006, the U.S. and Italy signed a new bilateral instrument on mutual legal assistance as part of the process of implementing the US/EU Agreement on Mutual Legal Assistance, signed in June 2003.

Italy is compliant with R 37 on dual criminality and compliant on R 38 pertaining to MLA on confiscation and freezing as noted in the 2006 FATF report. On R 38, the 2008 U.S. DoS report states that "Italian cooperation with the United States on money laundering has been exemplary." With regards to SR V on international cooperation, the mutual evaluation rated Italy as compliant. The U.S. DoS report adds that, as of March 2008, the Italian FIU has signed memoranda of understanding (MoUs) with 12 other FIU's primarily in Europe and is negotiating agreements with 8 other FIUs primarily in Asia. The evaluation also adjudged Italy to be compliant on R 39 relating to extraditions, adding that Italy, as a member of the EU, is signatory to the European Arrest Warrant, which increases the speed of extradition throughout EU countries. Finally, on R 40 pertaining to other forms of international co-operation, Italy is rated compliant.