Financial Crime World

Italy’s Fight Against Money Laundering: A Complex Web of Challenges

Rome - Italy has made significant strides in combating money laundering (ML) and terrorist financing (TF), but a closer examination reveals a complex web of challenges that undermine the effectiveness of its anti-money laundering (AML) framework.

Challenges in Combating Money Laundering

Lack of Criminalization of Self-Laundering

According to a recent report by the International Monetary Fund (IMF), Italy’s AML system is hindered by a lack of criminalization of self-laundering until January 1, 2015. This has limited the use of the AML framework to its fullest extent, particularly in cases related to tax evasion.

Complex and Lengthy Judicial System

The country’s judicial system is also criticized for being complex and lengthy, with procedures often taking years to complete. The complexity of ML cases, combined with insufficient resources, may undermine the effectiveness of the judicial system.

Repeat Offenders and Insufficient Sanctions

Many ML and TF cases involve repeat offenders, suggesting that sanctions applied are not sufficiently dissuasive. The lack of granular statistics on investigations, prosecutions, and convictions makes it difficult for authorities to gauge their performance.

Challenges in Combating Terrorist Financing

In terms of terrorist financing, Italy’s anti-terrorism investigative activities have focused primarily on detecting and disrupting cells, with parallel financial investigations also conducted. While some convictions have been secured in recent years, none of the investigations carried out have found evidence of TF activities.

Effective Implementation of EU Sanctions

However, Italy has implemented the EU’s Terrorist Financing Sanctions (TFS) effectively, adopting a passive system of notification for financial institutions and Designated Non-Financial Businesses and Professions (DNFBPs). However, Italy’s approach to supervising non-profit organizations (NPOs) is criticized for being inadequate, with limited outreach undertaken.

Risk Mitigation Efforts

Italy has also actively mitigated the proliferation financing risk through TFS and controls on dual-use goods under relevant international agreements. Efforts focus primarily on risks emanating from Iran, but authorities are also aware of the risk posed by trade with North Korea.

Areas of Concern

The IMF report highlights several areas of concern, including:

  • Lack of appreciation for TF risk among some sectors: There is a need to increase awareness and education among certain industries and organizations about the risks associated with terrorist financing.
  • Inconsistent beneficial ownership processes: The current process for identifying and verifying beneficial owners is not always consistent across different financial institutions and DNFBPs.
  • Poor reporting by DNFBPs: Financial institutions and other designated non-financial businesses and professions (DNFBPs) have a responsibility to report suspicious transactions, but some are not doing so effectively.

Recommendations for Improvement

To address these challenges and ensure the effectiveness of Italy’s AML framework, several recommendations can be made:

  1. Enhance supervision: Improve supervision of financial institutions through better alignment with international standards and more effective use of sanctions.
  2. Increase cooperation among domestic authorities: Enhance cooperation among domestic supervisory authorities and with home country supervisors to ensure a coordinated approach to combating ML and TF.
  3. Address gaps in the AML framework: Fill gaps in the current AML framework, including the lack of criminalization of self-laundering until January 1, 2015, and improve oversight of non-profit organizations.

By addressing these challenges and implementing recommendations for improvement, Italy can strengthen its AML framework and effectively combat money laundering and terrorist financing.