Financial Crime World

Italy’s Financial Sector Showcases Strong Understanding of Money Laundering Risks

A Comprehensive Approach to Combating ML/TF Threats

A recent report by the International Monetary Fund (IMF) highlights Italy’s strong understanding of money laundering (ML) and terrorist financing (TF) risks in its financial sector. The country’s banking system is well-equipped to identify and mitigate these threats, with banks being among the most vigilant in their defenses.

Mixed Understanding of ML/TF Risks within DNFBP Sectors

However, the report notes that understanding of ML/TF risks within designated non-financial businesses and professions (DNFBP) sectors is mixed. This highlights a need for improvement in these areas. The report emphasizes the importance of robust supervisory frameworks to ensure effective prevention of ML and TF.

Strong Institutional Framework

Italy has established a comprehensive institutional framework of law enforcement agencies (LEAs) responsible for investigating ML, TF, and predicate offenses. LEAs have access to a wide range of financial and other information, including:

  • Suspicious transaction reports (STRs)
  • Administrative records
  • Land registry data

The report highlights the effectiveness of Italy’s anti-terrorism investigative activities, which include parallel financial investigations. While there have been some convictions related to ML and TF, the authorities recognize the need for continued vigilance and improvement in their efforts.

Preventive Measures

Financial institutions (FIs) generally have a good understanding of ML threats and support the conclusions of the National Risk Assessment (NRA). However, the report notes that FIs may be over-reliant on due diligence undertaken by banks when accepting business through agency arrangements. The report also highlights inconsistencies in the process for identifying beneficial ownership.

To improve ML/TF risk prevention, DNFBPs should:

  • Improve their understanding of ML/TF risks
  • Implement robust preventive measures

The authorities should also enhance cooperation among domestic supervisory authorities and with home country supervisors to address abuses of cash reporting requirements.

Supervision

Financial sector supervisors have a good understanding of ML/TF risks associated with the range of FIs they oversee. However, their supervisory tools could be improved to provide comprehensive, timely, and consistent data on inherent risk at individual institution levels.

The report notes that the Bank of Italy (BoI) is developing a new risk-based supervisory methodology, which will constitute an improvement over existing arrangements. However, there are limitations to this approach, and authorities should strengthen existing sanctions by better aligning them with institutions’ size and financial capacity.

Italian legal persons are commonly used in ML schemes, often organized domestically and involving relatives. The report highlights the need for robust transparency measures to prevent the abuse of legal persons and arrangements.

Conclusion

Italy’s financial sector has made significant strides in preventing ML and TF risks, but there is still room for improvement, particularly within DNFBP sectors. Authorities should continue to strengthen their supervisory frameworks and preventive measures to address these threats effectively.