Italy: Prevention And Defense Of Money Laundering Cases In Italy

The geographical location and physical make-up of Italy has meant that it is a prime entry point into Europe for smugglers of drugs and other contraband. This has provided a high level of income for the long established organised criminal clans which operate in the country, which also derive funds from various other criminal activities chief amongst which are fraud, corruption, extortion, prostitution and illegal gambling. The organisational and territorial nature of the organised criminal clans means that much of the funds derived from such activities are channelled into commercial activity.

The focus of Italy's legislative efforts against money-laundering (known as riciclaggio) has been on organised crime and the banking industry, although the law is of general application. In fact, money-laundering has become a controversial issue, amongst prosecutors and judges, not to mention the media, in connection with the alleged proceeds of both criminal and "terrorist" activities, which means that money laundering cases must be defended vigorously if the rights of the defendants are to be effectively preserved.

There has been specific anti-money laundering domestic legislation in Italy for over 20 years¹, but developments throughout the 1990's caused the law to become increasingly far-reaching and sophisticated. Italy has signed and ratified both the UN Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances of 1988 and the Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime of 1990. Further, Italy has implemented Council Directive 91/308/EEC of 10^th June 1991 on the prevention of the use of the financial system for the purpose of money laundering.²

Since 1997, the primary responsibility for matters relating to anti-money laundering has lain with the Anti-Money Laundering Department of the Italian Foreign Exchange Office (Ufficio Italiano dei Cambi- UIC)³, which acts in conjuction with other bodies such as the Bureau of Anti-Mafia Inveastigation and the Guardia Di Finanzia. The UIC receives suspicious-transaction reports and actively investigates not only those reports it receives but also instances where there has been an improper failure to make a report. It is responsible for, inter alia, keeping the register of financial intermediaries (who are the only persons allowed by law to carry out certain financial transactions)⁴, enforcing sanctions for administrative violations of various anti-money laundering financial regulations, drafting opinions on matters of special interest and is responsible for liaison with the international organisations engaged in the fight against money-laundering. It therefore has a wide-ranging and proactive role and has been furnished with a broad range of powers with which to pursue its objectives.⁵

Italy has been the subject of two FATF mutual evaluations. The first of these, in June 1993⁶ noted the need for the strong co-ordination between the numerous bodies involved in the enforcement of anti-money laundering legislation. The second mutual evaluation report in June 1998⁷ noted that the UIC is likely to provide such co-ordination. This reported noted several "weaknesses" in what it referred to as a "fundamentally sound" system. The first of these was the need for training and supervision in non-bank financial institutions not subject to supervision to improve their reporting of suspicious transactions. The second was the need to extend anti-money laundering provisions to individuals or companies operating in sectors which are particularly vulnerable to being used for money laundering purposes. As to the first weakness, time will tell what improvements have been made. However, legislation has now been passed to remedy the second weakness.⁸

In 1996⁹, the number of suspicious transactions reported was 3218, the number of convictions for the two chief offences of money laundering totalled 125¹⁰.

There are three offences provided for by the Italian Penal Code which relate directly to money laundering activities. The first of these is that of "ricettazione", or receiving, under Art. 648 of the Penal Code, in which it is stated that whoever acquires, receives or hides money or other things which are the proceeds of any crime or is involved in such activity, for the purpose of acquiring a profit for himself or another person will be guilty of an offence.

The second offence is that of "riciclaggio" or the recycling of the proceeds of crime and is found in Art. 648-bis of the Penal Code¹¹. The Article states "save in cases of complicity in the offence, whosoever replaces or transfers money, goods or other proceeds of an intentionally committed crime, or commits other acts in relation to such [money, goods or proceeds] so as to obstruct the identification of their criminal provenance..."will be guilty of the offence.

The third specific offence is found in Art. 648-ter ¹² of the Penal Code, the article being entitled "the investment of money, goods or proceeds of illegal provenance"¹³. The Article makes it an offence to invest money, goods or other proceeds of crime in any economic or financial activity.

It is important to note that guilt can arise in relation to all three of these offences even if the person/s who committed the offence/s from whence the proceeds came may not be charged or may not be punishable.¹⁴ This would therefore suggest that in fact it is irrelevant where the "original" offence took place.

All three of the offences are all crimes, and do not require the money, goods or other proceeds to come from a specific offence before liability can arise for the various activities described in the Penal Code. It is therefore irrelevant what the "original" offence was, for the purposes of liability, but not punishment¹⁵.

The actus reus for each offence differs. For the receiving offence under Art. 648, it is the acquiring, receiving or hiding, or being involved in such actions, of money or things which come from a crime.

The recycling offence under Art. 648-bis requires the substitution or transfer of money, goods or other profits of an intentional offence or the doing of "other acts" in relation to the money etc. The actus reus is therefore very broadly defined in this offence.

This is less true for the offence under Art. 648-ter. The article here requires that the money, goods or other profits of an intentional offence, are invested in economic or financial activity. It should be noted that this Article seems intended to catch all activity which does not fall within the ambit of the other two offences, as it requires that the conduct not be covered by either of the other sections¹⁶ There is no definition of "economic or financial activity" provided within the section.

It is also important to note that all three offences must be committed other than in the course of the criminal offence which gave rise to the illicit proceeds.¹⁷

The mens rea required for each offence differs quite significantly.¹⁸

All the offences require the knowledge that the money, goods or proceeds in question derive from a criminal source. Each offence however requires some additional mental element.

The most straightforward additional element required is that necessary for the offence under Art. 648 which is that the purpose of the conduct be the realisation of a profit for the actor or another person.

The other two offences, Arts. 648-bis and ter, have in common the requirement that the purpose of the conduct be to obstruct the criminal providence of the money etc. The Offence under Art 648-ter in addition requires that this obstruction be pursued by the specific means of investment in economic or financial activity.

There are no specific defences provided in the Articles and therefore those provided generally by the criminal law must be relied on.

For the offence under Art. 648, the general penalty provided is imprisonment for a term of between 2 and 8 years and a fine of between 1 and 20 million lire.

For the offence under Art. 648-bis the general penalty provided is imprisonment for a term of between 4 and twelve years and a fine of between 2 and 30 million lire. The Article states that if the offence has been committed in the course of a professional business then the penalty should be increased, whilst if the offence from which the illicit proceeds came was itself punishable by a term of imprisonment of less that 5 years then the penalty for the offence under Art. 648-bis should itself be reduced.

The general penalty for the offence under Art. 648-ter is the same as that for Art. 648-bis and the provisions allowing for the increase and decrease in the penalty also apply.

In addition to those penalties defined in the Penal Code, specific legislation¹⁹ states that if the offence is committed in the course of banking, professional or currency-exchange activities, then professional disciplinary measures, suspension and revocation of the ability to practice should also apply, although this may be inevitable in any case.

Monetary penalty are of course converted by now in the equivalent amount in Euro currency.

Italian law has taken various steps to protect the financial system from money laundering, the principal piece of legislation being Decree Law 143 of 3^rd May 1991 which was subsequently amended by Legislative Decree 153 of 26^th May 1997.

3.1.1 Limit of Use of Cash and Bearer instruments in Transactions²⁰

Transfers between different parties of cash, bearer bank or postal passbooks or bearer instruments in lire or foreign currency are prohibited when the total amount is in excess of 20 million lire, that it now to its equivalent in the Euro currency, except where such transfers are carried out by means of "authorised intermediaries". Cash transfers by intermediaries must be effected on the basis of written instructions accepted by the intermediary prior upon prior delivery of the cash to the intermediary²¹, and postal money orders, Bank of Italy drafts, postal cheques, bank cheques and cashiers cheques in amounts of more than 20 million lire must bear the corporate or individual identity of the beneficiary and a non negotiability clause.

Authorised intermediaries are defined in the legislation²² and include general government offices (including post offices), credit institutions; securities firms; commission dealers on the stock exchange; stockbrokers; companies authorised to market securities door to door; securities investment fund management companies; trust companies; insurance companies and institutions; Monte Titoli S.p.A.. This list may be added to by the Minister of the Treasury following consultation with other Ministers, the Bank of Italy and Consob (the Companies and Stock Exchange Commission).

Further the pursuit on a public basis of the activities of acquiring holdings, granting loans in whatever form, providing money transmission services and trading in foreign exchange is restricted to those financial intermediaries which are included in the register kept by the UIC.²³

Details of transactions in excess of 20 million lire, or rather now its equivalent in Euros, must be kept in a register maintained by the authorised intermediary. This requirement also applies when, due to the nature of a transaction, there is reason to believe that several transactions effected at different times within a certain period of time, even if individually below the threshold of 20 million lire, nonetheless constitute a single transaction.²⁴

The details which must be kept in the register include the date and payment details of the transaction, the amount of the individual means of payment, complete identifying particulars and identity document of the person carrying out the transaction, complete identifying particulars of the person on whose behalf the transaction is carried out. Such details must be filed in the data bank of the party carrying out the transaction within 30 days of the transaction.²⁵ It should be noted that this data may also be used for tax purposes!

Failure by staff to comply with the registration provisions is punishable by a fine of between 5 million and 25 million lire²⁶.

Executors of transactions who fail to provide the identifying particulars of the person on whose behalf they effect the transaction or who provide false particulars are punishable by imprisonment of between 6 months and one year and a fine of between 1 and 10 million lire (provided their actions do not themselves constitute a more serious offence).²⁷

Reporting requirements apply to all transactions, not simply those in excess of 20 million lire. The legislation has established a chain of reporting which will eventually end in a report to the UIC.

The initial obligation to report falls to the head of a branch, office or other place of business of any general government office (including post offices), credit institution; securities firm; commission dealer on the stock exchange; stockbrokers; company authorised to market securities door to door; securities investment fund management company; trust company; insurance company or institution; Monte Titoli S.p.A.. or any intermediary whose primary object or activity is lending in any form (including financial leasing), acquisition of holdings, trading in foreign exchange, collection, payment and funds transfer service (including by means of the issue or management of credit cards). It should be noted that this list is in fact wider than that of the authorised intermediaries and in fact the reporting obligation applies regardless of whether the person carrying out the transaction is an authorised intermediary.²⁸ Lawyers and other professionals (e.g., tax advisors) are however not included.

What must be reported is every transaction which, "owing to its characteristics, size, nature or any other circumstance known to him by virtue of the duties he performs, also taking into account the income earning capacity and activity of the person involved, leads him to believe on the basis of the evidence available to him that the money assets or benefits involved in the said transaction may derive from one of the crimes indicated in Art. 648-bis and 648-ter of the Penal Code. The characteristics referred to in the preceding sentence shall include in particular the execution of a multiplicity of transactions not justified by the activity of the person himself or where known by members of the same household or employees or collaborators of any one undertaking or by a nominee." ²⁹

The report must be made to the head of the business or a person delegated by him for this purpose. He must then examine the report and, where he finds it well founded "taking account of all the available evidence" he must transmit it without delay to the UIC.³⁰

The UIC is then obliged to carry out the necessary checks on reports it receives, including checks on any cases of failure to report that are known to it. It may take a variety of steps including requiring more information from the reporting party³¹. If the report concerns organised crime, the UIC must then submit the report together with a technical report, to the Bureau of Antimafia Investigation and the special foreign exchange unit of the Finance Police. The UIC may also close investigations.³²

In recognition of the potentially dangerous consequences of the making of reports of suspicious transactions, the identity of the person making the initial report to the head of his business is not to be included in the report which is then transmitted to the UIC³³. Further, in the event of reports to the criminal authorities, the identity of the persons and intermediaries who made the transaction report shall not be mentioned.³⁴ Should criminal proceedings be opened, the identity of the person making the transaction report may only be divulged upon a reasoned order of a judge, and then only where the judge considers the disclosure indispensable for the purposes of verifying the crimes for which the proceedings have been opened.³⁵ Authorised intermediaries are under an obligation to adopt adequate measures to ensure the utmost confidentiality of persons making the reports and records and documents which contain the identifying particulars of such persons are to be kept safe under the direct responsibility of the head of the business or his delegate.³⁶

As regards the effects of reports of suspicious transactions betraying customer confidentiality, it is expressly provided that reports transmitted within the meaning and effect of the legislation do not constitute infringements of obligations of secrecy and will not involve liability of any kind.³⁷ The position of lawyers in private practice is however not so well-cut as far as their clients are concerned. The last version of the Bar Ethical Code of the Italian National Bar Council tries to address this issue, but of course the rules established therein have no statutory power.

In relation to the provisions relating to the prohibition of transfer of a value of 20 million lire or more (and now the equivalent in Euro currency), the breach of this provision attracts a pecuniary administrative sanction of up to 40% of the total of the amount transferred.³⁸ Failure to set up the data bank register of transactions is punishable by a term of imprisonment of between 6 months and 1 year and a fine of between 10 million and 50 million lire.³⁹

Failure to make a suspicious transaction report , unless the act itself constitutes a crime, attracts a penalty of a pecuniary administrative sanction of up to one half of the value of the transaction.⁴⁰

The prohibition against tipping off applies to persons required to make suspicious transaction reports and anyone else who knows about them.⁴¹ This is hardly applicable however to the counsel to the party concerned, given his confidentiality duty and the related privilege. The level of knowledge required is also rather unclear. Giving notice of the report other than in the circumstances allowed within the legislation will result in imprisonment for a term of between 6 months and one year and by a fine of between 10 million and 100 million lire.

No specific defence is provided in the current legislation.

The second FATF review of Italian money laundering legislation⁴² called for an increased "protection" of those areas of commerce which are particularly vulnerable and therefore attractive to those seeking to launder illicitly obtained funds. Such amendments have now been provided⁴³.

The suspicious transaction reporting requirements have thus been extended to a long list of sectors, and namely to: credit collection on behalf of third parties; custody and transport of cash, securities and other assets by means of security guards, or without them, real estate brokering; dealing in antiques; the operation of auction houses or art galleries, dealing in gold, including export and import for industrial or investment purposes, manufacturing, brokering and dealing in valuables, including import and export; operation of casinos; manufacture of valuables by craft undertakings; loan brokering; financial agency.⁴⁴

The penalties at 2.4 above will apply.⁴⁵

Specific legislation deals with the transfer of funds into and out of Italy by post or carriage.⁴⁶

Transfers in which cash, instruments and securities in an amount greater than 20 million lire or the equivalent value are carried or transferred by means of postal parcel or equivalent to or from a foreign country by residents or non-residents must be declared to the UIC.⁴⁷

The declaration must be prepared in two copies and signed by the applicant and must indicate, inter alia, the complete identifying particulars and identity document of the declarant and any person on whose behalf the transfer is being carried out (and tax number in the case of a resident of Italy), the amount of cash, securities or instruments involved, whether the transfer is too or from a foreign country and the date.⁴⁸

The declaration should be filed with border customs officials at the time of crossing for crossings from or too non EU countries. For crossings from or too EU countries, the declaration should be filed with a bank if the transaction is carried out by the bank, or with a customs office, post office or Finance Police Station within 48 hours of entry into Italy or 48 hours preceding exit from the country.⁴⁹

There are a number of sanctions for the violation of these requirements most of which involve the seizure of all or part of the sums involved.⁵⁰

Whilst there are no orders which are specific to the money laundering offences above, there exist in the general body of Italian criminal law orders for both sequestro (seizure) and confisca (confiscation).

During the investigatory phase of criminal proceedings, it is possible for the prosecution to apply for a pre-emptory seizure order, under Art. 321 Code of Criminal Procedure. This Article gives a judge the discretion to issue a reasoned order of sequestration when there is a "danger that the free availability of a thing relevant to an offence may aggravate or be used in the commission of other offences". Such an order can be made even if confiscation is available. It should also be noted that during the preliminary investigation stage, if by reason of emergency it is not possible to wait for a judge to make the order, it is possible for the prosecutor to issue a temporary order, which must however be approved by a judge within 48 hours from its execution.

More generally, seizure is available pursuant to Art. 253 Code of Criminal Procedure in respect of "the material evidence of an offence or of things relevant to the offence which are necessary for the determination of the facts"⁵¹. the term "material evidence" is defined as including "the profit, the proceeds or the product of the offence"⁵². It should be noted that the person against whom the order is made does not have to be present when the order is made.

Supplementing this general power of sequestration is that of seizure against banks (sequestro presso banche) provided by Art. 255 of the Code of Criminal Procedure. A judge may, as against a bank, order the sequestration of "documents, securities, shares, sums deposited in current accounts or any other thing, even if held in a safe deposit box"⁵³. Such an order may be made should a judge have well founded reason to believe that the [these items] are relevant to an offence, even though they do not belong to the accused person and are not registered in his name". Such sequestration is generally available throughout the criminal process. The order is open to challenge⁵⁴ and may be discharged in whole or in part as a result of such a challenge.

Confiscation orders are also generally available as part of the criminal process⁵⁵. In contrast to sequestration orders, they are available only on the conviction of the defendant, in respect of "things which were used or were destined for used in a crime, or things which were the product of or the profit of an offence". The order must be made by the trial judge and is largely in his discretion, save in certain specific cases⁵⁶, the most relevant for our purpose being that the proceeds directly obtained from a crime must be made subject to a confiscation order.

Several other powers which have been made available to the courts are relevant to the offences which arise in relation to money laundering. The first of these is the power under Art. 289 of the Code of Criminal Procedure which allows the suspension from duty of a public servant or official who is charged with an offence which carries a term of imprisonment of more that three years⁵⁷. Such suspension may from all or a specific part of the duties of the public servant.

Art. 290 of the Code of Criminal Procedure allows a Judge to order the temporary cessation of activity of "professionals, businesses or offices " subject to a criminal charge or controlled by someone so charged. Again, such orders can only be made if the charge relates to an offence which carries a penalty of three years imprisonment or more. Obviously, the exercise of such a power is potentially very harmful to those allegedly involved in money laundering, especially taking into account that law enforcement officials are likely to seek as large a media coverage as possible to this kind of measures.

Italy has been no stranger to terrorist activity over the past forty years and recent events both within Italy and abroad have lead to fears of terrorism coming from home grown organisations as well as those with a more international agenda. Specific anti-terrorist legislation has existed for some time, but this tends to relate to the specific offences relating to terrorist activity rather that the money-laundering which so often sustains it, and there are no specific terrorist related money laundering offences. Of course, the Italian money laundering offences do not rely on predicate offences and therefore are of general applicability in the sphere of terrorist offences. The most recent legislation in the area has in fact given exemption to police officers who, amongst other things, commit actions which would otherwise be money-laundering offences, during the course of operations for the purpose of establishing evidence in relation to terrorist offences.⁵⁸

In addition, Italy is, of course, bound by European Regulations in this area, and the UIC regularly publishes lists of individuals and organisations with whom it is illegal to trade.

There do not appear to be any specific legislative measures pending at the present time, although the Government appears anxious to ensure that it takes whatever measures as are necessary to protect the economy from potential terrorist infiltration and consequently to ensure that terrorist funds are identified and seized wherever possible. This obviously contributes to a certain degree of paranoia which makes it essential to deploy all the necessary resources in preventing and defending money laundering cases.