Italy Cracks Down on Mafia Money Laundering in Crisis

The mafia has cranked up money laundering activities in Italy after the credit crunch prompted banks to stop lending, leaving a funding gap that criminal capital has filled, according to the Bank of Italy.

“The crisis has given organized crime room to thrive because access to credit has become more difficult,” said Anna Maria Tarantola, the central bank’s deputy general director, in a July 12 interview in her Rome office. “Whoever holds large amounts of cash, like crime groups, can make investments that aren’t possible for others. They can now invest in fully legal businesses.”

The central bank’s financial intelligence unit tracked 15,000 suspicious transactions in the first half of 2010, up 52 percent from a year earlier, and exceeding the total for all of 2008, said Tarantola, who’s in charge of banking oversight.

Money laundering occurs when criminals hide illegal income by funneling it through legitimate channels. Last year investigators seized Rome’s Café de Paris, famous for its appearance in Federico Fellini’s 1960 film “La Dolce Vita,” alleging it was owned by the Calabrian ‘Ndrangheta mafia. Sicily’s Cosa Nostra mafia has used supermarket chains it owns for similar purposes, according to court reports in Palermo.

Smuggling Cocaine

Italy’s economy, Europe’s fourth biggest, shrank more than 5 percent last year and the central bank forecasts growth of 1 percent for 2010. Bank lending slowed in 2008 and 2009. Central bank Governor Mario Draghi said July 15 during a speech to Italy’s banking association that “demand for credit is increasing, but there’s the impression that for many businesses, especially the small ones, demand isn’t being fully satisfied.”

Organized crime groups boosted their revenue by 4 percent to 135 billion euros ($174.6 billion) last year, according to estimates from Rome-based anti-racketeering group SOS Impresa.

Mob arrests have underscored the growing role of the mafia and money laundering in the legal economy. A sweep against the ‘Ndrangheta, Italy’s wealthiest organized crime group, netted more than 300 suspects last week and showed how the organization has taken root around Milan, the country’s financial capital.

Today authorities sought 67 alleged ‘Ndrangheta members near Milan and in Calabria for drug trafficking, extortion and usury, and seized assets worth 250 million euros, according to an e-mailed statement from Italy’s finance police. Authorities consider the ‘Ndrangheta (pronounced en-DRANG-eta) to be Italy’s most dangerous mafia, surpassing Cosa Nostra, because of funds earned from smuggling cocaine into Europe from South America.

FastWeb, Sparkle

Investigators in Rome have accused managers at Telecom Italia Sparkle SpA and FastWeb SpA of running a 2 billion-euro tax fraud and money-laundering program from 2003 to 2007, according to a February arrest warrant. The companies, through their lawyers, said they were unknowingly involved in the scam and deny any wrongdoing.

The financial intelligence unit alerted police about suspicious operations involving Telecom Italia Sparkle and FastWeb, Giovanni Castaldi, head of the unit, said in the same July 12 interview.

Of the 21,000 suspicious reports in 2009, the central bank judged that 14,800 warranted further investigation and 4,000 were later labeled crimes and reported to prosecutors, Tarantola said. This is proof the Bank of Italy is spearheading the crackdown on money laundering, she said.

“More than 20 percent of the reports have led to criminal investigations,” Tarantola said.

Draghi urged senior bank executives last week to lead the fight against money laundering after inspections this year at 120 lenders in high-risk mafia areas showed that poor training and management led to inadequate communication of suspicious transactions.

Crime Hurts Growth

The International Monetary Fund estimates that money laundering amounts to an annualized 2 percent to 5 percent of the worldwide gross domestic product. Laundering in Italy may equal as much as 11 percent of GDP, according to former chief mafia prosecutor Pier Luigi Vigna.

The central bank is conducting its own studies to evaluate the scale of the problem in Italy, Tarantola said. Credit costs are higher and growth is lower in the southern regions of Italy, where organized crime is most prevalent.

“There’s a very strong correlation between economic growth and organized crime,” Tarantola said. “During the period 1983 to 2007, the five regions with the most mafia activity are the ones that had the lowest per capita growth.”

The financial intelligence unit has ordered banks to scrutinize withdrawals or deposits that involve 500-euro bills, Tarantola said.

Big Bills

Big bills facilitate money laundering since they make large sums of cash easier to hide and transport, the Bank of Italy said in a 15-page internal report last year. As much as 6 million euros can fit in an overnight bag, and 10 million euros in a 45-centimeter (18-inch) safe-deposit box, the document said. The Bank of Canada withdrew its 1,000-dollar ($961) bill in 2000 to fight organized crime and money laundering.

Prime Minister Silvio Berlusconi’s government passed a law last year granting amnesty to tax evaders who agreed to repatriate savings stashed abroad. That led to about 100 billion euros being declared to authorities and more than 5 billion euros in tax revenue.

Of the 206,000 transactions related to the amnesty, 340, or 0.2 percent of the total, have so far been flagged as “suspicious,” said Castaldi.

The Paris-based Financial Action Task Force, set up in 1989 to fight money laundering, sent a letter to Italian Finance Minister Giulio Tremonti in October expressing “concerns” about the amnesty. The task force drafted a new set of principles this year for countries passing tax amnesties.