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Italy is well-known for its fashion, art, movies, music, food, and wine. One to add to the list may be its anti-money laundering (AML) protections, as the country is among the most forward-thinking early adopters. The country first criminalized money laundering in 1978 — eight years before the United States and 10 years before Canada. Italy also beat the European Commission by a month when it introduced its first AML law in May 1991, and it continues to be at the forefront of its international counterparts when it comes to protecting against financial crimes.
If the Boot is beckoning your business, consider this guidance as you prepare your own compliance program.
KYC in Italy
Money laundering is a pervasive global financial crime that impacts governments, businesses, and communities. Billions in ill-gotten funds flow through financial markets as they are “washed” of all traces of their original sources and converted into clean money. The single best tactic we have against money laundering has been for banks and financial institutions to institute Know Your Customer (KYC) practices. By taking steps to identify who is using accounts at a bank or stock trading app, for example, those at the front lines of finance can make it harder for criminals to use legitimate products for illegitimate purposes.
Meeting regulatory guidelines
Italy’s first AML law was passed in 1991. Initially the Decree-Law No. 143, it became Law No. 197. The law has been amended in the years since, most notably to reflect the EU Anti-Money Laundering (AML) directives. As a member of the EU, Italy is obligated to institute local interpretations of the EU’s ever-adapting anti-money laundering directives (the Fourth Anti-Money Laundering Directive EU 2015/849, as amended by the fifth directive, 2018/843, etc.). Italy’s local laws are the adeguata verifica della clientela and the normativa antiriciclaggio.
Under these rules, obliged entities that must adhere to AML procedures include:
- Financial institutions
- Tax consultants
- Auditors
- Real estate agents
- Commercial lawyers
- Notaries
- Dealers in precious goods, specifically when accepting cash payments of €15,000 or more
KYC falls under the umbrella of AML and is ultimately the responsibility of the Ministry of Economy and Finance of Italy within the Department of the Treasury. Depending on the industry, KYC in Italy may be specifically regulated by the Financial Intelligence Unit of the Bank of Italy, which is the Italian Central Bank, or the Institute for the Supervision of Insurance (Istituto per la Vigilanza Sulle Assicurazioni or IVASS), or the Italian Companies and Exchange Commission (Commissione Nazionale per le Società e la Borsa or CONSOB).
Italy was one of the early supporters of the Financial Action Task Force (FATF), the leading global watchdog organization combating global money laundering, terrorist financing, and related financial crimes. It joined as a member in 1990, a year after the FATF formed. In the FATF’s most recent 2019 peer review of Italy’s progress in adopting suggested protective measures for all member countries, it was found to be compliant or largely compliant on all but two of the 40 recommendations. It was still falling short on correspondent banking and sanctions against terrorism and terrorist financing efforts.
KYC documents needed in Italy
Under the mandatory minimum requirements for KYC under AML, financial institutions and other obligated entities in Italy must collect and verify every individual customer’s:
- Name
- Residential address
- Place of birth
- Date of birth
- Tax number
- Government-issued ID, such as a driver’s license, machine-readable national ID, passport, or residency permit (only if issued by a European country)
For self-employed individuals, including artisans, independent contractors, freelancers, and entrepreneurs, all of the above are required as well as a certified business registry extract dated within the last three months.
KYB documents needed in Italy
When the KYC process involves businesses as customers, it is often referred to as Know Your Business (KYB). These terms are generally used interchangeably.
For legal associations, including non-governmental organizations, charities, and foundations, banks must collect:
- Legal name of the entity
- Legal registration number or tax code, if applicable
- Legal address
- Certificate of incorporation
- Proof of the VAT number and/or the tax code (typically issued by the Italian Revenue Agency)
- Articles of Association signed by a legal representative (typically the organization’s president, general secretary, or corporate treasurer)
- Identification proof for the legal representative (such as a passport, driver’s license, machine-readable national ID, or residency permit from a European country)
- Proof of authority for the legal representative, such as the minutes of the last general meeting of the association
For all other legal entities, banks and others must collect:
- Legal name of the entity
- Legal registration number or tax code, if applicable
- Legal address
- Legal formation type (the two most common are Limited Liability Company or società a responsabilità limitata (S.r.l.) and joint-share company or società per azioni (S.p.a.))
- Certified copy of the Certificate of Formation dated within the last three months
- Articles of Association signed by a legal representative if the individual’s signature does not already appear on the Certificate of Formation
- Identification proof for the legal representative (such as a passport, driver’s license, machine-readable national ID, or residency permit from a European country)
- Proof of authority for the powers of the legal representative (if this does not already appear on the Certificate of Formation, it should be drafted on alternative acceptable legal forms)
- Ultimate Beneficial Ownership registry (if not otherwise provided)
- Identification proof for each beneficial owner, such as a passport, driver’s license, machine-readable national ID, or residency permit from a European country (It should be noted that the most recent definition of beneficial ownership in Italy per the Bank of Italy is 25% or more of share capital or 25% indirectly through subsidiaries, trusts, nominees, etc.)
Customer Due Diligence in Italy
KYC measures are part of a series of risk assessments that banks and other entities complete as part of the Customer Due Diligence process. If the customers are determined to be low risk for money laundering and other financial crimes after reviews and screenings are completed, the simplified due diligence processes will be sufficient for local regulators. If the risk is found to be elevated, for instance because a beneficial owner’s screening indicated concerns about geography, negative news, or a politically exposed person, additional or enhanced due diligence will be required.
Depending on each Italian financial institution’s risk tolerance, this can vary. For example, a charity might be required to supply financial statements showing proof of their income, or a banker might need to make a physical visit to a company location.
Mandatory beneficial ownership reporting
In October 2023, Italy’s latest proactive AML effort, the beneficial ownership registry (registro dei titolari effettivi) became operational. Under a series of multi-agency decrees, the following businesses must annually self-declare their ownership via the government registry:
- Legal entities, including S.r.l., S.p.a., società in accomandita per azioni (S.A.P.A.), cooperatives, consortiums, and mutual aid societies as well as foreign corporations with secondary offices in Italy
- Legal persons, including recognized associations, committees, and foundations
- Special entities, including trusts with tax obligations and other similar legal structures
Non-obligated entities include non-recognized associations, consortiums, and social enterprises.
Penalties for non-compliance in Italy
Money laundering is punishable in Italy with prison sentences of two to 12 years and fines ranging from approximately €516 to €15,493 for successfully laundering funds. On the low end are acts of complicity related to receiving, hiding, or profiting from laundered items. In the middle range are activities resulting in the transfer of money or goods or otherwise hampering investigations into the original source of funds. On the highest end are activities related to professional laundering enterprises or other links to sanctioned activities.
Additionally, failing to report mandatory beneficial ownership to the Italian government can result in civil fines from €103 to €1,032, and reporting false data can carry fines of €10,000 to €30,000 as well as prison sentences of six months to three years.
Penalties can also be levied against banks, financial institutions, and other obligated entities that commit fraud and counterfeiting or fail to report these and other suspicious crimes. Fines vary depending on the seriousness of the violations. However, in a country with well-known organized crime rings, this has proven difficult. Credit Suisse, for example, was the bank of choice for Antonio Velardo, an Italian businessman facilitating speculative sales of apartments for a developer linked to the mafia. The property was seized by the Italian government in a crime probe and Velardo was arrested, but unwitting buyers never got their money back. Despite having millions in multiple personal accounts with Credit Suisse, Velardo was acquitted and kept the money because the bank declined to assist Italian authorities, thus averting further punishment for both the businessman and the bank.
How can businesses prepare themselves for KYC and KYB compliance in Italy?
KYB and AML and KYC compliance are critical if companies want to remain successful in the countries where they are and expand further into more. Regulatory infractions can lead to fines and legal fees, costly business disruptions, reputational risk, and even sanctions and untimely business exits.
To be safe, companies should research doing business in Italy and work with advisors, including attorneys and translators, to ensure that mandatory requirements are fully understood and complied with. When fines are on the line, don’t skip the fine print on regulations and contracts.
How can Persona help you handle KYC and KYB in Italy?
If you are looking for more Dolce Vita and less The Italian Job, consider bringing in a partner like Persona. Our identity platform provides building blocks you can use to create and customize the KYC and KYB process to fit your exact onboarding specifications. Choose which types of verifications and checks to implement, add fraud prevention, and integrate third-party data to make compliant and strategic decisions.
We also offer solutions for continuous monitoring for both AML compliance and fraud prevention. And Persona can securely store customer data, including users’ personally identifiable information (PII), to help stay GDPR compliant.
Start for free or get a demo today.
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