Italy must intensify efforts to combat money laundering and improve prosecution of terrorist financing cases, the Financial Action Task Force (FATF) said on Thursday following its latest evaluation.

The Paris-based watchdog acknowledged that Italy, the euro zone’s third-largest economy, has strengthened its response to organised crime and illicit finance in recent years. Authorities have developed a coordinated, whole-of-government approach and made extensive use of financial intelligence to pursue complex investigations.

In its assessment, based on a visit between June and July 2025, the watchdog found that enforcement gaps remain. It highlighted the need for tougher sanctions and a greater number of criminal cases to act as a deterrent. “The assessment found that sophisticated analysis of terrorist financing-related suspicious transaction reports… resulted in a significant number of complex stand-alone terrorist financing investigations being pursued,” the organisation said.

While complex cases are being addressed, simpler forms of terrorist financing are often overlooked, FATF’s statement said, adding that “simple terrorist financing cases… are not actively pursued with a goal to prosecution”, pointing to a gap in enforcement coverage.

The evaluation found that Italy’s financial intelligence system is effective, with agencies such as the Unità di Informazione Finanziaria and Guardia di Finanza playing a central role in identifying and investigating illicit activity. Authorities were involved in more than 50 joint investigative teams across Europe, demonstrating strong international cooperation.

However, the watchdog identified structural weaknesses in transparency and sanctions. It said Italy should improve access to information on beneficial ownership and address delays in imposing penalties. Sanctions for breaches of reporting obligations were described as limited and not sufficiently dissuasive.

FATF also noted uneven risk awareness outside the traditional financial sector. It called for clearer guidance to businesses such as lawyers and accountants to help them better identify and mitigate money laundering risks.

Italy has been given a three-year roadmap to address these shortcomings. The watchdog warned that failure to make sufficient progress could lead to more public criticism, a step that can damage a country’s financial reputation and increase scrutiny from international partners.

The country’s financial regulators will remain under regular monitoring and are expected to report back on progress in implementing the recommended reforms.

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