In other words, the Italian police are flooded with more reports than they could possibly investigate.

That wouldn't help in the situations described in the article. For example where individuals buy drugs with small amounts of cash, then that cash is used to buy things like luxury watches and iphones, then those items are taken overseas and sold.

Seemingly the only effective way to solve this would be to ban purchasing highly resellable items with cash and requiring that cash to be deposited in to the system first.

Does that mean it's illegal, or that they'll just come knocking to investigate?

I wonder if the "it's my money, I can withdraw it if I want" argument is good enough to send them on their way? (in addition to $1,000 being such a small amount as to be less-than-trivial when it comes to the overall problem of money laundering).

withdrew 2-4k rent for a few months in 23 and never saw any cops.

You mean they implemented laws under the guise of "money laundering".

They just want to track what you spend your money on, that's step one. Step two is to restrict what you can spend your money on, although this is a partial side effect of part 1.