Stefano Raccagni, 38, is wanted in Italy on suspicion of being part of a 12-strong Milan-based gang that smuggled people into the country to defraud tax authorities and banks, according to a Thai immigration statement.
"The Italian embassy accused him being a core member of an organised crime gang... And falsifying documents for illegal immigrants to get money from authorities and banks," the statement added, without providing further details.
The man was arrested on Tuesday in the northern city of Chiang Mai where he had settled with a Thai girlfriend since arriving in the kingdom in 2009, police told AFP.
He will be extradited soon, the official added.
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Thailand is a prime destination in Asia for people on the run from authorities in their own countries.
On Thursday immigration authorities said they had arrested a French woman on the tourist island of Samui wanted in France over an alleged USD 1.3 million fraud involving contracts to build homes. She will be repatriated.
In December a Thai court ordered the extradition of a former banker and Italian mafia boss accused of laundering money for two Sicilian godfathers.