Power Struggle on Reforming Vatican Bank
By RACHEL DONADIO and ANDREW HIGGINS
The Vatican is under mounting pressure to clean up its bank — long the
subject of dark intrigue — in a push by the European Union to apply
common rules for the use of the euro.
Gabriel Bouys/Agence France-Presse — Getty Images
The Vatican bank has for decades been the subject of dark intrigue and also has been linked to one mysterious death.
By RACHEL DONADIO and ANDREW HIGGINS
Published: March 9, 2013
VATICAN CITY — Negotiations over the Vatican’s
adherence to international banking standards were reaching a delicate
point. During a lunch, a European official later recalled, discussion
turned to the need for more openness from an institution steeped in
centuries of secrecy.
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A Vatican representative at the meal, annoyed by the requests for more
information, shouted, “How can you ask us such questions?”
The clash came amid mounting pressure on the Vatican to clean up its
bank — for decades the subject of dark intrigue and linked to one
mysterious death — as part of a push by the European Union to apply common rules to all the countries and micro-states like Vatican City and Monaco that use the euro.
Those pressures continued until the very last days of Pope Benedict XVI’s
papacy and remain a critical issue for the cardinals now meeting to
elect a new pope. As the conclave begins Tuesday, the specter of
financial scandal presents a special challenge for Benedict’s successor,
who must modernize the Roman Catholic Church’s finances or risk the
Vatican’s access to the global banking system, undermining its moral
authority and its financial stability.
Ahead of the conclave, the cardinals were briefed on the Vatican’s
finances and have been debating whether a member of the Vatican
hierarchy or an outsider would be better at imposing order after a
papacy bedeviled by crises of governance. The battle lines are hazy, but
the fight over the Vatican’s finances pits different factions inside
the Vatican against one another, some seeking greater transparency and
others who want to preserve the institution’s tradition of secrecy.
Founded in 1942 and housed in a small round tower at the foot of the
Apostolic Palace, the Vatican bank generally does not give loans but
manages deposits and patrimony for religious institutions, clerics and
diplomats accredited to the Vatican, who are among the only depositors
allowed to hold accounts there.
During the cold war, the bank was widely seen as a back channel to
transfer money to the Eastern Bloc to help end Communism, and today the
Vatican uses the bank to help it operate in sensitive areas like Cuba
and China, Vatican experts say.
But largely because of the Vatican’s reluctance to reveal its account
holders to outside authorities — and especially to subject itself to
scrutiny of past transactions — suspicion has swirled for years about
whether some of its accounts had ties to organized crime or Italian
political slush funds.
In 2011, the only time for which figures have been made available, it
had 20,772 clients, 68 percent of them members of the clergy, and $8.2
billion in assets under its management. The bank has said it has around
33,000 accounts.
In recent years, Italian prosecutors have become more aggressive in
investigating whether accounts held there by clerics might in fact be
fronts for other interests. Last July, the Italian authorities arrested a
priest on charges that he allowed a lawyer to use his Vatican bank
account to commit insurance fraud.
Officials at the European Union in Brussels and agencies that monitor
financial institutions say the Vatican has made significant strides in
meeting norms against money-laundering, but that it still has some way
to go.
Some in the Vatican are eager for change, but “you should not
underestimate the resistance on issues of transparency” from
tradition-bound forces, the European official said.
Under Benedict, the Vatican bank pledged to join the so-called white
list of countries that meet international banking standards. In one of
his final acts as pope, Benedict appointed a German aristocrat, Ernst von Freyberg, as the bank’s new president.
The appointment loosened the historic grip on Vatican finances by a
small and tight-knit group of Italian insiders, some of whom had
fiercely resisted efforts to come under outside scrutiny. They were
protective of the bank as an essentially Italian institution, which
critics said was perilously close to the country’s scandal-prone
political and financial establishment.
Last May, the Vatican bank ousted its president, Ettore Gotti Tedeschi, a
well-connected Italian banker, in a rare boardroom coup, accusing him
in a public statement of incompetence. Mr. Gotti Tedeschi had come under
intense scrutiny in 2010, when magistrates in Rome impounded $30 million
from two external accounts used by the Vatican bank and placed him and
the bank’s director general, Paolo Cipriani, under investigation on
charges related to money laundering. Both denied the charges.
The money was later restored to the Vatican bank, known as the Institute
for Works of Religion, after the Vatican created its own Financial
Intelligence Authority with a papal edict issued by Benedict in December
2010 to meet European anti-money-laundering directives.
The continuing Rome investigation is the first into the bank since the
early 1980s, when Italy’s Banco Ambrosiano, in which the Vatican had
investments, collapsed after the disappearance of $1.3 billion in loans
to companies in Latin America. Its chairman was found dead in 1982,
hanging from Blackfriars Bridge in London. The Vatican bank denied
wrongdoing but paid $250 million to Banco Ambrosiano’s creditors.
In recent years, the Vatican has made progress but continues to lag in meeting international banking standards. Last July, a report
by Moneyval, a monitoring agency under the Council of Europe, said that
in the two years since it was created, the Vatican’s new Financial
Intelligence Authority had flagged only two suspicious transactions.
Last October, the Vatican appointed a new head of the authority, René
Bruelhart, a 40-year-old Swiss lawyer who had helped take Liechtenstein,
famous for its banking secrecy, off the black list of countries that do
not comply with banking standards. Mr. Bruelhart’s appointment, like
that of Mr. von Freyberg, raised hopes of those seeking greater
transparency and to open up a tradition-bound financial apparatus long
dominated by Italians.
Further outside pressure on the Vatican to mend its secretive ways has
come from the European Commission, the Brussels-based executive arm of
the 27-nation European Union, and from rule changes brought about by the
introduction of the euro in 1999.
In December 2000, the Vatican signed a monetary agreement in order to
use the euro in its tiny territory and to issue coins bearing the
marking Città del Vaticano as well as commemorative coins, which it
sells at considerable markup to tourists and others.
But the agreement, to the dismay of officials in Brussels, included none
of the commitments made by most other euro-using countries to combat
money laundering. The European Commission demanded that the accord be
revised.
Eventually, the Vatican signed a new deal with Brussels in December
2009, which included an unprecedented restriction on the Vatican’s
autonomy: a commitment to accept the jurisdiction of the
Luxembourg-based European Union Court of Justice in settling disputes
over the monetary deal with Europe.
“This was a big novelty, a historic step,” the European official said.
“For the first time in history the Vatican recognized a superior
authority that is not God.”
Last June, Mr. Cipriani, the bank’s director general, told reporters on a
rare tour of the Vatican bank that it had originally signed on to
money-laundering standards monitored by Moneyval in order to continue
issuing euro coins.
“We couldn’t print coins with the Holy Father’s image, that’s why we’re
working on all this,” he said, standing beneath a frescoed ceiling
depicting “Mother Church” and answering questions submitted in advance.
Security guards in dark suits stood silently on the sidelines.
The Vatican was “fully committed to the line of transparency,” he said,
adding, “We need to take away the veil, the shadow” that had fallen over
the bank.
But the shadow grew longer. On Jan. 1, the Bank of Italy, which has
placed the Vatican bank under intense scrutiny, blocked Deutsche Bank
Italy from operating financial services at the Vatican, including the
use of credit cards at its museums, after the Vatican failed to meet a
Dec. 31 compliance deadline. The Vatican contested the move.Last
month, the Vatican announced that it had found a consortium in
Switzerland, which does not belong to the European Union, as a
replacement.
The fact that the Vatican chose a Swiss firm to manage financial
services inside the Vatican “isn’t a good, transparent sign,” said Carlo
Marroni, a Vatican expert with the Italian business daily Il Sole 24
Ore.
But he said there had been some change. “In the past they were certainly
considered a fiscal paradise,” Mr. Marroni said. Today, they have
improved, but are still in a gray zone. “They did a bit more than the
minimum, but it’s still insufficient,” he said. “They took only the
steps that they couldn’t not take.”
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