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Unmasking the Vatican's bank

The mysterious Istituto per le Opere di Religione responds to anti-money-laundering laws.

Crime

Editor's note: This article is part of "Underworld: a global crime blotter," a semi-regular series covering crime and punishment around the world.

ROME, Italy — When Pope Benedict XVI makes lofty statements about the role ethics plays in the economy, he speaks from experience.

Within the Vatican is the only branch of the Istituto per le Opere di Religione (IOR), otherwise known as the Vatican bank. Its ATM uses Latin.

Only Vatican employees and religious institutions are allowed to open accounts in the bank — which you’d think would make it the most moral bank in the world.

So why is its chief, economist Ettore Gotti Tedeschi, under investigation for money laundering?

Italy's Central Bank flagged a 23 million euro transfer from an IOR account in an Italian bank, the Credito Artigiano, to two other accounts as lacking some information now compulsory under EU-mandated anti-money laundering laws. So prosecutors seized the money, froze the IOR account, and opened an investigation.

This embarrassing “misunderstanding” — as the Vatican called it in a note published in its newspaper, l'Osservatore Romano — managed to turn the spotlight again on an institution that has been involved in many murky affairs.

“The IOR is not a bank in the normal definition of the term,” wrote Vatican spokesman Federico Lombardi in a recent letter to the Financial Times. In fact, it doesn't lend money or act as a consultant to businesses.

“It is more a fund deposit and transfer institution than a bank,” said Carlo Marroni, a Vatican expert with Il Sole 24 Ore, Italy's financial daily. IOR doesn't invest in the stock market, he thinks, “though they operate on the currency or bond market, or buy gold.” To trade in world markets it must go through other banks, such as the Credito Artigiano.

It is hard to pin down the value of IOR’s holdings. “It doesn't publish a budget or an annual report,” Marroni said. “It is usually held that it has 5 billion euros in deposits, but I don't know how exact this figure is.”

Another often reported figure is that accounts turn a 13 percent yearly interest — tax-free, like the Vatican itself.

But, “I think it's much less than that,” said Marroni. A leaked document from 1987 published in a recent book that made headlines here, “Vaticano Spa” — Spa being the acronym for publicly traded companies in Italian — showed that an IOR account yielded a 9 percent net interest.

IOR's biggest asset, anyway, is its secrecy — all its accounts are identified only by number. This secrecy has been used for unholy goals.

Some of them have been documented in full. The author of “Vaticano Spa,” Gianluigi Nuzzi, gained access to the archive left by the late Monsignor Renato Dardozzi, a key player at IOR from 1974 to the late 1990s. He used it to investigate the bank's involvement in money-laundering for Italian politicians and even mafia bosses. In a letter published by Nuzzi, the previous president of the Vatican Bank, Angelo Caloia, confessed worriedly to cardinal Angelo Sodano, John Paul II's “prime minister,” that IOR had served to “clean” bribes and that it held ciphered accounts for Catholic politicians, such as seven-time prime minister Giulio Andreotti.

When Banco Ambrosiano head Roberto Calvi, know as “God's Banker,” died under Blackfriars Bridge in London in 1982, the Vatican Bank was then the main shareholder of the Banco.

The American head of IOR at the time, Illinois-born cardinal Paul Casimir Marcinkus, a former body guard to Pope Paul VI, resorted to Vatican immunity to avoid prosecution by Italian judges. He died in 2006 and has often been blamed for the scandals that plagued the bank in the 1980s.

“After that, things started to change, starting under Caloia (Marcinkus' successor from 1990)," said Giancarlo Galli, a journalist who wrote a key book on Catholic finance. “Slowly, later than elsewhere, but people in the Vatican began to understand that 'opacity' is no longer a value in the financial world, replaced by 'transparency.'”

Such efforts redoubled with the arrival last year as president of Gotti Tedeschi, an outspoken economist who had worked as Italian representative from Spain's Banco Santander. After news of the money-laudering investigation came out last fall, Tedeschi voluntarily spoke with prosecutors. Italy's Corriere della Sera also reported that 13 IOR accounts not belonging to Vatican employees had been closed.

Until now, IOR's secrecy has been assured by the loyalty and frugality of its employees, mostly priests, and by the fact that the Vatican, a sovereign State, operates as a financial black hole, exempt from all international disclosure and transparency obligations.

This is going to change: The Vatican is working with the Organization for Economic Cooperation and Development to be accepted on a 'white list' of financially accountable countries.

“This could take quite a long time, though,” Marroni said.

A papal decree published on Dec. 30 gave the Vatican for the first time its own money-laundering law. It also created a financial oversight authority with broad powers to investigate any suspicious money transfer.

Also last year, for the first time, the Vatican attached an official figure to IOR, saying in the yearly statement on the Holy See's budget that the bank had donated 50 million euros “for the religious activities of the Holy Father.”

“This is welcome,” Marroni said, “though this shows that IOR turns a profit. And one cannot help but wonder where it comes from.”

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http://www.globalpost.com/dispatch/italy/110124/vatican-bank-ior-money-laundering