Director and deputy of scandal-hit Vatican bank resign

The director and deputy director of the Vatican bank have resigned amid a sweeping probe of the scandal-hit institution, the Vatican said on Monday.

Paolo Cipriani and Massimo Tulli handed in their resignations "in the best interest of the institute and the Holy See", the Vatican said in a statement, three days after a senior Catholic cleric who held accounts at the bank was arrested in Italy for alleged corruption.

The shock resignation of top management came amid a probe into the Institute for Works of Religion (IOR), as the bank is known, carried out under the scrutiny of Pope Francis himself.

"Since 2010, the IOR and its management have been working hard to bring structures and processes in line with international standards against money laundering," the bank's president Ernst von Freyberg was quoted as saying.

"While we are grateful for what has been achieved, it is clear today that we need new leadership to increase the pace of this transformation process," he added.

The Vatican said von Freyberg would "assume the functions of the General Director ad interim with immediate effect" and a new position of "chief risk officer" would be created to help the bank comply with international financial regulations.

The bank has a troubled history, including the collapse of the Banco Ambrosiano, in which the Holy See was the main shareholder, and which had been accused of laundering money for the Sicilian mafia.

The chairman of Banco Ambrosiano, Roberto Calvi -- dubbed "God's Banker" in the press -- was found hanging from Blackfriars Bridge in London in 1982 in a suspected murder by mobsters.

In 2011, Pope Benedict XVI created a new financial authority to reform the bank, with the aim of getting the Vatican on a "white list" of countries that cooperate with efforts against money laundering drawn up by the Organisation of Economic Cooperation and Development (OECD).

But critics complained that his approach was toothless and many had been hoping Francis would overhaul the highest rungs of the institution.

In a bid to tighten control of the bank's activities, the pope last week set up a special five-member commission, which is under orders to investigate the bank and report anything it uncovers directly to him.

In the latest scandal to hit the Vatican, Italian police on Friday arrested senior cleric Nunzio Scarano, 61, on suspicion of plotting to smuggle millions of euros into Italy.

Scarano is accused of planning, together with an Italian spy and a financial broker, to secretly fly 20 million euros in dirty money into Italy from Switzerland, purportedly as a favour for shipping industry friends.

The cleric, who had worked for years as a senior accountant for the Administration of the Patrimony of the Apostolic See (APSA) and is currently being held in Rome's Regina Coeli prison, on Monday pleaded his innocence and requested to be transferred to house arrest or somewhere he can celebrate mass.

The Vatican promised in 2011 to redouble its efforts to reform the bank and overhaul its financial legislation following reports of anonymous accounts at the bank being used by organised crime.

In February this year, it named German von Freyberg as the bank's new head, and he is currently overseeing a review of its 19,000 or so accounts.

The IOR, which does not lend money, manages assets of 7.0 billion euros ($9.3 billion) and handles funds for Vatican departments, Catholic charities and congregations as well as priests and nuns living and working around the world.