By Mark Hosenball
WASHINGTON (Reuters) - The regulator of the Vatican bank on Tuesday signed an information-sharing pact with the U.S. agency that tracks suspicious financial transactions, part of an effort by the scandal-ridden bank to improve its international image.
The bank, which manages money mostly for dioceses and religious institutions and is known as the Institute for Works of Religion (IOR), has traditionally been isolated from the international regulatory system.
It has been rocked by three decades of scandals, including the 1982 incident in which Roberto Calvi, an Italian known as "God's Banker" because of his Vatican ties, was found hanged under London's Blackfriars Bridge.
More recently, Italian magistrates have been investigating the IOR for money laundering. The IOR has assets estimated between 6 and 7 billion Euros.
The Vatican has tried to burnish the bank's reputation, and in 2010 it created the Financial Intelligence Authority, the Vatican's equivalent of "financial intelligence units" set up by many governments to collect and exchange information on suspicious transactions.
The regulator became operational in April 2011 and on Tuesday solidified a partnership with the U.S. Financial Crimes Enforcement Network (FinCEN), a unit within the U.S. Treasury Department that tracks suspicious money flows.
In an official announcement about the new Memorandum of Understanding, the Vatican said the new agreement was meant to "foster bi-lateral cooperation in the exchange of financial information" between the United States and the Vatican.
The Vatican expects to share with FinCEN information about suspicious transactions that could relate to money laundering or the financing of terrorism, the announcement said.
A representative from FinCEN did not immediately respond to a request for comment.
Rene Bruelhart, a Swiss lawyer appointed last year as chief of the Vatican's Financial Intelligence Authority, traveled to Washington to sign the new agreement with FinCEN.
Bruelhart said in an interview that the agreement represented a "clear commitment from the Vatican to strengthen" its financial regulatory system.
In its first year of operation, the Vatican bank watchdog only handled one "suspicious activity report", according to a report issued by a committee of Council of Europe experts.
However, since last autumn, the financial intelligence authority has generated several such reports which are now being investigated.
The kind of agreement which the Vatican regulator signed with FinCEN establishes the "rules of the road" for international information sharing that is vital to global efforts to combat money laundering and terror finance, said Alan Sorcher, a former senior advisor at FinCEN who is now a director with the anti-money laundering practice at Deloitte.
Peter Djinis, a former regulatory policy official at FinCEN who is now in private practice in Florida, said entities like the Vatican are vulnerable because they take in huge amounts of money and there is often little oversight as to how those funds are expended.
"It's a positive sign to see that there is a recognition that there need to be financial controls on even those kinds of donations, not because the money is being raised for malicious purposes, but rather because large amounts of money sometimes bring out the worst in people," Djinis said.
(Additional reporting by Brett Wolf; Editing by Karey Van Hall and Paul Simao)