Apart from doing God’s work on Earth, the Vatican is also renowned for self-inflicted scandals – both sexual and financial. This week yet another wave of Vatican fiscal turbulence has hit the headlines. The latest is by no means the first and one suspects, not the last.
In 1974 the Franklin National Bank collapsed and the Vatican lost an estimated $30 million. The bank had been owned by the Sicilian financier Michele Sindona. Bad loans and questionable foreign currency transactions had led to the collapse. Sindona died in prison after drinking cyanide-laced coffee.
Who can forget the 1982 news of Roberto Calvi being found hanged from London’s Blackfriars Bridge? Calvi had been the head of the failed Banco Ambrosiano. The bank collapse (in the days when bank collapses were not such an everyday phenomenon) was as a result of millions in loans that the bank had made to Latin American-based dummy corporations. Calvi had been known as “God’s Banker”because the majority of the Banco Ambrosiano shares were owned by the Vatican.
The apparently ritual hanging of Calvi fired rumours which suggested the involvement of P2, the very powerful and influential “black” Masonic Lodge which, at the time boasted eminent members from the worlds of politics, finance and media. For instance, the current Italian Prime Minister Silvio Berlusconi was a member. (Imagine an Italian Bilderberg Group or a quasi-government with Vatican connections.)
There was talk of Mafia involvement and money-laundering on a massive scale. Needless to say, the Vatican denied any part in the frauds but nevertheless paid $250 million the the collapsed bank’s creditors.
Thirty years later, the Vatican has agreed to establish a financial watchdog – purely as a result of yet more money-laundering allegations. It has vowed to “battle” money-laundering and the financing of terrorism but in spite of this quixotic call to arms, Vatican banking still remains an enigma. The Vatican banking system with its extreme secrecy makes the average Liechtenstein bank look like Wikileaks with Tourettes.
The Vatican is a tax-haven with its own rules and is seemingly above international law. Its currencies are the Euro, scandal and secrecy. Needless to say, that automatically makes it very attractive to dishonourable people who may have things to hide.
The Vatican is now creating a financial watchdog which will be fully functional on 1st April 2011. Everything has been done it in a hurry (by Vatican standards) because the latest scandal has resulted in $31 million of its cash being seized and two of its senior officials being suspended while they and the whole affair are investigated.
The Holy See’s bank is called IOR (Institute for Religious Works) and was primarily created to manage assets earmarked for the pope’s charitable and religious works. The banks has over 40,000 account holders but their names are kept secret.
Pope Ratz is accustomed to scandal and will certainly be aware of the exploitation of banking and the rest of the financial sector by individuals and organisations who prefer to remain outside the law. Consequently, he has written an encyclical calling for “greater morality” in finance.
The recent decree has created the Financial Information Authority which will (theoretically) ensure that the Vatican’s financial (and other) institutions comply with the new regulations. As a result of these changes, the Vatican has indicated that it will share financial information with other states. Hopefully it will be more successful that the Regulatory bodies which have been established elsewhere and whose presence did not deter people such as Madoff in the States, the collapse of Lehman brothers and the subsequent near-collapse of the West’s entire banking system – from which it is yet to recover.
The following activities are now illegal in the Vatican: Human trafficking, training for terrorist acts, providing chemical and bacteriological weapons, selling or buying human organs and pollution. There is no mention of the Vatican’s second-favourite indoor sport (after table-tennis) : buggery. Perhaps that will be mentioned in future edicts.
The legislation will be passed today (31st December 2010) – that was the pledge made by the Holy See a year ago when the Vatican entered into monetary agreement with the European Union.
Meanwhile, in spite of the accelerated activity, the Vatican bank’s chairman Gotti Tedeschi and his deputy remain under investigation. They and the Vatican still maintain that the whole affair has been a “misunderstanding “but nevertheless, Roman courts have twice refused to release the seized $31 million. It would seem that the Vatican’s own secrecty laws are something of a block to this case being deal-with quickly.
Yesterday, the pope’s spokesman Federico Lombardi was aksed about the identity of the bank clients who are possibly implicated in the alleged money-laundering. He replied in typical Vatican nonsensical terms to which we have become accustomed. He said that this was a very “peculiar case” and he continued: ”But I maintain that this law creates a situation in which the type of problems that were verified or unsuitable are unthinkable.”
Procrastination is a major Vatican technique in dealing with matters of sexual abuse and it seems that the same modus operandi are applied to their financial adventures. The Vatican Bank’s chairman has said that he is working “to get the Vatican to come into compliance with the norms of the Financial Action Task Force” ( The Financial Action Task Force is a policy-making body which assists countries to formulate anti-money laundering and anti-terror financing legislation).
Hopefully the construction, discussion and subsequent adoption of rules and legislation does not once again, prevent the Vatican from taking positive action. So far, the FATF has not had time to study the Vatican’s submission either in detail or in English!
A statement from FATF reads: “……however on the strength of what has been released I can say it appears to be a significant step towards compliance with the global anti-money laundering standards.”
The whole process will take years because the Vatican must enter into tax information sharing agreements with at least 12 other countries after making a formal commitment to transparency. Only then will it become an OECD White Member.
Surprisingly, the Vatican has so far not had contact with the OECD with since two meetings in early 2010.
One can sense a corner of the already over-burdened Vatican carpet being lifted and the long grass quivering in anticipation.