The Vatican Bank and Money Laundering

By Betty Clermont | 18 February 2013
Daily Kos

The Vatican bank has for decades been the subject of dark intrigue. (Photo: Gabriel Bouys / Agence France-Presse / Getty Images)

Several of you have asked that I write with more clarity on this topic which I will try to do.

First, a very condensed history is helpful to understanding Vatican finances, but if you don’t like history or haven’t much time, skip down to the heading in bold.

Feudalism arose in the 8th and 9th centuries in Western Europe. Wealth was obtained from the toil of the peasants working the land. When Charlemagne was crowned Holy Roman Emperor by the pope in 800, he was named protector of the Church and granted the Church great power. He also gave the hierarchs ownership of large tracts of land. Another example: In 1066, William the Conqueror gave over a quarter of the land in England to the Church, binding the country to Rome as well as France.[1]

When Western Europe divided into Protestant and Catholic states, the Church lost land. In the French Revolution and the succeeding movements for democracy and nationalism, the Church lost more land. By the mid-19th century, the pope owned only the Papal States, a wide swath of territory which transected the Italian peninsula which he ruled over as a feudal lord.

Italy was divided into various kingdoms and duchies. When Italians waged war to unite their country into a democracy, the pope mounted an army to fight along with other monarchists in holding his land. Italian’s won their political liberation in 1870 and the pope lost the last of his temporal power.

The Church had other means of income besides landholdings. In 1509, Erasmus wrote The Praise of Folly expressing the popular discontent about corruption in the Church including the widespread practices of simony, which is charging fees for the performance of religious acts such as masses and sacraments, and the purchase of ecclesial offices and positions. And as we all know, Martin Luther’s objections included many legitimate injustices, but the most onerous was the selling of indulgences. Indulgences were the Church-granted remission of time spent in purgatory as punishment for sin and could be obtained through penance, prayer and good works. When the pope decreed that indulgences could be purchased, even the usually docile and obedient laity understood that God’s justice shouldn’t be for sale.

Peter’s Pence was revived in 1859 and was linked to appeals for military support. These donations had begun in the seventh or eighth century in England and were a type of tribute collected from the laity for the pope as their monarch. The new Peter’s Pence came from “both clergy and laity, the rich and powerful, including the pretender to the French throne, Emperor Maximilian of Mexico, Austrian archdukes, and Roman princes, as well as the poor.”[2] In addition, Catholics from all over the world volunteered to fight in the pope’s army.

Being dependent on the generosity of others did not sit well with the popes and their curia (the bureaucracy running the Vatican) during this period. So when Benito Mussolini’s offer of $1 billion (in 2006 dollars[3]) and independent sovereignty for the Vatican City State in return for the Church’s support of his dictatorship was made in 1929, the deal was accepted. Besides, since there were no more European monarchies with power, communism was atheistic and the Vatican abhorred democracy as the form of government through which it had lost its land and as a bad influence on a subservient laity, Catholic officials supported fascism anyway, so much so that every European fascist country, save Germany, was Catholic.

A 1936 photo of Pope Pius XI, then Cardinal Ratti, and Benito Mussolini in 1943.

The Church and the pro-Catholic press have always insisted that the money provided by the 1929 Lateran Treaty was reparations for the Papal States, but that makes as much sense as the colonies compensating King George III after winning American independence.

Pope Pius XI hired a layman, financial genius Bernardino Nogara, to handle the windfall. Historian, John Pollard quotes[4] author, J. Gollin, stating that Nogara agreed to take the position on two conditions:

1. That he not be restricted by religious or doctrinal considerations in his investment-making.
2. That he be free to invest funds anywhere in the world.

“The papacy was now financially secure. It would never be poor again,” is the oft-quoted statement by Pollard.[5] “From June 1929 onwards, the investments of the Vatican, following the strategy of Bernardino Nogara, moved into the financial markets of the world.”[6] The Vatican was now also allied with the 1%, men with no allegiance to any nation, cause, or group save themselves.

Most of you have read “How the Vatican built a secret property empire using Mussolini’s millions,” published by The Guardian on Jan. 21. Vatican spokesman, Fr. Federico Lombardi, responded: “I’m stunned. It seems like this article was written by someone who resides among the asteroids. This article said nothing new. Everyone knows this for 80 years.” Mussolini’s payment, he continued, “as is well known, was compensation provided for the Vatican possessions that the Italian state had taken in 1870.”

As usual, the Vatican avoided addressing the real issues: that their global property and investments are hidden behind layer after layer of false fronts and holding companies and that the British government accused Nogara of “engaging in activities contrary to Allied interests” during World War II. Of more interest to Americans might be another of Nogara’s investments, the South American Banco Sudameris, “which in the eyes of the Allies was simply an Axis Bank.”[7] So important was the money the Vatican had tied into Sudameris that “the Vatican tried ceaselessly to have it removed from the [Allies’] blacklist,” companies British and Americans were forbidden to trade with.[8]

Currently, there are three basic components to Vatican finance. The Guardian was referring to Nogara’s creation, APSA, the Administration of the Patrimony of the Holy See. That is the unit which holds the secret investment and property portfolios. There are also about 80 departments, agencies, and foundations in the Vatican each having their own money and investments, but those funds are generally restricted to the purpose of the each department.

The Prefecture for Economic Affairs administers the Vatican City State. When the Vatican makes its annual non-detailed financial statement on the Holy See (as the Church’s government is called) and the Vatican City State and announces whether they made or lost money for that fiscal year, it is referring to the income from the museums, gift shops, donations from Peter’s Pence, the bishops and religious orders and expenses such as salaries and communications. The last information released on July 5, 2012, for the 2011 fiscal year only stated the bottom line gain or loss.

The IOR or Institute for Religious Works (snickering is allowed) commonly referred to as the Vatican Bank, was reorganized into its current form by Pope Pius XII in 1942. Since almost every mainstream media report about the IOR refers to the Banco Ambrosiano scandal, most are already aware that in the late 1970s and early 80s the IOR had a criminal partnership with the Ambrosiano and that its president, Roberto Calvi, was hanged from Blackfriar’s Bridge in London. Although no one was ever convicted, the Italian government tried several members of the Mafia for Calvi’s murder so the motive is generally understood that out of the 1.3 billion investor dollars which were lost, a lot of that was mob money.

Innocent people also were murdered:

Jan. 29, 1979 – Judge Emilio Alessandrini, Milanese magistrate investigating the Ambrosiano.
Mar. 20, 1979 – Mino Picorelli, journalist who had named Vatican officials involved.
July 1979 – Milanese lawyer Giorgio Ambrosoli investigating Michele Sindona.
Oct 1979 – Rome investigating security agent Lt. Col. Antonio Varisco and his driver.
Apr. 27, 1982 – Roberto Rosone, manager of Banco Ambrosiano, survived being gunned down.
Jun 16, 1982 – Calvi’s secretary, Graziella Corrocher, “suicided” from a 4th floor window.
Oct. 2, 1982 – Giuseppe Dellachia, Ambrosiano bank executive also “suicided” from upper story window.

I know there have been holy popes, but the overarching history of the Vatican has been secrecy, lies, antipathy to democracy, crimes and unscrupulous finances.

Money Laundering

Money laundering is when funds from criminal acts, political backroom deals, tax evasion and other reasons why people want their money hidden are deposited in a financial institution and, after taking a cut off the top as a fee, the company releases the “washed” money into an account with a seemingly legitimate purpose. This is usually done through an “off-shore” company, meaning there are no government rules or regulations in place to prevent the transactions or prosecute the perpetrators. The Cayman Islands and Swiss banks have been the traditional “off shore” volume leaders.

Situated in a country ruled by men who consider themselves above the law and with close to zero transparency, the IOR is the perfect institution for laundering money but you have to know someone in order to open an account. That’s why when Martin Frankel wanted to launder money he had defrauded from American insurance companies through the IOR, he first had to find a current account holder to assist him, which he did, a Msgr. Emilio Colagiovanni. In the 2002 RICO suit filed by five state insurance commissioners against the Holy See for money laundering, statements showed two lawyers, three priests, two monsignors, one bishop, one archbishop and four cardinals – in fact every single Vatican employee or person with close ties to the Vatican approached by Frankel or his agents – were willing to launder a convicted swindler’s money without hesitation or moral reservation.

Following 9/11, the international financial community agreed to police itself in order to stop terrorists from transferring funds and an “international framework of anti-money laundering standards” became more prominent. In a process known as “name and shame,” the Organization for Economic Cooperation and Development (OECD) and the Financial Action Task Force (FATF) began to “publicly identify countries that were deficient in the anti-money laundering laws and international cooperation” by adding them to a black, grey or white list depending on the degree of transparency demanded by the country’s banking regulations and practices.

The Vatican Bank is not a “true” bank. There are no check books. It doesn’t make loans. “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. The IOR doesn’t invest in the stock market, he thinks, “though they operate on the currency or bond market, or buy gold.” The IOR also generates income by placing deposits in short-term government securities and in interest-bearing accounts at other banks. Depositors usually receive interest above the prevailing rate making it attractive to honest religious orders and Catholic groups. Because it is only one unit situated in a sovereign state, each transaction is “international” even if the other institution is just outside the Vatican’s walls in Rome.

Vaticano S.p.A. (Vatican Inc.) by Gianluigi Nuzzi was published January 1, 2009. Documents obtained by a Vatican employee who didn’t want them published until after his death show the IOR functions as an “off-shore” financial institution for rightwing politicians, the Mafia, Italian tax-evaders and other disreputable characters. “The IOR … ensures privileges to be granted in exchange for political backing, legal provisions and business support.”

The IOR has about 40 “correspondent” financial institutions in Europe, the United States, Australia and Japan. Its banking partners wanted the IOR to conform to international standards. “If a state is perceived to be at risk for money laundering, its financial institutions – in this case, the Vatican Bank in particular – usually pay a price. Depositors may take their business elsewhere, worried about possible seizures of assets, while banks in other countries may impose higher transaction costs to cover more aggressive ‘due diligence’ measures. In general, a state’s ability to play the global financial game is impeded,” explained John L. Allen Jr., Vatican expert for the National Catholic Reporter. “The IOR absolutely needs that inclusion [in international standards for transparency] to conduct its financial transactions,” according to Andrea Tornielli, writing for La Stampa.

Ettore Gotti Tedeschi, an Italian economist, banker and member of Opus Dei, was appointed in April 2009 as president of the IOR “with a mandate to turn the troubled bank around and help ‘facilitate transparency’ with an eye toward quashing rumors that the bank was a den of iniquity. The Vatican hoped that through Gotti Tedeschi’s guidance, the tiny city-state could finally earn a coveted spot on the global Financial Action Task Force ‘white list’ of states whose financial practices can be trusted.”

Pope Benedict XVI signed a Monetary Agreement with the European Union dated December 17, 2009. Under its provisions, the Vatican is required to implement EU “legal acts and rules” as regards “prevention of money laundering, prevention of fraud and counterfeiting of cash and non-cash means of payment, medals and tokens and statistical reporting requirements” as covered by Directive 2005/60/EC of the European Parliament. The deadline for implementation was December 31, 2010.

On September 21, 2010, the Bank of Italy’s Financial Intelligence Unit (the Bank of Italy is the country’s central bank and therefore has regulatory functions) informed the IOR that it was under investigation for possible money laundering using two Italian banks and issued notices against Ettore Gotti Tedeschi and Roberto Cipriani, director general of the IOR, for omission of procedures against money laundering. Prosecutor Nello Rossi said €23 million (about $31 million) in IOR transactions were seized from the Italian bank accounts. According to court documents, prosecutors stated the IOR deliberately flouted anti-money-laundering laws “with the aim of hiding  the ownership, destination and origin of the capital.” Court documents also revealed suspicions transactions totaling €900,000 involved clergy acting as fronts for corrupt businessmen and the Mafia.

The Vatican gave assurances that it was all a “misunderstanding” and denied any wrongdoing.

On December 30, 2010, Pope Benedict XVI announced the establishment of Vatican law no. 127 “concerning the prevention and countering of the laundering of proceeds from criminal activities.” He created the Autorità di Informazione Finanziaria (AIF) to oversee Vatican compliance with the new law.

To further its appearance of financial regulation, in February 2011 the Holy See requested the Council of Europe MONEYVAL (the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism) conduct an evaluation of the AIF and other Vatican financial structures. “The aim of MONEYVAL is to ensure that its member states have in place effective systems to counter money laundering and terrorist financing and comply with the relevant international standards in these fields,” per their website.

The €23 million was released in June 2011 because the presence of the Vatican’s AIF “reassured” the Italian financial authorities. However, the Vatican has still not disclosed the source of the money to this day.

MONEYVAL did an on-site inspection in November 2011. MONEYVAL also stated it would continue to monitor the Vatican’s conformance to FATF standards. Per the Moneyval inspectors, the IOR had 33,400 accounts, 13 ATMs for use by its own clients (not tourists) and €6.3 billion ($8.3 billion) in assets (not deposits. Deposits are not counted as assets because they’re owed to the customer. The total amount of deposits remains unknown.)

Apparently the U.S. government was not as impressed with the Vatican’s AIF as the Bank of Italy. “With the large volumes of international currency that goes through the Holy See, it is a system that makes it vulnerable as a potential money-laundering center,” Susan Pittman of the U.S. State Department’s Bureau of International Narcotics and Law Enforcement, told Reuters. On March 7, 2012, the U.S. State Department for the first time named the Vatican as one of 67 nations “of concern” on its list of money-laundering centers. (There are three categories, “of primary concern,” “of concern,” and “monitored.”) “Officials said the Vatican is on the list because it isn’t clear whether a year-old anti-money laundering regime is effective.”

Under pressure from the U.S. Treasury Department, JP Morgan Chase notified the Vatican on March 16, 2012, that it closed the IOR account in its Milan branch because the IOR was “unable to respond” to requests for information about the provenance of the deposits. JP Morgan had been requesting the information since 2010. Furthermore, JP Morgan reported €1.8 billion ($2,200,000,000) had been deposited in the last 18 months in that account. (And this is one account out of how many throughout the world?) At the end of each day, the balance was reduced to zero and the contents moved to an IOR account in Frankfurt. According to Spiegel, investigators suspected the account was used to launder funds from “dubious sources.”

Also during the first half of 2012, the Vatileaks scandal disclosed embarrassing confidential documents, some from the pope’s own office, which were given to the Italian press. “Those in the know believe that the real core of the scandal is a power struggle over control of the Vatican’s finances,” reported Spiegel. The AIF had been give authority over all Vatican bureaus. For the first time, department heads had someone looking over their shoulder as to how they spent their funds and they didn’t like it. Conflicts arose over who had authority over whom and how transparent the IOR and other financial units should become.

Several leaks focused on Vatican finances, charging corruption and cronyism. They:

• Styled the Vatican Bank as a rogue “offshore bank,” including purportedly “encrypted” and “secret” accounts;
• Raised questions about the Vatican’s willingness to cooperate with international regulators trying to track suspect transactions;
• Exposed internal debates over whether a new Vatican financial watchdog agency is actually toothless.

The documents had been given to Gianluigi Nuzzi, trusted by some Vatican insiders because of his book, Vatican S.p.A. Nuzzi collected the latest documents into another book, His Holiness: The Secret Papers of Pope Benedict XVI, pubished in the beginning of May 2012. In addition to the above, the book also disclosed the IOR laundering about $280 million on behalf of the Mafia.

According to Nuzzi, one of his informants told him, “The truth emerging in the newspapers and the official discourse within the Holy See was so different, the hypocrisy reigned supreme, and the scandals were multiplying. I’m not talking only about the pedophilia and murder cases like the killing of the Swiss Guard and the disappearance of Emanuela Orlandi, but about money laundering, corruption, and threats.”


On May 24, Ettore Gotti Tedeschi was fired via a blistering statement to the press written by IOR council member Carl Anderson, Supreme Knight of the Knights of Columbus, former member of the Reagan administration and representing the American plutocracy at the Vatican Bank.

Gotti Tedeschi says he found the bank’s record much worse than he could have imagined, and that he spent the last two years struggling endlessly against the Vatican’s powerful forces, who he says blocked his every attempt at transparency. He stormed out of his final meeting of the board of the IOR even before they cast their no-confidence vote against him. The bank says it dismissed him due to lack of management skills and “progressively erratic personal behavior.”

But Gotti Tedeschi says he was ousted because “he got too close to the truth about the bank’s alleged shady dealings.”

Gotti Tedeschi told the press he was in fear of his life. Many have justified his fear in reference to Roberto Calvi. I think Gotti Tedeschi is more afraid of Opus Dei. A Canadian financial reporter, Robert Hutchison, became interested in the group after noticing their activity in the euro currency market. His painstakingly researched book, Their Kingdom Come: Inside the Secret World of Opus Dei (Thomas Dunne Books, 2006) is the only book available in English which provides a detailed picture of the group as revealed through their financial holdings and transactions. Hutchison notes that Opus Dei’s favorite means of disposing of members who strayed from the goal of achieving its own power through the political and cultural hegemony of the Catholic Church is the difficult-to-notice digitalis-induced heart attack. One of Gotti Tedeschi’s friends, fellow banker and Opus Dei member Gianmario Roveraro, was assassinated in 2006.

A former U.S. Treasury Department official and a Senior Fellow for Counterterrorism at the American Foreign Policy Council in Washington, DC., Avi Jorish, wrote on June 27, 2012:

After a number of very embarrassing episodes in recent years, the Pope pledged to comply with international standards on illicit finance and clean up the bank’s image … often called “the most secret bank in the world.” … The bank’s president, Ettore Gotti Tedeschi, is a well-known and well-regarded figure throughout European banking and social circles.

….[T]he Vatican Bank has recently been investigated on two separate occasions for money laundering….

….A book published by Italian journalist Gianluigi Nuzzi details … a lack of desire to follow the dictates of the FATF – and its European sister organization, MONEYVAL – to fight illicit finance. The “Vatileaks” scandal … has cast a cloud over [the Vatican’s] effort to demonstrate financial transparency and shed its reputation as a tax haven….

As the international community reviews its options vis-à-vis the Vatican, both the FATF and the MONEYVAL are uniquely placed to pressure the IOR to reform. Both organizations have scores of trained staff members who can assist the Vatican to implement a robust anti-money-laundering regime that would satisfy both the EU and the international community.

In today’s interconnected financial world, instituting measures to mitigate abuse of the international financial sector is part of the cost of doing business. Unquestionably, one of the most serious public policy challenges the international community will face in the foreseeable future is how to use every tool in its arsenal to make progress against those who exploit tainted money. While the Vatican answers to a higher calling, the EU, FATF and MONEYVAL should insist that its earthly responsibilities are equally important.

MONEYVAL released their evaluation of the “Holy See/Vatican City State” on July 18, 2012, based upon “compliance with the Financial Action Task Force and Directive 2005/60/EC.” The Vatican passed with a “good” report card, passing 9 of 16 “core and key” recommendations. Ignoring the evidence to the contrary, “evaluators concluded that the Vatican ‘has come a long way in a very short period of time’ toward compliance with accepted global standards of transparency, and that ‘there is no empirical evidence of corruption taking place within the Vatican City State.'”

MONEYVAL also acknowledged that the Vatican had never taken steps to actually uncover or stop money laundering, the real identity of IOR account holders had yet to be discovered and, per their report, there is “a lack of clarity about the role, responsibility, authority, powers and independence of the Financial Intelligence Authority (AIF).”

To give the impression of addressing this criticism, Rene Bruelhart, layman and former head of Liechtenstein’s financial intelligent unit, was appointed as head of the AIF to demonstrate its “independence.”

In mid-October 2012, “the Italian judiciary, which is looking into suspect money flows noticed in the Vatican Bank’s accounts, sent a rogatory letter [a formal request from a court to a foreign court for some type of judicial assistance] to the Holy See. Despite the introduction of anti-money-laundering laws and the assurance given by Vatican Bank heads that it no longer holds any anonymous accounts, investigators found that dirty money can also pass through non anonymous accounts belonging to priests or clerics.”

On Jan. 1, 2013, the Bank of Italy shut down the ATMs and all credit and debit card services operated by Deutsche Bank’s Italian unit inside the Vatican City State. Per The Economist: “The reason for the central bank’s tough stance is that it has to comply with the European Union’s banking and anti-money-laundering law. This law permits EU banks to operate in non-EU countries only if these have adequate regulatory frameworks and supervisory controls in place.”

The ban on credit cards was a major blow as the museums and other attractions of the Vatican are a major source of income for the tiny city-state.

Starting this past week, the ATMs, credit and debit cards could be used again in Vatican City because the Holy See was able to get a contract with a Swiss firm not subject to European Union banking laws.

A week ago, Feb. 4, the Italian newspaper, Corriere della Sera, linked the IOR to problems at the Tuscan bank, Monte dei Paschi de Siena (MPS): “a 3.9 billion euro ($5.3 billion) bailout by the Italian government” and “criminal investigations … of secret transactions that were used to conceal the scope of the bank’s problems.”

The bank’s troubles stem in part from the 9 billion euro ($12 billion) purchase of Antonveneta bank in 2008, just months after the Spanish bank Santander had bought it for 6.6 billion euros ($8.1 billion). The Siena magistrates are also looking into allegations of bribery related to that deal.

At the time, Ettori Gotti Tedeschi was head of Santander’s operations in Italy but not yet president of the IOR. Gotti Tedeschi was questioned on Jan. 31, 2013, by prosecutors investigating MPS bank.

According to Corriere della Sera, an IOR employee told them that the deal to buy Antonveneta at a great profit to Santander was hatched at “delicate and important meetings” between IOR director, Paolo Cipriani, Archbishop Piero and Catholic banker Andrea Orcel inside the Vatican in 2007. The informer claimed he was aware of the deal because four IOR accounts were opened under the names of four religious organizations to hide the money made by five of the men involved in the Antonveneta purchase. When the employee was asked why he came forward with the information, he replied: “The public needs to know how things stand, there is no other way, because change can not come from within.”

Read more

Gerald Posner: Power, Money, and Corruption in the Vatican Bank

Pope Francis’ Junta Past: Argentine Journalist on New Pontiff’s Ties to Abduction of Jesuit Priests

Inside the vaults of the Vatican bank

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