When news first broke on Tuesday that Italian prosecutors were investigating the Vatican Bank for violations of anti-money-laundering regulations, the story seemed to be that the bank had returned to its old ways. Reports in the press referenced the Vatican’s connection to a 1980s financial scandal in which Italy’s second largest bank, Banco Ambrosiano, went spectacularly bankrupt, collapsing under $1.3 billion of debt amid allegations of involvement by the Mafia and Masonic lodges. “The Vatican Bank has a very negative image,” says Philip Willan, author of The Last Supper, a book about the death of the Banco Ambrosiano’s chairman, who was found hanging under a London bridge, his pockets stuffed with rocks and thousands of dollars in cash. “Every time there’s a whiff of scandal, all the papers dig out their files.”
The Vatican Bank, a private bank that manages assets for religious orders and funds for Catholic charities, is estimated to hold assets worth $5 billion. In this latest scandal, Italian authorities have seized $30 million from Vatican accounts and placed the bank’s president, Ettore Gotti Tedeschi, and chief executive, Paolo Cipriani, under investigation. The probe centers on two money transfers — $26 million to JPMorgan Frankfurt and $4 million to Italy’s Banca del Fucino — that allegedly didn’t include all the information required by Italy’s anti-money-laundering laws. According to Italian reports, prosecutors are trying to find out for whom the money was destined and the identity of the sender. The Vatican Bank denies any wrongdoing and puts the missing information down to a “procedural error.”
But the very fact the investigation exists at all is an indication that the days of Vatican secrecy — at least when it comes to banking — could soon be over. The worst of the bank’s excesses came at the height of the Cold War, says Willan, when the Catholic Church was consumed by the threat of the Soviet Union. In a sharply divided world, the Holy See found itself on the same side as the Mafia, whose Sicilian vote-buying operations propped up the Christian Democrats against the communists. Meanwhile, the Vatican’s sovereign status and tight-lipped policies offered Italians an offshore bank they could walk to, ideal for funneling funds to resistance groups in Eastern Europe or Central America, or otherwise moving money out of the country. “The feeling was that anything was justified if it was being done to combat communism,” says Willan.
The bank’s dealings got so complicated that it’s not clear if even the Vatican knew what was going on. In the investigation following the collapse of Banco Ambrosiano, the Vatican said it was surprised to find out it was the failed bank’s largest shareholder. The Vatican Bank’s then president, Archbishop Paul Marcinkus, avoided trial by claiming diplomatic immunity, and though it denied any misconduct, the Vatican agreed to pay $250 million to Banco Ambrosiano’s creditors.
Today, the worries are different. International terrorism tops the global agenda, organized crime is more likely to provide a dirty bomb than help steal an election, and the world powers are focused on reining in illicit money. The Vatican itself has previously said it aims to make transparency a priority. Indeed, the man at the center of the scandal, bank president Tedeschi, was brought in by Pope Benedict XVI last year and charged with bringing a new level of openness to the bank’s operations. Tedeschi, a member of Opus Dei who goes to mass every morning, told an Italian daily that he experienced “bitterness and humiliation” on hearing of the investigation. “We are available to provide information,” he said. “It would have been enough to ask, instead of slapping it on the front page.”
In a statement released Tuesday, the Vatican expressed “puzzlement and wonder” over the charges and said it maintains “full confidence” in the bank’s administrators. “The necessary information is already available at the relevant office of the Bank of Italy, and similar transactions commonly take place with other Italian banks,” it said. The Vatican, which is eager to avoid controversy after being rocked by the pedophile-priest scandals, stressed that it is working with the Organization for Economic Cooperation and Development to achieve the highest level of transparency.
The Vatican Bank has pledged to bring its practices up to international norms at the beginning of next year, says Gianluigi Nuzzi, author of Vaticano S.p.A., a book about the bank’s history of corruption. But, he adds, that’s something it will struggle to accomplish. “The inquiry shows that [the Vatican Bank’s] processes are still not up to par,” he says. The door will close on the past, he says. “But with a great deal of difficulty.”