Italian Judge Dismisses Probe of Former Vatican Bank Chairman

By Liam Moloney
Wall Street Journal
March 28, 2014

http://online.wsj.com/article/BT-CO-20140328-710004.html

An Italian judge dismissed prosecutors' investigation into the former chairman of the Vatican's bank over possible noncompliance of money laundering rules, his lawyers said on Friday, accusing the bank's board of damaging the Holy See after it fired him two years ago.

The ruling stated that Ettore Gotti Tedeschi wasn't involved in the 2010 financial transaction that is being probed by local prosecutors for alleged violations as he wasn't involved in the day-to-day running of the bank, said his lawyers in a statement, which includes a copy of Rome Criminal Court Judge Flavia Costantini's order dated Feb. 19.

Rome prosecutors had agreed with the dismissal request of Mr. Gotti Tedeschi being removed from formal investigation, according to the judge's order.

Pope Francis, who was elected just over one year ago, has set as a priority an overhaul of the Vatican's finances and its scandal-probe bank. In January, Pope Francis replaced all but one of the five cardinals in the commission that oversees the bank as he placed a firmer hold on the financial institution.

In September 2010, Rome's prosecutors had placed Mr. Gotti Tedeschi and the then-director general Paolo Cipriani of the Institute for the Works of Religion, or IOR, as the Vatican bank is officially called, under investigation for alleged irregularities in a request of transfer of money from an IOR account at an Italian bank.

The possible irregularities included the failure to disclose fully the reasons for the transfer and the identity of the account holders, as required under Italian law to combat money laundering.

Italian authorities sized the 23 million euros ($31.5 million) that IOR had asked to be transferred, although the amount was later released.

The former IOR director general, who stepped down last July after a senior cleric was arrested over an alleged money-smuggling operation that involved his IOR accounts, is still under investigation. Mr. Cipriani has denied wrongdoing.

Mr. Gotti Tedeschi, an Italian economic, was fired in a surprise decision by the non-clergy board of IOR in 2012 for bad management and other professional shortcomings. Mr. Gotti Tedeschi claimed he was sacked because he sought to bring more transparency to IOR. He was hired in 2009.

Judge Costantini's ruling mentions that Mr. Gotti Tedeschi introduced measures to bring IOR's rules in line with Italian and international standards over anti-money-laundering regulations and promoted the creation of a regulatory watchdog

The Vatican bank is based in the Holy See, the world's smallest independent state. IOR's main clients are Vatican officials and clergy, who receive salaries and other funds from the Holy See into their IOR accounts, as well as the transfer of money across the globe to Catholic institutions.

The IOR's past practices that masked the identity of its clients put it at odds with the Bank of Italy regulations for local lenders to stick to international anti-money-laundering standards.

"By giving him a vote of no confidence, they [non-clergy board members] effectively allowed for a situation that permitted serious mistakes to happen, hence [afflict] grave damages to the Holy See," said Mr. Gotti Tedeschi's lawyers, Fabio Palazzo and Stefano Commodo, in the statement.

The lawyers added that they will take legal action to prove that the reasons of his ouster were baseless.

A IOR spokesman declined to comment.

Mr. Gotti Tedeschi had always claimed innocence, while preferring to keep a low profile over the matter over these years.

Write to Liam Moloney at liam.moloney@wsj.com