With Bank Inquiry, Vatican Confronts Modern Life

By Rachel Donadio
New York Times
September 29, 2010

The Vatican’s famously opaque finances are being tested by tightened European Union anti-money-laundering statutes.

When Rome magistrates opened an investigation last week into the Vatican bank over transparency issues, it was not only a bold assertion of state over church, it also pointed to one of the Vatican’s greatest continuing challenges: facing modernity.

As in the sexual abuse scandal, in which for years the Vatican appeared to declare itself outside — or above — civil law, this time the issue is the Vatican’s famously opaque finances, which for the first time are being held to tightened European Union anti-money-laundering statutes.

While Europe remade itself after the Second World War, balancing its powers through treaties and linking itself together through banking agreements, the Vatican remains an anomaly as the last absolute monarchy in the West. But today, its ancient ways are running up against civil institutions that increasingly view the church as they do any other multinational.

“The Vatican has to understand that the world has changed,” said Donato Masciandaro, the head of the economics department at Bocconi University in Milan and an expert in regulations on money laundering. “If it doesn’t understand that the world has changed, it risks having violations every day against the anti-money-laundering norms.”

The investigation is a test not only for the Vatican but also for Italy, torn between its European Union commitments and the Catholic banking networks that its ruling class has long dominated.

In a telling example of the climate of deference, news of the most important church-state clash in Italy in decades was broken, not surprisingly, by Il Sole 24 Ore, the country’s leading financial daily — not on Page 1, but on Page 18, next to a flattering article about the pope’s recent visit to Britain.

The case began on Sept. 20, when Rome magistrates preventively seized $30 million from the Vatican bank and placed its chairman, Ettore Gotti Tedeschi, and its director general, Paolo Cipriani, under investigation for what officials said was failure to disclose adequate information about two money transfers the bank tried this month, from an account it held in a Rome branch of Credito Artigiano S.p.A. to two other accounts it held.

The Vatican has said that the investigation is a result of a “misunderstanding,” while Mr. Gotti Tedeschi has essentially called the matter a reporting error inflated to make headlines. But others believe it is potentially the tip of the iceberg — and the end of an era in which the Vatican could operate with impunity.

Last year, magistrates began investigating all accounts held by the Vatican bank in Italian banks, acting on alerts from the Bank of Italy — which for the first time declared that the Vatican bank should be treated like any other bank outside the European Union and be subject to higher reporting standards under a 2007 European Union anti-money-laundering directive.

The magistrates were also emboldened by a 2003 ruling by Italy’s highest court that paved the way for Vatican officials to be tried on charges that Vatican Radio antennas had harmed nearby residents with electromagnetic waves. The landmark ruling said that although the Holy See was a sovereign state, the Italian state must be able to protect its citizens from actions carried out by individuals who work for the Vatican. But unlike in the United States, the high court ruling does not set precedent, and if a judge presses charges in the Vatican bank case, a long legal battle is expected.

One mystery in the new case is why the Vatican bank, formally known as the Office for Religious Works, would have asked Credito Artigiano to wire $30 million from an account that magistrates had in fact already frozen in April for officials’ failure to disclose required information in earlier attempted transfers.

Some interpreted it as a test of the Vatican’s old ways.

“It’s clear that it was a dangerous move,” said Ignazio Ingrao, a Vatican expert at the Italian newsweekly Panorama, who first broke the story of investigations into the Vatican bank last December. “They wanted to force their hand, hoping that Credito Artigiano would have helped them.”

But Credito Artigiano appeared to have little choice in reporting the suspect transfer to the Bank of Italy, which earlier this month sent its second notice this year advising all Italian banks to treat the Vatican bank with greater scrutiny — or potentially face charges.

But another mystery is what happened between Sept. 6, when the Vatican bank made the transfer request, and Sept. 14, when Credito Artigiano alerted the Bank of Italy that the information was missing.

Here, some see signs of a possible power struggle between Mr. Gotti Tedeschi and Giovanni De Censi, the director of Credito Artigiano’s parent company, Credito Valtellinese — who also happens to sit on the Vatican bank’s board of advisers.

A spokeswoman for Credito Valtellinese said Mr. De Censi had no comment.

The investigation comes at a time when the Vatican is under increased pressure by civil authorities in the continuing sexual abuse scandal, especially in Belgium, where the authorities staged high-profile raids of church property over the summer.

But it also comes at a complex transitional moment for Italian banks, in which new power players connected to the rightist Northern League political party are fighting for seats at a table traditionally held by the Catholic banking establishment — a dynamic widely seen as a factor in the ouster last week of Alessandro Profumo as chairman of UniCredit, Italy’s biggest bank.

For its part, the Vatican has said that it brought on Mr. Gotti Tedeschi, a banker and professor of the ethics of finance at Catholic University in Milan, last year to help reorganize and rationalize its finances, which are managed by disparate entities that do not always communicate.

The Vatican has also been in talks with the Organization for Economic Cooperation and Development, which sets transparency standards, and the Financial Action Task Force, which imposes measures against money laundering and terrorist financing, to see how it might join the so-called white list of countries with good records on transparency.

“There’s an ongoing discussion,” said Jeffrey Owens, the director of the Center for Tax Policy and Administration of the O.E.C.D. “We emphasized that the Vatican would be treated like any other state,” subject to peer review and international scrutiny.

“The speed of negotiations depends on the Vatican,” he added.

Yet before the Holy See could join international accords, it would have to resolve a fundamental ambiguity over the definition of the Vatican bank. The Vatican maintains that it is not a normal bank, but rather an entity that manages assets for religious organizations. The Bank of Italy disagrees.

“It’s a very complex tug of war,” Mr. Ingrao said. “It’s hard to imagine that they can resolve it in a short time.”


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