14

The Men of Confidence

A few months before he died, Nogara met thirty-eight-year-old Michele Sindona, one of the country’s preeminent tax attorneys. The lean, five-foot-ten Sindona had a widespread reputation for a rare combination of smarts and charm (a business colleague called him a “snake charmer in the business of seduction”).¹ The Sicilian-born Sindona had made his reputation in Nogara’s hometown of Milan, one of the few southern Italians to carve out such success in the country’s elitist north. The eldest of two brothers born into a dirt-poor family in 1920, Sindona was a gifted student who won a full scholarship that helped lift him out of grinding poverty.² During World War II he learned enough English to work as a translator for the U.S. Command.³ He also earned a law degree at the University of Messina and after a few years in the legal unit of Sicily’s tax department, he moved north with his wife and daughter.⁴ He boasted he spoke Italian without any accent that betrayed his southern roots, a plus in Milan, which offered business opportunities that matched the scope of his ambition.⁵ It was there in 1950 that Sindona met Monsignor Amleto Tondini. Sindona’s cousin Anna Rosa was married to the priest’s younger brother.⁶ Tondini was an admired Latinist, running the Secretariat of Briefs to Princes and of Latin Letters, a small Curia department responsible for Latin editions of Papal encyclicals and correspondence. He was also a close friend of Monsignor Montini, then still running the church’s refugee efforts in Rome. Sindona and Tondini instantly liked each other.⁷ To help the unassuming thirty-year-old attorney, who had a seemingly conservative approach to business, the monsignor suggested he consider doing some legal work for the Vatican.⁸ Sindona was agreeable. Tondini wrote to Massimo Spada, by then titled a Prince by Pius XII, asking that Sindona be put on Spada’s list for any legal services the IOR might require in Milan.⁹

When Spada met Sindona he thought the attorney was “young, skinny and nervous” but also “a stimulating conversationalist.” He called the owners of Italy’s largest textile industrial group and a giant electrical utility, both of which the Vatican had stakes in, and asked them to send some business to Sindona. The work did not turn out to be that much. But on occasional visits to Rome, Sindona stopped by the IOR and developed a good relationship with the men in charge. His break came in 1954 from outside the IOR. Soon after Pius surprised everyone by dispatching Montini to Milan, Monsignor Tondini introduced the new archbishop to the young lawyer. They had more in common than either might have expected. They shared conservative views on a broad range of social and political issues and were pleasantly surprised to discover a mutual dislike for fascism. Montini’s father had been a politically active lawyer who was known for his distaste for Mussolini.¹⁰ When Sindona was attending university, he had refused to wear the military-style uniform Il Duce mandated for students. The school lowered his grade point average in punishment.¹¹ It was not long before Sindona boasted to friends and family about the bond the two men had formed.¹²

Montini told Sindona about his disappointment that the Milan to which he returned was an urban bastion of Italy’s communist movement. The city was one of the few that had voted for the red ticket in the 1948 elections. And it had tilted even further left since then, with a remarkable 40 percent of its 3.5 million residents registered as communists.

Montini wanted to rally the working class for the church and its candidates. He decided to visit the area’s mines, celebrate Mass in the city’s blue-collar neighborhoods, and tour local factories. Pietro Secchia, a communist labor leader whose agenda had no room for an archbishop who might strike a populist chord, tried blocking him from offering Mass at the city’s plants.¹³ Montini turned to Sindona, whose fervent capitalism made him a natural anticommunist ally. Among his clients, Sindona counted owners of the city’s major mills and factories. He and Montini soon stopped daily at the factories. Sindona and the archbishop tried convincing the workers that their best future was to be had by embracing capitalism and faith in God. Those visits had an impact. In a decisive vote the following year, Secchia lost control of his union to a conservative Christian Democrat rival.¹⁴ Montini owed Sindona for having proven a well-connected and effective ally.¹⁵

The result for Sindona was a flurry of work from the IOR. His new services extended beyond Milan. He established more complicated legal structures for some of the church’s foreign transactions. Spada also arranged for Sindona some work at two Vatican-controlled firms, Società Generale Immobiliare and SNIA Viscosa.¹⁶

In early 1959, shortly after Nogara’s death, Montini—John XXIII had made him a cardinal just a few months earlier—summoned Sindona to Milan’s lavish cathedral.¹⁷ A priest who sat a few pews behind later recounted that the men prayed before discussing business. Montini needed $2 million to build Casa Madonnina, a Catholic retirement home. Sindona said it was no problem. As he stood to leave, Sindona leaned over and assured Montini, “Don’t worry. I won’t abandon you.”¹⁸

Sindona reportedly raised the money in a single day.¹⁹ Whether or not that was true it was an accepted fact inside Milanese business circles and Montini bragged about the young attorney’s miraculous fundraising to Spada and others at the IOR.^I Italy was halfway through the postwar economic boom that Nogara had predicted. It was a founding member of the European Economic Community, a two-year-old organization of half a dozen European countries that hoped economic integration might better allow them to compete with the United States. Italians called the two decades that started in 1950 an “Economic Miracle,” a period during which the country led all European nations in per capita income (it had been a terrible laggard before the war).²¹ The country had a newfound confidence and no city reflected that more than Milan, the nation’s business capital. A story like Sindona raising a couple of million dollars so quickly for Montini no longer seemed improbable, but rather fit with the hubris that fueled the financial boom.

In 1960 the Vatican and Sindona became partners. Massimo Spada had introduced Sindona to a client who wanted to sell his small Milanese bank, Banca Privata Finanziaria (BPF).²² BPF was unique since it operated as both a normal credit bank and offered services usually found only in boutique Swiss banks. BPF counted among its clients some of Italy’s leading patrician families and industrialists.²³ The Vatican bought BPF through a proxy account at the Credito Lombardo and retained 60 percent while distributing the remainder to Sindona and his partners.²⁴ At Spada’s request, Sindona arranged a front company so the IOR’s ownership remained secret.²⁵

Soon after that deal, the IOR started using BPF as its chief correspondent bank by which to conduct the church’s business in Milan. That October (1960), Cardinal di Jorio—who sometimes clashed with Spada over the direction of the IOR—insisted that the Vatican would be better served with only a minority stake in BPF. Sindona used his own interlocking web of Liechtenstein holding companies to become the majority owner.²⁶ He then appointed Spada as a director.²⁷ And no sooner had Sindona taken charge of the bank than he began buying Canadian real estate for himself and the Vatican through two Liechtenstein shells controlled by the church.²⁸ When he sold those properties, the proceeds went to Swiss banks under the name of one of Sindona’s holding companies (Fasco). The IOR then instructed him how to reinvest the profits.²⁹ Sindona’s legal background, plus the several years he had worked in the government tax office in Sicily, meant he knew how to thread the loopholes in Italy’s tax and money exchange laws, always minimizing the levy on any profits.³⁰

The following year, Sindona convinced Fidia—a holding company consisting of the IOR, FIAT, Pirelli, Generali, and the giant investment bank Mediobanca—to take an 80 percent stake in a resort development he planned along the Adriatic Riviera.³¹ He bought a controlling share of Geneva’s prestigious Banque de Financement. The IOR became a one-third partner.³² That became the model Sindona and the Vatican used for future bank takeovers.³³

The fast rise of a Sicilian in Milanese business circles led to backroom gossip that Sindona was Mafia sponsored.³⁴ He dismissed it as the inevitable by-product of envy.³⁵ Maillardoz, Spada, and Mennini knew Sindona’s record was unblemished when it came to serving the IOR. They gave no credence to the unsubstantiated rumors that found their way back to the Vatican. He had earned the right to be a man of confidence.

When Cardinal Nicola Canali died in 1961, John XXIII was so consumed with preparations for the Second Vatican Council that he did not even initially replace him. Cardinal di Jorio was left as the chief prelate responsible for oversight of both the IOR and the Special Administration.³⁶ Canali’s death had no effect on Sindona’s cozy relationship with the IOR.

But another death in the Vatican did have an unintended impact on his standing with the church. On June 3, 1963, the Vatican announced the death of the eighty-one-year-old John XXIII. For months he had fought a losing battle against cancer.³⁷ According to canon law, the Pope’s passing meant the Second Vatican Council, which had been under way for eight months, was suspended. The next Pope would have to bring it to a successful end. “It is notoriously easier to begin a Council than to conclude one,” wrote Peter Hebblethwaite, a former Jesuit turned author.³⁸ Traditional and reformist cliques had staked out firm positions on divisive issues. The challenge was to wrap up the Council without splintering the church. The new Pontiff would also have to deal with a confrontational tone from Italy’s left-center political coalition, from proposals to tax the church to legalizing contraception to introducing sex education in schools.

The news of John XXIII’s death was barely public when the backdoor bargaining began among the cardinals. Before Spellman left for Rome, a CIA officer who wanted to know if it were possible to elect a committed anticommunist, someone more in the style of Pius XII, visited him. The CIA thought John had undone much of Pius’s Cold War work. Soviet Premier Nikita Khrushchev felt comfortable enough in 1961 to send the Pontiff personal greetings on his eightieth birthday. The Pope replied in kind. Many at the CIA believed a rapprochement with the Eastern Bloc would unravel years of anti-red progress. In Italy’s 1962 national elections, the Pope had ignored entreaties for the church to mobilize votes for the Christian Democrats. Leftist parties surged at the polls, pulling in nearly a million more popular votes than during the previous election. CIA Director John McCone made a rare trip to the Vatican, where he met with the Pontiff.³⁹ McCone, who was authorized to speak for President Kennedy, told the Pope that the United States worried about what it perceived as the Vatican’s turn to the left. John was amiable, as always, but not persuaded by McCone’s argument. McCone went home without the commitment to fight communism for which he had hoped.⁴⁰

Spellman told the CIA officer he would try to promote a cardinal with conservative credentials, but noted that his own influence in Rome had waned during the previous four years.⁴¹ Before their meeting ended, the officer left Spellman with the CIA’s only imperative: anyone but Milan’s Cardinal Montini.⁴²

When he arrived in Rome, Spellman was not surprised to learn that the conservatives had again rallied behind Giuseppe Siri, Genoa’s fifty-seven-year-old cardinal. Siri told fellow traditionalists that “it will take the Church fifty years to recover from his [John XXIII] pontificate.”⁴³ But once Spellman had a chance to speak to other cardinals, he concluded that Siri’s chances were dim. A bloc of northern European cardinals had aligned against him.⁴⁴ The bad news, at least for the CIA, was that the progressives had coalesced around Montini. This development was due to a spreading rumor: on his deathbed, Pope John had supposedly said, “Cardinal Montini would make a good Pope.”⁴⁵ Some cardinal electors thought they should honor the Pontiff’s last wish. Montini, of course, was the same prelate whom Pius XII had passed over as a cardinal to ensure he would not be eligible to become Pope upon Pius’s death. Having achieved the red hat from John XXIII, the humiliation from Pius seemed a distant memory now that he was a surprising frontrunner.^II

Spellman and Montini had strained relations. Spellman criticized Montini for lack of zeal when it came to fighting communism. Montini’s personal assistant, Father Pasquale Macchi—dubbed “Montini’s Mother Pascalina” by some Curialists—was an avowed socialist and Spellman worried that Macchi carried more influence with Montini than he should given his administrative position.⁴⁷ The Cold War was on Spellman’s mind. It had only been eight months since the Cuban Missile standoff. But in Montini’s favor, Spellman felt he would not lead the church too far from its centuries-old dogma. If anything, Montini was known for tormenting himself with indecision. After weighing both sides of an argument, he often vacillated long after most people had made up their minds. John XXIII once called him “our Hamlet cardinal.”⁴⁸

Spellman, ever the politician, saw a chance to refurbish his standing at the Vatican by helping put Montini over the top. The two cardinals met the day before the conclave. At the end of their three-hour caucus, Spellman had committed not only his own vote but also those of the four other American cardinals.⁴⁹

The conclave started on June 19, 1963. Montini was only a few votes from sealing the election by the fourth ballot. But according to accounts later provided by several cardinals, a few hard-liners tried hard to rally votes in opposition. Cardinal Gustavo Testa broke the conclave’s rule of silence, stood up, and announced that he wished that the cardinals sitting near him should stop their obstruction and vote instead for Montini.⁵⁰ On the sixth ballot, just over two days into the conclave, the sixty-five-year-old Montini had the necessary votes.⁵¹ He took the name Paul VI.

Even Montini’s most avid supporters knew it was impossible for the new Pope to be as popular with the faithful as John. He lacked his predecessor’s charisma. Catholics had embraced John as a grandfatherly figure. He had built an enthusiastic following among the faithful. From the start of John’s reign he had gone out of his way to disabuse anyone of the idea that the Papacy was a “self-imposed imprisonment.” In contrast to Pius XII, John invited reporters to follow him everywhere, from visiting the malodorous “Queen of Heaven” prison (where he kissed and blessed a convicted murderer) to a wildly popular sixteen-hour whistle-stop train tour across Italy to pray at shrines from Assisi to Loreto (the first time a Pope left Rome since 1857).⁵² In an era where personal security was not yet stifling, he often visited schools and hospitals. The Vatican’s old guard thought his casual mingling was unseemly for a Pope and a diminution of the office’s regal power.⁵³ They cringed when on Holy Thursday in 1960, at a ceremony meant to recall Christ washing the feet of his apostles at the Last Supper, he included black, Japanese, Polynesian, and West Indian seminarians.⁵⁴

In contrast, most who met Montini described him as detached, somber, and brooding. He carried out his duties but seemed joyless about doing so. When he redecorated the Pontiff’s private quarters in a sleek “Milan modern” style, some thought that the cool design matched his personality.⁵⁵ Montini seemed to disdain even mixing with others inside the Vatican.⁵⁶ The effect of the change in personalities from outsized to restrained was evident in the drop-off in contributions to Peter’s Pence. In the last year of John XXIII’s tenure, the donations peaked at $15 million. In the first year of Montini’s reign they plunged to $4 million.⁵⁷

Montini—the third son of an upper-middle-class family from the Lombardian village of Concesio—was a career prelate whose ambition had long been obvious to his colleagues. While few could have guessed that he could rebound from Pius XII passing him over as a cardinal, none doubted he long believed he was what insiders dubbed papabile, having the qualities necessary to become Pope.⁵⁸ Montini, who had a doctorate in canon law, had a fast career in the Secretary of State’s office. And he long chafed at what he thought was the lack of appreciation that Pius and others showed for his decades of service. He was not overwhelmed by the challenge of being the Pope but was instead eager to make his mark on the church. One of his first acts was to reconvene the Second Vatican Council.

There were few people happier at the news of Montini’s election than Sindona. Having the Pope as a friend meant that Sindona’s Vatican credentials were now unimpeachable. Some newspaper reports included him as part of what was dubbed “the Milan Mafia” that Paul VI brought with him to Rome.⁵⁹

Inside the IOR, Spada was the biggest beneficiary since Montini was a longtime friend. He knew that the new Pope, who had a reputation for “taking a personal interest in budgetary matters,” would be much more involved than his predecessor when it came to administering the church’s finances.⁶⁰

A few months after his coronation, the Christian Democrats formed a ruling coalition with the country’s two largest socialist parties. It was Italy’s most left leaning postwar government.⁶¹ Aldo Moro became Prime Minister. When Sindona spoke to the new Pope, he shared his fear that fresh government proposals for increased state ownership of public utilities and some financial institutions would likely stop the long Italian economic expansion. Since Nogara had so intertwined the Vatican with Italian industry, any fallout from an economic downturn could be disastrous for the church. Montini directed Maillardoz and Spada to work with Sindona to develop a strategy to protect and diversify the Vatican’s vast Italian holdings.^III

Sindona was tailor-made for such work. By the time of Montini’s election, Sindona was attracting name-brand partners for his diverse ventures. Switzerland’s Nestlé and France’s Paribas Bank worked with him to acquire the Chicago-based food-processing firm Libby, McNeil & Libby.⁶³ General Foods became his partner in an Italian candy company. Sindona convinced Bank of America to help him obtain a stake in a premier luggage manufacturer. With strong bank financing, the forty-three-year-old attorney had become a key figure in dissimilar industries from publishing to petrochemicals to textiles. He was president at seven companies and on the board of several dozen. Except for the Italian branch of Condé Nast, on which the Vatican did not have a director, he served on those boards with an IOR director.⁶⁴

That same year, Sindona used his Luxembourg holding company, Fasco, to buy a controlling interest in Brown Company, a major American-based pulp and paper producer. Over the next couple of years Sindona went on to buy interests in Crucible Steel; a chemical company, Pachetti; a real estate firm, Sviluppo; the largest Italian luxury hotel chain, Ciga; Paris’s luxe Hotel Meurice (Nazi headquarters during World War II), and Rome’s opulent The Grand.⁶⁵

One of his most ambitious launches was an international currency brokerage firm, Moneyrex.⁶⁶ Sindona thought there was an undeveloped market for a private clearinghouse to service banks. He envisioned balancing the currency accounts of financial institutions around the world—locating, for instance, a bank with excess deposits of dollars and then matching it with another bank short of dollars. The banks already did this themselves. But given the enormous size of the international currency market, Sindona was confident that a private company would be far more effective. And he proposed that Moneyrex’s fee would only be 1/32 of 1 percent of the money it handled. It took a couple of years before most banks saw the benefits in outsourcing the work. To make certain that Moneyrex had enough capital to survive, Sindona had large partners, including America’s Continental Illinois National Bank, British-based Hambros Bank, and the IOR.^IV Moneyrex would become the largest company of its kind, eventually serving some 850 banks worldwide, and handling about $200 billion annually in revenues.⁶⁸

With the Pope’s blessing, Sindona further intertwined himself in Vatican finances. He expanded his banking empire by acquiring some of Italy’s healthiest regional banks.⁶⁹ The IOR took a substantial minority stake in each.⁷⁰ Sindona appointed Spada as the president of BPF, the first bank he had acquired in 1960. In 1962, Spada had retired from the IOR, at the time telling L’Espresso that he had “reached[ed] the limits of age,” although he was only fifty-seven.⁷¹ To most Vatican insiders it seemed as if Spada was merely changing the technical status of his employment as he moved across town and started working at the Sindona Group, involved in many of the same projects that consumed his time at the Vatican Bank.⁷² Pope Paul VI tapped Luigi Mennini to serve as Maillardoz’s deputy. Sindona’s business with the church continued uninterrupted.

It was a heady time for the church in which the Vatican Bank and its finances had always been far in the background. Father Richard Ginder, the American editor of a prominent Catholic weekly, captured the excitement in one of his 1963 columns: “The Catholic Church must be the biggest corporation in the United States. We have a branch office in almost every neighborhood. Our assets and real estate holdings must exceed those of Standard Oil, A.T.&T. and U.S. Steel combined. And our roster of dues-paying members be second only to the tax rolls of the United States Government.”⁷³

By this time Sindona was getting great international press coverage. Dubbed “the Shark” for his aggressive take-no-prisoners business style, Time called him a “dedicated free trader” and noted that few Italian businessmen “have had more spectacular success than Milan Financier Michele Sindona, who founded and heads a corporate complex of manufacturing firms in nine countries and real estate firms in five.”⁷⁴ Business Week dubbed Sindona “Italy’s most successful and feared financier.” He is “one of the world’s most talented traders,” noted Fortune, while The New York Times said he was a “Milanese version of a Texas tycoon.”⁷⁵ The Economist proclaimed him “a financial wizard.”⁷⁶

A test of his investing philosophy came in 1966 when he met Licio Gelli, a wealthy businessman who had a widespread reputation as a fixer. To outsiders, the forty-five-year-old Gelli, with dual Italian and Argentine citizenship, enjoyed the pampered life of the country’s super-rich, splitting his time at grand villas in Milan, Monaco, and Buenos Aires. Gelli’s opulent parties were covered in the social pages.⁷⁷ But few knew that his real role was as the chief of an underground Masonic lodge, Propaganda Due (P2).⁷⁸ By the time police ultimately disbanded it in 1981 over suspicions it was plotting a coup, its nearly 1,000 members included four sitting cabinet ministers, more than fifty generals and admirals, and some of Italy’s most important industrialists, financiers, journalists, public prosecutors and judges, and even intelligence operatives.⁷⁹ That membership roster was such a stunning collection of who’s-who that Italian journalists dubbed it a “parallel state within a state.”⁸⁰ In many countries a Masonic lodge such as P2 might have been considered just an exclusive club. But in Italy, starting in 1738, eight successive Popes had condemned Freemasonry and tried eliminating any vestige of it. The church was suspicious of everything, from the rituals of the Masonic initiation ceremony to its promotion of naturalism and religious tolerance. Italy’s nineteenth-century republicans and anticlerics who wrested away the Papal States were themselves Freemasons. Masonic flags flew in the streets when Garibaldi marched into Rome to liberate the city from Papal rule.⁸¹ Mussolini shared a distrust of Masons. Il Duce outlawed all lodges in 1925 and even removed their symbols from public buildings and monuments.⁸² Postwar Italy had few Freemasons.⁸³

There was considerable personal risk for Gelli in running such a lodge. The titans who joined knew that public disclosure would be at the very least embarrassing. Since almost all who joined were Catholic, they were subject to automatic excommunication under Canon Law 2335.⁸⁴ But the risks seemed small compared to the potential benefits of being part of such a powerful clique. Gelli spoke to new recruits about his dream that one day a right-wing, authoritarian government—composed of the P2 men—might replace the never-ending stream of weak coalition governments that had become a depressing staple of postwar Italy.

Gelli raised the subject of P2 when he thanked Sindona for having helped “a dear and important fellow Mason,” General Vito Miceli, a senior officer in the army’s intelligence service.^V “Until then I hadn’t known that General Miceli was a Mason,” Sindona later recounted.⁸⁶ Gelli talked to Sindona about issues important to the Sicilian businessman, emphasizing P2’s anticommunist credentials, and touching on shared matters of interest, including free trade and too powerful trade unions. Sindona realized from just a sampling of names mentioned by Gelli that being aligned with such men could only be good for his business.⁸⁷ Gelli was confident he could trust Sindona. The attorney had bragged to a group of American businessmen, “Ninety-five-percent of my clients come to me because they know I can keep a secret.”⁸⁸

At Gelli’s request, Sindona drafted proposals for reenergizing Italy’s economy and for improving its currency and credit status abroad. Gelli distributed them to some other P2 members, with Sindona’s name redacted.⁸⁹ And he introduced Sindona to a few of his fellow Masons, most of whom were anxious to do business with him.

When Sindona turned his attention back to the Vatican in 1967, it was for more than another joint venture with the IOR. Henri de Maillardoz had announced his retirement as the Vatican Bank’s Delegato. The former Credit Suisse banker had benefited by staying the course with Nogara’s postwar investments in the expanding Italian economy. By the time he stepped down, he was on a remarkable winning streak. SGI, the moribund construction company in which the IOR had invested in the late 1940s, was now run by Count Enrico Galeazzi. It had become an international conglomerate with significant or controlling stakes in more than fifty real estate and urban development companies.⁹⁰ The Vatican had four seats on the board.⁹¹ A major SGI subsidiary, SOGENE (Società Generale per Lavori di Pubblica Utilità), had become the country’s largest public works contractor. During Maillardoz’s tenure, SGI had won the bid to build the Watergate residential and office complex in Washington, D.C., the largest luxury apartment tower in Canada, and a planned city of 100,000 people on 1,300 acres outside Mexico City.⁹²

One of Nogara’s early favorites was Montecatini/Edison. It had expanded beyond electric power into pharmaceuticals and mining, and its annual revenues had reached nearly a billion dollars. Italcementi had grown to 6,500 workers and had become Europe’s second largest cement producer. SNIA Viscosa now produced 70 percent of Italy’s textile fabrics. Italgas had become the exclusive gas supplier for thirty-six Italian cities, including Rome, Venice, Florence, and Turin.⁹³ Maillardoz had ensured that Vatican investments tied the church to a postwar alliance with America as great as any it had during World War II with Germany and Italy. Beginning in the mid-1960s, the Vatican purchased stock in IBM, General Motors, General Electric, Shell, Gulf Oil, Chase Manhattan, Procter & Gamble, and Bethlehem Steel, among other blue chips.⁹⁴

Luigi Mennini, by then given the honorary title Gentleman of His Holiness, replaced Maillardoz.⁹⁵ Mennini formalized Sindona’s relationship as the Holy See’s special financial consultant. Sindona was pleased that the men who ran the church’s finances had such unfettered faith in him. But he also shared with some confidants that he was somewhat disappointed that Montini had taken a liberal turn since becoming Pope.

Montini had reconvened the Second Vatican Council only three months after his election. A month later, twelve fundamental changes to the liturgy, the largest revision in church history, were approved. The most notable to lay Catholics was the end of the Latin Mass.^VI Traditionalists were irate. Genoa’s conservative Cardinal Siri said it was “the greatest disaster in recent ecclesiastical history.”⁹⁷ Many in the Curia were incensed at moves they viewed as diluting their powers. Decisions that used to be the exclusive province of Rome were delegated to the countries where the issues originated. Local dioceses would now decide contested marriage court cases that previously went straight to Rome. Moreover, foreign bishops joined the boards of directors of most Curial agencies. The Curia now sent its proposals to local bishops for review before making any final directive. And regional meetings of those bishops meant more could be accomplished independent of the Vatican.⁹⁸

Beyond controversy over the Council there had been a noticeable political shift to the left by the Pope. Paul increasingly criticized the American bombing of North Vietnam that had started in 1965. In 1966, Cardinal Spellman and other conservative clerics were incensed when the church announced $15 million in aid for North Vietnam at the same time it dispatched two Vatican officials to visit Vietnam (Pope Paul had himself wanted to go as a symbol of support, but it was deemed too dangerous).⁹⁹ His 1967 reception for Soviet President Nikolai Podgorny marked the first state reception for a communist official at the Vatican, and it sent a chill through entrenched anticommunist warriors in the Curia.¹⁰⁰ That same year, Paul issued an encyclical, Populorum Progressio. It was a clarion call for economic and social justice and set a goal of “just distribution” of wealth in Third World countries to help bridge the gap between rich and poor.¹⁰¹ The Wall Street Journal scorned that Papal decree as “souped-up Marxism,” but it would become the rallying cry for a generation of activist priests in Central and Latin America who advocated liberation theology, a volatile mixture of left-wing politics and Catholicism.^102,VII

Populorum Progressio at first concerned Sindona since it also attacked unrestrained capitalism: “Free market competition, however, should not be abolished, but simply maintained within moral limits.” The Pope, however, did not intend that his message about economic equality in any way limit a buying binge that Sindona had planned with the IOR. Mennini, Spada, and Sindona rolled out their expansion plan in early 1967. The church increased its investments in the country’s largest passenger shipping line (Finmare), Italian insurers Generali and RAS, and more regional banks and credit unions.^104,VIII

But the IOR-Sindona strategy would be forced later that year to take a sharp detour from its Italian-centric focus. It would result from a long-simmering political row between the Vatican and Italy’s government over investments and dividend taxes. Four years earlier, in 1963, a socialist minister of Italy’s Treasury had first questioned why the Vatican was not subject to a new government dividend tax.¹⁰⁶ It was a 15 percent levy so long as the owner registered the shares with the tax office, or 30 percent if the owner did not disclose them and the government found out about it. It was thought that all taxpayers would gladly disclose their stock ownership to avoid the much higher tariff for secrecy.¹⁰⁷

Under Clauses 29, 30, and 31 of the 1929 Lateran Treaty, Mussolini had exempted the church from paying taxes for “ecclesiastical corporations.” Nogara lobbied the fascist government to interpret ecclesiastical so broadly that over time the exemption included everything done by the Special Administration and the IOR. Even when Mussolini levied two special taxes (corporate and real estate) in 1936 to offset the enormous costs of the Ethiopian war, a special decree excluded the Vatican.¹⁰⁸

The church also got a special exemption in 1937 when Italian companies had to pay a new tax on common stock. When a national sales tax went into effect in 1940, Italy’s finance minister announced it did not apply to the church. In 1942, just four months after the IOR’s founding, the fascist government waived any money the Vatican would have owed under another dividend tax. That December, the Finance Minister published a list of all exempt Vatican organizations. The IOR and Special Administration were free from any tax.

Now Prime Minister Aldo Moro tried appeasing his socialist coalition partners by requesting that the Vatican at least demonstrate good faith. As a first step toward possibly obtaining a further exemption, Moro asked the church to provide the government a list of all its stock holdings. Secretary of State Cardinal Amleto Cicognani refused, asserting that Italy had no authority to ask for such information or to impose any tax because the Vatican was a sovereign country. Any tax violated the Lateran Pacts.^109,IX

Despite the efforts of the Moro government, the push to apply the tax to the Vatican lost steam. A series of investigative stories in 1967 by the leftist L’Espresso revived the dispute and even amplified it with rhetoric that dubbed the Vatican as “the biggest tax evader in postwar Italy.”¹¹¹ Published guesstimates of what the Vatican owed on just the dividend tax ranged as high as $720 million annually (the equivalent of $4.8 billion in 2014).¹¹² The ruling coalition pledged to apply the tax to the church.¹¹³ The Vatican had, by coincidence, only recently established a press office.¹¹⁴ The tax issue was addressed first by its spokesman, Monsignor Fausto Vallainc (New York Times reporter Paul Hoffman said about Vallainc that “in addition to being uninformed, he was a bungler”).¹¹⁵ Besides reiterating that the church was exempt because of the Lateran Pacts, he put forth a novel argument: since the Vatican was a world-renowned attraction, it should be given a credit for some of the money tourists spent in Italy.¹¹⁶ Vallainc’s plea was not successful. The government stripped the church of its exemption for the special dividend tax (although remarkably the leftist coalition did not end the hundreds of millions given annually to the church in direct subsidies, another practice begun by Mussolini and not terminated until 1990).¹¹⁷

Sindona told the Pope and his colleagues in the IOR and the Special Administration that although Italy was on weak legal ground when it came to the dividend tax, the Vatican could not prevail. The issue had become entangled in politics. The concern now was whether it might become a precedent prompting the revenue-hungry government to pass even more taxes. And since the state collected the tax at its source—the companies paid what was owed to the government before distributing the rest to the shareholder—it did not matter if the Vatican continued protesting. Merely allowing its collection would damage the credibility of the church’s claim of independent sovereignty.

Sindona urged the creation of a separate division inside the Curia to focus primarily on real estate. That department, he said, should also be responsible for fully funding the Curia. Sindona contended that such a move would allow the church to benefit from its tax-free status on all income from its enormous property holdings, while freeing the IOR to concentrate on other investments.

On August 15, 1967, Pope Paul established the Administration of the Patrimony of the Holy See (Amministrazione del Patrimonio della Sede Apostolica, APSA), and appointed his Secretary of State, Cardinal Amleto Cicognani, as its first chief.¹¹⁸ It had, as Sindona urged, responsibility for the church’s real estate as well as raising money for the Curia’s budget and paying the Vatican payroll.¹¹⁹ The Special Administration, which had been established in 1929 to deal with the money given to the Vatican by Mussolini as part of the Lateran Pacts, was dissolved and folded into APSA.¹²⁰

Paul VI also created the Prefettura degli Affari Economici della Santa Sede (the Prefecture for the Economic Affairs of the Holy See), responsible for the oversight of all Vatican finances, with the notable exception of the IOR, which was left independent and self-regulating.¹²¹ As part of its duties, the Prefecture produced an annual report of all budgets (except the IOR).¹²² Any construction project in Vatican City now had to be run past the Prefecture. The Pope had considered putting the Vatican Bank under the new Prefecture, but Mennini argued successfully that because of Pius XII’s intent, if the bank was put under the control of another entity, it would sacrifice its essential independence that made it both unique and so useful.¹²³

Paul VI hoped that a central administrator might illuminate the obscure thicket of church finances.¹²⁴ And Sindona may have been right that creating APSA as a tax strategy was a good idea. But invariably it overlapped with the Vatican Bank as well as the asset-rich Congregation for the Evangelization of Peoples (Propaganda Fide).¹²⁵ There was trouble integrating the new bureaucracies.¹²⁶ Compounding the problems, Cicognani and the other clerics in charge of APSA had little background in finance. Most of them had difficulty even reading a balance sheet.¹²⁷ The same was true at the Prefecture. Paul VI appointed Cardinal Egidio Vagnozzi, who had been the Apostolic Delegate to the United States and whose career specialized in diplomacy.¹²⁸ Vagnozzi’s claim to any business sense was that his family ran the largest confectionary in Rome.¹²⁹ His two assistants were seventy-nine-year-old Cardinal Joseph Beran and seventy-year-old Cardinal Cesare Zerba. Beran had returned to the Vatican after sixteen years in prison in Czechoslovakia, and Zerba was a theologian who ran the Congregation of the Sacraments.¹³⁰ They had no financial expertise or realistic expectation about what awaited them in the splintered world of Vatican finances.¹³¹ Vagnozzi was not long in his new post before he told a colleague that it would take a “combined effort of the CIA, KGB, Interpol, and the Holy Spirit” to make sense of the Vatican’s financial ledgers.¹³²

APSA and Prefecture for the Economic Affairs of the Holy See ultimately added to the confusion and lack of transparency over Vatican finances.¹³³ But at the time of their creation, they were a testament to the influence of Sindona in the Papacy of Paul VI.

Sindona knew, however, that creating APSA was only one part of a comprehensive response to the government’s imposition of the dividend tax. He urged the Vatican Bank to sell many of its Italian stock and corporate holdings. Those sales would not only spare the Vatican from paying any tax under the new law, but would constitute a public rebuke to the secular government. Without a significant stake in Italy’s private sector, the church would not be affected if future governments levied new taxes on dividends, capital gains, or even so-called intangibles taxes (a fixed levy on the total value of an investor’s portfolio). Sindona assured IOR director Mennini that if the church freed up the money it had tied up in Italian companies, he would help invest the funds abroad. But there was considerable resistance inside the IOR to unraveling the portfolio that Nogara had so meticulously compiled, especially given that its components were performing so well.

The tipping point in favor of Sindona’s argument came in early 1968. Italian reporters uncovered evidence that the Vatican had invested in Istituto Farmacologico Serono, a pharmaceutical company that made birth control pills, as well as Udine, a military weapons manufacturer (there were also unconfirmed newspaper reports of church money in gunmaker Beretta, a Monte Carlo casino, and a printing firm that published pornographic magazines).¹³⁴ Nogara’s son Giovanni was on Udine’s board. Serono’s chairman was none other than Pius XII’s nephew Prince Giulio Pacelli.¹³⁵ Former IOR chief Massimo Spada ran a wholly owned Serono pharmaceutical subsidiary, Salifera Siciliana.¹³⁶ The embarrassment over the Serono holding was intense. It was the same year Paul VI issued Humanae Vitae (Human Life), his most controversial encyclical, in which he banned all artificial birth control.¹³⁷

That spring, in the rococo Apostolic Palace, four men assembled late at night in the Pontiff’s private third-floor study to discuss what to do about the church’s finances.¹³⁸ The Pope was joined by Sindona, and Cardinals Cicognani and Vagnozzi. Sindona had once had dinner with the Pope and his private secretary, Macchi, but this evening was not a social visit. No official entry was made in the Pope’s diary about the meeting.¹³⁹ Sindona made his case for why the Vatican should divest itself of all holdings in Italian companies. He explained that so long as the church owned stocks in Italian firms, the government would continue to roll out more taxes.

Sindona argued that the Vatican’s ownership in so many firms was as much a political and social liability as it was an economic asset. Nineteen sixty-eight was a year in which social unrest in Italy was peaking between student sit-ins and massive street demonstrations. Public opinion polls showed a remarkable two thirds of the country thought the nation’s future was bleaker than its present.¹⁴⁰ Mixed into this cauldron of pessimism was increasing criticism directed at the church for its corporate holdings. Every time one of its companies took a hard line during negotiations with trade unions or cut back on the number of workers at an unproductive plant, leftist politicians and newspapers slammed the church for not protecting working-class Catholics. Sindona reminded them that when Italy had created the Olympic Highway in 1960, critics had charged that SGI had gouged the Roman government. The previous year, leftist newspapers accused the Vatican of manipulating local zoning regulations to help Hilton build a new hotel.¹⁴¹ And just a few months before the late night meeting, workers had occupied the church-owned flour mill, Pantanella, after the Vatican had slashed the mill’s book value to stay solvent.¹⁴²

Those headaches were problems the church did not need, contended Sindona. They would only grow over time, especially as the press became increasingly alarmist and intrusive.¹⁴³ Moreover, by maintaining majority positions in companies, the church was on the line for business failures, putting it at risk for having to use its own money to shore up firms that hit hard times due to bad management or an uncontrollable turn in the economy or marketplace.¹⁴⁴ Finally, he assured them, he would reinvest the money from the stock sales into new and better investments abroad, ones that would free the church from worrying about taxation or social criticisms. It would also provide a layer of confidentiality difficult to maintain with Italian stocks.

The Pope liked the idea that Sindona might be able to increase the church’s return on its money. It needed more income. Paul VI was overseeing an institution with 600 million followers, five million lay employees, twenty million children in parochial schools, a million nuns, 250,000 priests, and a charity that was the world’s largest (thirteen million people were receiving some type of assistance).¹⁴⁵ Although religious orders and all dioceses were responsible for their own finances, since the Second Vatican Council the Vatican had assumed broad new responsibilities that had increased its employment by a third.

Paul VI, as was his style, had agonized for months over what to do. But he had reached the conclusion that Sindona’s plan was in the best interests of the Vatican. The two cardinals agreed. Paul turned to Sindona. With the cardinals as witnesses, the Pontiff informed Sindona that he had earned the title Mercator Senesis Romanam Curiam sequens, Latin for “the leading banker of the Roman Curia,” or informally, “the Pope’s banker.”¹⁴⁶ The personal involvement of a Pope at this intimate level of decision making was unprecedented, as was the notable absence at the meeting of any IOR or APSA official.

The press later dubbed the radical shift as the “Pauline Policy.” Adding to Sindona’s allure, The New York Times reported, “There are rumors in Italy . . . that Mr. Sindona had signed the final agreement with Pope Paul VI” (he had not, but the Pope had conferred on Sindona his elite advisory status).¹⁴⁷ When Time confirmed the meeting a year later, it noted it was “almost unheard of for a Pope personally to conduct the church’s business affairs, but this was no ordinary occasion. Sindona and Pope Paul closed a deal that started a shift of profound consequence in the Holy See’s management of its vast temporal wealth.”¹⁴⁸

The first sale was the holding in the SGI conglomerate and the resignation of its president, a former Governor of Vatican City, and four Vatican financial advisors on its board.¹⁴⁹ APSA was technically responsible for the sale but the IOR—with Spada as the key advisor—set the terms and handled all the money.¹⁵⁰ The church had always managed its investments so as not to attract any attention, yet somehow the information was leaked to the media.¹⁵¹ The New York Times noted that the SGI sale was “the beginning of a sweeping plan to sell the Vatican’s Italian stocks and buy investments abroad.”¹⁵² Many reports warned that if the Vatican dumped hundreds of millions in its stock holdings it would punish a weak Italian stock market. The SGI sale did cause a temporary swoon in the prices of the Milan indexes. Sindona, meanwhile, received widespread and positive credit for having arranged the sale.¹⁵³

Mennini, and the IOR’s chief internal accountant, Pellegrino de Strobel (a director of a joint Sindona-IOR–owned Geneva bank), and ex-chief Spada as a consultant, worked to dissolve most of the church’s domestic holdings.¹⁵⁴ The IOR would no longer take any controlling interests in Italy’s private sector. Within a year, Cardinal Vagnozzi, the chief of the Prefecture for the Economic Affairs of the Holy See, gave a first-ever, broad-ranging interview to Institutional Investor. He announced that the process was complete: “Today there are no more companies controlled by the Vatican.”¹⁵⁵ In addition to disclosing that the Vatican had divested all its majority stock positions, the Pope also tasked Vagnozzi with downplaying the size of the church’s wealth. The cardinal dismissed as “wild” the press reports that the Vatican had nearly $13 billion in liquid investments. It was probably closer to $500 million, he claimed.¹⁵⁶ Vagnozzi’s estimate was unrealistically low since he had no information from the IOR.¹⁵⁷

The Vatican still owned some stocks in Italian companies.¹⁵⁸ But by significantly reducing them, the church had given up much of its private sector control, and the IOR had become a passive investor. It marked a momentous change. And it presaged an unparalleled era for Sindona and other men of confidence.¹⁵⁹

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I. Some unsourced published reports cite the CIA as the source of Sindona’s retirement home money. Victor Marchetti, a controversial former CIA officer who has promoted the theory that American intelligence killed John F. Kennedy, speculated it “is possible” the money was from the CIA. Although Marchetti’s unproven conjecture received considerable coverage in the Italian press, the author has found no credible evidence to support it. In the 1970s Marchetti reported that the CIA had sent secret payments to Pope Paul VI to influence his Papacy, something the church dismissed as “completely false.”²⁰

II. Both inside and outside the Curia, an oft-repeated rumor was that Montini was gay. It was not the type of salacious gossip that had spread inside the Curia thirty years earlier about then Cardinal Pacelli, but it was a persistent story. Those who passed it along claimed to know details about dates and places and said that Montini’s longtime lover was an Italian actor, Paolo Carlini. Some clerics even suspected he took the Pontifical name Paul as a secret tribute to Carlini, who was subsequently a frequent visitor to the Papal apartment. In 1976, Montini—then Pope Paul VI—angered both traditionalists and gay rights proponents when he approved a “Declaration on Certain Questions Concerning Sexual Ethics,” in which the church distinguished between “transitory” and “incurable homosexuals.” Bestselling French novelist Roger Peyrefitte, a gay activist, was so angry that he told an Italian magazine that the Pope “had as a boyfriend a movie actor whose name I am not going to mention but whom I recall very well.” Although Peyrefitte did not name Carlini, the public airing of the rumor caused such an uproar that Montini addressed it in his April 18, 1976, Sunday sermon. The Pontiff, in unprecedented direct language, dismissed Peyrefitte’s charge as “horrible and slanderous insinuations.” The Italian police confiscated and destroyed copies of the newsweekly with the Peyrefitte interview, and the Vatican set aside a “day of consolation” for the Pope. There was less public drama the following year when a more expansive charge was leveled against Paul VI in a self-published book, Nichita Roncalli: Controvita di un papa. Franco Bellegrandi, a Chamberlain of the Cape and the Sword of His Holiness (a Papal Chamberlain), disclosed what he claimed were intimate details about Montini’s closeted life. Financier Michele Sindona had heard a charge that Montini’s lover until 1960 was a young protégé, Sergio Pegnedoli (later a cardinal). But he thought there was no truth to the gay rumors. A police commander, General Giorgio Manes, disagreed. Much later Manes told L’Espresso that when Montini was blackmailed over his secret life he had sought the help of Italy’s Prime Minister Aldo Moro. Whatever the veracity of the rumors, the long-standing gossip about Montini’s private life did not pose a barrier to his 1963 election as Pope.⁴⁶

III. Although the Vatican was concerned about the growing extent of the new government’s interference in private enterprise, the church remained the largest investor in IRI bonds, the debt issued by Italy’s quasi-nationalized banking authority. The IOR also owned a share of the country’s state-run telephone monopoly, STET (Società Finanziaria Telefonica).⁶²

IV. Hambros Bank, founded in 1848, was one of a handful of British merchant banks on which Nogara had relied starting in the 1930s. Hambros retained its close ties with the IOR after Nogara’s retirement. Spada had introduced Sindona to Jocelyn Hambro, the bank’s chairman, and the two became friends. Hambros became an indispensable part of many of Sindona’s early deals, as was National City Bank (now Citibank), Chase National Bank (now JPMorgan Chase), N. M. Rothschild & Sons, Lazard Frères, and Credit Suisse.⁶⁷

V. In 1970, Miceli became the director of all military intelligence (Servizio per le Informazioni e la Sicurezza Militare—SISMI). A U.S. House Select Committee on Intelligence investigation later disclosed that over the objections of the CIA station chief in Rome, the then U.S. ambassador gave Miceli $800,000 in cash in 1972. The payment, which came without any preconditions, had been approved by National Security Advisor Henry Kissinger. The hope was that Miceli would use it for anticommunist propaganda efforts. Instead, the money disappeared and was never accounted for.⁸⁵

VI. It was during the Second Vatican Council that the church finally renounced the belief that all Jews bore collective historical guilt for the death of Jesus. In Nostra Aetate (In Our Time), the church declared that “Jews should not be presented as rejected or accursed by God.” It also renounced its centuries-old policy that it was a duty of Catholics to convert Jews.⁹⁶

VII. A few Curialists later came to believe that a handful of right-wing cardinals engineered a coup against Pope Paul because they could no longer tolerate his leftist politics. He was replaced with an almost identical impostor, according to the conspiracy theorists, who later published photos they claimed illustrated the distinctive differences over time for his ears and eyes, proving the “two-Pope theory.” In 1983, five years after Pope Paul VI’s death, a British Catholic paper (The Universe) reported that only the impostor had died and the real Paul was living in a Rome suburb.¹⁰³

VIII. That same year the Banco di Sicilia’s president was arrested and charged with fraud. Over eight years, he had hired about a hundred relatives, some of whom had never shown up for a single day of work. The public did not know that the IOR had a controlling stake in the bank.¹⁰⁵

IX. Another new tax—15 percent of the interest earned on individual bank accounts—brought a surge of deposits to the Vatican Bank. Even under Nogara, the IOR had profited by assisting wealthy Italians avoid taxes and currency regulations with so-called in nero (in black) transfers. Sindona noted that “most people confuse hiding and laundering.” Money moved in nero was all right, Sindona later told author Nick Tosches, since it “belongs to respectable people . . . [and is] legitimately accounted wealth.” The church moved in nero only “for the purpose of avoiding taxes.” On the other hand, “dirty money is money made through crime.” The church’s intermediary in nero role was lucrative, up to a commission of 10 percent of principal. Much of the money moved was for Black Nobles, their personal friends, and leading Christian Democrats.¹¹⁰