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Il Crack Sindona

Marcinkus’s 1973 problems with the Security and Exchange Commission and his close call with the American Justice Department played out against a chaotic backdrop in Italy. Domestic terrorism and financial instability seemed at times to push the country toward the edge of anarchy. Although Italians had gotten accustomed to the musical-chair nature of the country’s politics—seventeen governments since World War II—most were not prepared for the increasing violence that shook the nation’s confidence and destabilized its financial markets. Anti-American sentiment over the U.S. bombing of North Vietnam had fueled a militant left-wing movement. In communist-led Bologna, the city council voted to greet the New Year by burning “Father Napalm,” an oversized Uncle Sam effigy.1 Extremists bombed the Milan offices of the right-wing National Vanguard Movement two weeks later.2 In March, an anarchist group claimed credit for the public execution of a forty-six-year-old Milanese industrialist. In April, rising Middle East tensions spilled over into the country when a Palestinian radical shot dead an employee of the Israeli airline El Al in front of a large crowd at a central department store.3 Neo-fascists followed that up by torching a synagogue in Padua.4 The following month, a bomb in a Milan bank killed two. A few days later an anarchist threw a hand grenade into a crowd of mourners paying respects to an assassinated police officer. Two were killed and forty-five were wounded.5

Interspersed between the bombings were running street battles in the nation’s largest cities between neo-fascists and communists; a surge in kidnappings of wealthy Italians (the July abduction of John Paul Getty III from the busy Piazza Farnese, in the heart of Rome, added to the growing sentiment that no one was safe); and a spike in Mafia-related violence, including a brazen assassination of a prominent police investigator in front of his Roman home.6

Adding to the gloomy national mood, the police had made few arrests. Italians judged law enforcement as either incompetent or compromised. After the Milan grenade attack, the government was so flummoxed that it asked for assistance from police in the United States, Britain, France, Switzerland, and Israel.7

The loss of public confidence forced Prime Minister Giulio Andreotti’s resignation in July.8 The next ruling coalition did little to restore faith in government. To many it seemed the same politicians responsible for the slide had just shuffled positions. Giovanni Leone was back for his third time as President. Mariano Rumor became Premier for the fourth time.9 A right-wing faction called the Mussolini Action Squad greeted the new regime with two bombs at Milan’s Mondadori publishing headquarters.10

International tensions did not help. That September, Colonel Muammar Gaddafi’s air force attacked an Italian warship that veered too close to the Libyan coast.11 Only a few weeks later, Egypt and Syria launched a surprise attack on Israel, the start of the Yom Kippur War. When Nixon refused the Saudi King’s request not to resupply Israel with American fighter jets in the middle of the conflict, Arab states announced their first-ever oil boycott of the United States, Japan, and most of Western Europe including Italy.12 Oil prices doubled within a week, on their way to what would become a tenfold increase over several years.13

The oil shortage caused serious problems for all the countries on the boycott list. Italy had to cut private gasoline sales by 10 percent in November causing long lines at gas stations. It also began to ration oil deliveries.14 And the oil shock destabilized the already weak Italian economy. Fears of a deep recession combined with high inflation pummeled Italy’s stock indices.15 Due to the oil shortage, the Italians endured their worst winter since World War II. The New York Times noted, “In Italy they are talking about the end of ‘la dolce vita.’ ”16

Just before Christmas, a bloody attack on Rome’s airport by the Palestinian Liberation Organization seemed a grim year-end note to the sour state of affairs. Thirty-two were killed in a gun and grenade assault that made security forces look particularly inept.17

Pope Paul VI’s holiday message was his most sober since assuming the Papacy. He pleaded with Italians to unite in stopping the country’s slide into further violence and disorder, and urged them to reject a “mafia-style mentality.”18

In the midst of such widespread pessimism, many leading Italian businessmen looked abroad for stability. Sindona and Calvi thought Argentina presented such an opportunity in the spring of 1973. As Italy’s bedlam played out, Juan Perón returned to power in Buenos Aires after an eighteen-year exile. Licio Gelli, who ran the underground Masonic P2 chapter that counted Sindona and most of Italy’s top businessmen and politicians as members, had been helping Perón behind the scenes. The two had met in 1971 while the Argentine was in exile in Spain. The day after his proxies had won the national election, Perón, accompanied by Gelli, flew into Buenos Aires on an Alitalia jet.19 Perón had barely settled back into Casa Rosada, the presidential palace, when Sindona talked to Gelli about establishing a consortium to oversee Argentina’s enormous, but largely underutilized, natural resources.20 Gelli—whom Perón soon named an Honorary Consul General—and Sindona thought they could help Argentina halt the widespread Latin American tilt to the left. Calvi also suggested that the Ambrosiano establish a large Argentine presence in the hope that the Italians might parlay their special status with Perón into enormous profits. Sindona arranged for Calvi and Gelli to meet.21

“Calvi . . . was ever eager to believe in the occult powers of others,” Sindona later told a journalist, “[and he] was quite swept away by Gelli at their first meeting. He believed that Gelli and P2 could be of inestimable help to him in Italy and abroad.”22 And he liked the “sense of protection” that Gelli and his powerful comrades offered.23 For his part, Gelli judged Calvi as “serious . . . intelligent, complicated.”24 Calvi joined P2.25

Sindona called Marcinkus to see if the IOR would also commit to the new venture. Marcinkus liked the idea and offered the IOR as a fiduciary bank in support of any of the Ambrosiano’s business in Argentina.26 And Sindona and Marcinkus compiled a list of offshore companies the new endeavor should use to operate free of Italy’s currency exchange restrictions.

“I told Marcinkus to get in touch with the lawyers in Costa Rica who had organized similar operations for Citicorp of New York or Barclay’s Bank of London,” Sindona later recalled.27

The plans for the grand expansion hit early headwinds. Perón was frustrated by political infighting that matched or exceeded that in Italy. The back-scenes battle for power meant that Sindona, Calvi, and Marcinkus had to wait for the ailing seventy-seven-year-old Perón to approve their new undertaking.

Sindona was impatient. He had worked hard on the Argentine venture and the delay was infuriating. He complained to colleagues that his native Italy was beset by instability that made it difficult for businessmen to make long-term plans. Adding to his bad mood was that he had recently failed in a highly publicized hostile takeover of Bastogi, a storied Italian holding company.28 For nearly a year, Sindona had debated whether to move out of Italy. Switzerland seemed his most likely choice. Not only was it close to Milan, but he already had a fifth-floor apartment in Geneva, in the Rue de la Bourse building that served as the Swiss headquarters for his Finabank. But Nixon’s reelection the previous November pushed him toward America. By early 1973, Sindona had bought a $300,000 apartment at New York’s Pierre Hotel, with a grand view overlooking Central Park.29,I

When Sindona told Marcinkus about his pending move, the bishop said, “Hey! You operate over there like you operate here in Italy, you will end up in jail. See? Different laws, different standards.”31 Marcinkus’s warning did not give Sindona any second thoughts. He opened business headquarters at 450 Park Avenue.

America welcomed Sindona as a financial whiz. Harvard Business School, the University of Chicago, and Carnegie Mellon invited him to lecture. In January 1974, the U.S. ambassador to Italy, John Volpe, presented him with the Man of the Year award.32

What Sindona did not say publicly was something that only he and a handful of his top lieutenants knew: his Italian banking empire was under great pressure. The man that Fortune had pegged the previous year with a $450 million net worth was holding some huge paper losses on foreign currency trades.33 Plummeting stock prices and an international credit squeeze meant he could not raise enough money to cover his bad investments. Without any progress on the Argentine project, Sindona merged Banca Privata Finanziaria—in which Marcinkus and the IOR had a minority stake—and his Banca Unione into a new financial institute, the Banca Privata Italiana. He hoped the merger might keep Italian regulators from discovering the extent to which the banks were in trouble.34 But Guido Carli, the Bank of Italy’s governor, had already authorized a broad review of Sindona’s complex financial empire.35 Despite the pressure on his business, Pope Paul VI and some leading Christian Democrat politicians asked Sindona to contribute to fight a national referendum to block the right to divorce; he gave $2 million. The church and conservative politicians lost the referendum that May, when 60 percent of the electorate sided with the idea that civil divorce should be legal.36,II

In May 1974, Sindona’s American ventures showed their first cracks. Franklin National reported a foreign exchange trading loss of nearly $39 million.38 The bank’s traders had shorted the lira and bought large dollar positions just before the markets moved in opposite directions.39 Such trading had become much more volatile since central banks no longer supported their national currencies at fixed rates. Few banks had yet developed sufficient safeguards in their trading departments to manage the risk.40

Sindona seemed furious. When Franklin president Harold Gleason met with him, just after the board had learned about the loss, Sindona “paced[d] back and forth like a caged animal,” yelling profanities and demanding answers.41 But his display of anger was mostly for show. It was Sindona himself who had approved the bank’s bold lira trade against the dollar.42

Following three consecutive quarters of losses at Franklin, the Federal Reserve’s Board of Governors cited its underperformance and weak internal controls in rejecting the bank’s merger with Talcott National, a large American finance firm in which Sindona had accumulated a 50 percent share. Although the New York Federal Reserve had recommended an approval, the full Fed feared that Franklin would siphon off the assets and reserves from the healthier Talcott.43

Senior Franklin officials claimed the bank’s problems were a temporary blip caused by a combination of a rogue trader, high interest rates, a weak economy, and exorbitant Manhattan rents.44 But regulators did not buy it. Representatives from the SEC, the Federal Reserve, and the Comptroller of the Currency met with Sindona and the bank’s chief officers over the weekend of May 11 and 12.45 They insisted that Sindona guarantee a $50 million recapitalization to stabilize the bank.46 He agreed, although none of the regulators knew he did not have the money.

The dire warnings that Franklin’s founder, Arthur Roth, had raised about Sindona’s lack of expertise seemed prescient. That Monday, Franklin’s board dismissed the bank’s president and executive vice chairman and suspended the stock dividend. It was the first time since the Great Depression that an American bank had canceled a quarterly dividend payment.47 The Federal Reserve tried calming markets by announcing it would make advances to Franklin as needed; the bank borrowed $110 million, more than any Fed official had anticipated.48 That same afternoon, the SEC halted trading in the company’s stock until the firm refigured its first quarter losses.49

Sindona could not catch a break. Rumors that he was in a serious cash crunch prompted some large New York banks to warn against conducting business with any of his companies.50 Earlier that year, San Diego’s U.S. National had become the country’s first billion-dollar bank failure. It had frayed nerves throughout the American financial industry.51

Sindona’s problems were compounded because he was unable to reassure the markets by injecting some of his own considerable wealth. His $40 million Franklin investment was worth only $8 million since the stock had plummeted 80 percent during his ten months of ownership.52 And many more millions of dollars were tied up in ventures with Calvi and Marcinkus.

Sindona called Calvi. He had $18 million in a joint venture with the Ambrosiano chief.53 Calvi claimed he could not help because the money was committed to business deals with other firms, including the Vatican.54 Sindona was furious. When he visited Italy that June, Calvi’s secretary ran interference every time Sindona called. Sindona was not surprised that Calvi avoided him. He knew that the Ambrosiano chairman “was frightened by my plight. He was afraid that he, as my partner, might be dragged down as well.”55

Similar distancing played out between Sindona and Marcinkus. “He, like Calvi, had run scared,” Sindona later recalled, “washing his hands of me. On his visits to New York, he didn’t even telephone to ask after my well-being.”56 Sindona’s Mercedes was no longer listed as one of a handful of cars that the Swiss Guards waved through the front gates of the Vatican without any questions.57 What Sindona did not know was that Marcinkus had no spare money with which to bail him out. By that time, the IOR had committed so much cash to ventures with Calvi that the church had little left for a cushion in case of an investment downturn.58

That same month, Sindona approached the Banco di Roma and asked to borrow $100 million, acknowledging to the bank’s chairman, Mario Barone, that his Italian banks were in trouble.59 Barone gave him the $100 million credit line, with the restriction that the money could only be used to stabilize Sindona’s Italian operations, not bail out Franklin.60 Sindona had to pledge his Italian bank shares as collateral, as well as 100 million shares of his construction conglomerate, SGI.61 As an additional condition of lending the money, Banco di Roma got the right to appoint its own SGI management team. It forced the resignation of Carlo Bordoni, the chairman, a longtime Sindona confidant.62

Sindona was back to Barone in just two weeks, asking for another $100 million.63 This time he said there was a run on deposits at his banks. Their failure could infect the entire Italian banking system.64 Sindona’s timing was bad. German regulators had just liquidated one of Cologne’s premier private banks, Bankhaus I. D. Herstatt, because it had racked up $500 million in foreign exchange losses. The Herstatt collapse had made all European banking regulators more vigilant.65 To get the second loan, Italy’s central bank had to give its approval. This time Sindona had to pledge the rest of his controlling stake in SGI.66 And the Banco di Roma joined the Bank of Italy in developing contingency plans to protect depositors and creditors while searching for ways to move Sindona out of SGI.67

Back in the States, Franklin’s reconfigured quarterly earnings revealed it had lost $63 million in the first five months of 1974, some $25 million more than when the bank had provided guidance just six weeks earlier.68 Joseph Barr, a respected former chairman at the FDIC—the Federal Deposit Insurance Corporation, the U.S. government agency tasked with insuring bank deposits—agreed on June 20 to become Franklin’s CEO and chairman. As Barr moved in, Carlo Bordoni stepped down from the board.69 Franklin had used its open window at the Federal Reserve to borrow $1.2 billion in just over a month.70 Barr began working in Washington to find a way to keep Franklin out of receivership. He knew it would not be simple. The SEC had complicated matters by opening a broad investigation into Franklin’s foreign currency transactions. It was trying to determine if the trades were legitimate, or merely represented the shuffling of assets between Franklin and a Sindona-owned Swiss bank, Amincor, all intended to artificially boost the bank’s balance sheet.71 If the SEC concluded the trading was bogus, the losses reported by Franklin would grow significantly.72

Sindona’s frustration boiled over in an interview with a journalist from Milan’s daily, Corriere della Sera. Declaring that “finance is the passion of my existence,” he lambasted his critics in Italy for having “sought to mount a propaganda campaign that, being unable to formulate specific charges, has given rise to the image of the mystery man, which in the States, certainly is not appreciated.” Sindona had come to realize that the lack of transparency over how he created his great wealth had turned from simple curiosity to more sinister speculation.73

Sindona was desperate for cash. In July, he sold one of his prized Italian banks, Banca Generale de Credito, at a fire-sale price to Roman and Milanese financiers who had been his competitors.74 He wanted instead to merge the profitable SGI with one of his other financial holding companies, Edilcentro Sviluppo, and then use an initial public offering to raise large funds. People would line up to own a piece of SGI. But to Sindona’s dismay, the left-of-center Treasury Minister, Ugo La Malfa, rejected his application.75 In August, he tried cashing out his 50 percent stake in a small Hamburg-based bank, Bankhaus Wolff. Since it would not have had enough capital to stay in business without Sindona’s investment, West German regulators forced it to close, tying up his money in receivership court.76

The failure of Bankhaus Wolff was the first time during Sindona’s travails that the Vatican came up publicly. The West German press reported that the IOR had suffered “substantial financial losses” in the bank’s collapse. The persistent stories prompted a statement from a Vatican spokesman, Father Paul Hashim. He said the IOR had a “very limited interest” in Sindona’s Banca Unione, which had owned the German bank’s shares.77

That September, Sindona was so cash-strapped that he sold his Talcott shares for $5.6 million. They cost him $27 million the previous year.78 It had only been five months after the first cracks had appeared in his business empire, but he was undoubtedly now under broad attack. The first of what would soon be a flood of shareholder lawsuits alleging negligence or mismanagement for the bank’s downturn were filed in the United States. In Italy, the central bank announced it was liquidating Banca Privata Italiana.79 Giorgio Ambrosoli, a corporate lawyer with a reputation for scrupulous honesty, was appointed as the liquidator.80 (Some legal observers thought the thirty-six-year-old Ambrosoli was too inexperienced for such a complex case, but his diligence and smarts soon proved them wrong.) Sindona’s 51 percent stake became worthless overnight.

The liquidation order by the Bank of Italy was also bad news for Marcinkus. He had made substantial IOR investments not only in Banca Privata Italiana but also in the soon-to-be-shut Finabank.81 Marcinkus was a silent partner with Sindona in Liberfinco (Liberian Financial Company), a Finabank subsidiary used almost exclusively for foreign currency trading.82 Both banks had increased their capital in the months leading up to their receivership, allowing Marcinkus to reduce the extent of the church’s exposure by selling some option rights to the new debt.83 Still, Marcinkus knew those failures resulted in the IOR’s biggest ever losses in private company investments. He assigned de Strobel and Mennini to determine the extent of the damage.

By that time, Italian regulators had uncovered evidence that the losses at Sindona’s banks were not just from bad currency speculation but wrong bets on the price of silver, trades executed mostly through his Bahamian and Cayman holding companies.84 Investigators at first pinpointed upward of $200 million in losses, and later settled it at $386 million.85 Separately, Italy’s equivalent of the Securities and Exchange Commission discovered that Sindona had accumulated another $50 million in bad currency trades at SGI.

In mid-September a Milanese magistrate sent Sindona a notification that he was under investigation about whether his financial dealings had broken any laws. The magistrate advised Sindona to retain counsel.86 That news caused great consternation at the IOR and the Ambrosiano since both were heavily intertwined with Sindona’s offshore businesses.87

The flattering press coverage of Sindona’s business acumen had reversed itself. The Banco di Roma’s Barone told reporters, “When you gamble with other people’s money, you have to realize what you were doing.” “I say he’s dead financially,” an anonymous “former associate in Switzerland” told The New York Times. An unidentified “Rome banker” told the same paper, “The empire has collapsed, and there will be business for lawyers over the next 10 years in picking up the pieces.”88

Sindona resigned as a Franklin director on September 22, saying he instead wanted to “devote my attention to my other personal affairs.”89 He hoped his resignation might relieve some of the pressure from federal regulators.90 But it was too little too late. During October, what was left of his empire imploded. On October 3, the FDIC rejected Barr’s eleventh-hour plan to keep Franklin independent, citing the proposal as too costly a bailout.91 Sindona knew it was the end of Franklin. News on both sides of the Atlantic was grim. Six days later, Milanese prosecutors issued an arrest warrant, charging Sindona with falsifying accounts and fraudulent bankruptcy connected with Banca Unione three years earlier.92 The indictment carried a possible fifteen-year sentence.93

The following Monday, the Comptroller of the Currency declared Franklin insolvent, making the $2 billion failure the then largest bankruptcy in U.S. banking history.94 (The next month, in unusually blunt comments, Federal Reserve Chairman Arthur Burns told reporters that when it came to Franklin, the United States and foreign countries had been “sitting on a volcano” and “luck more than anything” averted “a real panic, here and abroad.”)95 The Bank of Italy meanwhile had started liquidating Sindona’s remaining assets and seized what personal property it could find.96 A group of Italian construction firms eventually made the highest bid to buy SGI from the Banco di Roma (later they discovered that bad currency and commodity trades had resulted in nearly $100 million in losses at SGI).97

Within a week, the district attorney’s office in Rome disclosed it was also investigating whether Sindona violated any laws with large contributions to the country’s main political party, the Christian Democrats.98 Sindona told a reporter that “If they tried me, half of Italy, people who matter, would end up in jail.”99

A week after the criminal indictment, the SEC capped off its own five-month investigation by filing fraud charges against nine former directors and officers of Franklin, including Sindona.100 The SEC laid bare in particular how Sindona used Swiss and Liechtenstein holding companies to “manufacture profits” at Franklin while also diverting money from that bank to some of his offshore shells.101

Sindona was on the run by the time of the SEC charges. He had flown to Geneva since he thought Switzerland was less likely to extradite him to Italy to stand trial for white-collar crimes.102 Bordoni and his wife fled to Venezuela, where he used some of the stolen money to buy a $3 million home and citizenship.103 P2’s Licio Gelli called Sindona in Geneva to warn him that the Italians were close to striking a deal with Swiss Interpol for his arrest.104 Sindona left his wife and family and flew to Jamaica with his Swedish-born mistress fifteen years his junior. There he gave her an envelope containing information about some of his secret bank accounts. She flew alone to Buenos Aires, where Licio Gelli awaited her.105 Although Perón had died the past July, his wife, Isabelita, had taken control of the government. Gelli maintained his influence in Buenos Aires and Rome. Sindona hoped that the P2 chief might persuade Italian prosecutors to back off.

Sindona’s next destination was Hong Kong. The British colony did not have an extradition treaty with Italy. The flight from Jamaica to Hong Kong included a stopover in Bangkok. Although Sindona knew the Thais had an extradition treaty with Italy, he expected no problem as his itinerary did not require a change of planes. But his flight landed just before a typhoon shut down Don Mueang International Airport. The grounded passengers had to clear customs, which made Sindona fear arrest. But to his surprise, Interpol and the Italians had not passed along the information. He cleared Thai authorities. He checked into a Hyatt and did not venture outside on the off chance that someone might recognize him from the newspaper coverage, particularly the International Herald Tribune, which had carried his photo. For four days he stayed locked in his room, ordering room service and making a few calls to his family.106 To his great relief, his departure from Bangkok proved as uneventful as his arrival.

Sindona’s family visited once he was safely in Hong Kong. But after a week in the British colony, he was off again, this time to Taiwan. Sindona was friendly with Chiang Kai-shek, the eighty-seven-year-old nationalist ruler of the island nation. Taiwan granted Sindona temporary political asylum and named him a financial advisor to the president.

Although he was insulated against extradition to Italy, Sindona knew he was vulnerable to a U.S. indictment and extradition request. While both Chiang Kai-shek and the British in Hong Kong might ignore Italian requests for Sindona’s return, being so cavalier with the United States would be a different matter. His American lawyers had told him that a federal investigation was under way in New York, and that Italian investigators had met with the U.S. Attorney to share information.

After mulling his options for a month, he told one of his sons, Nino, that he had decided to return to the United States and fight extradition to Italy from there. That December, U.S. customs agents escorted Sindona through John F. Kennedy Airport. He, and his legal team at Mudge, Rose, Guthrie & Alexander, prepared his defense to Italy’s request. Sindona moved back into the Pierre. He later told The New York Times that he had “not one dollar in assets” and that his friends in Italy had sent him money to pay for his suite at the Pierre, Park Avenue office, and Mudge Rose lawyers.107

“America will protect me against Italy because I have always protected the American interest in New York,” Sindona told his son. “I have many friends there. I will win in America.”108

Halfway around the world, Marcinkus was left to handle some of the fallout in Italy from what the Italian press dubbed il crack Sindona (the broken Sindona). It was widely accepted that Sindona and the Vatican did business together, but no one knew fully to what extent. The IOR had a minority interest in most of Sindona’s Swiss and Italian banks, with its largest stake in Banca Unione. Marcinkus had also allowed Sindona to invest several million dollars in foreign currency trades. When the Swiss shuttered Sindona’s Geneva-based Banque de Financement—considered one of the financier’s safest—because of heavy losses in precisely those trades, The New York Times noted that a “sizable block of [the] bank’s stock is reportedly held by the Vatican.”109 The church had a one-third share.

In the wake of Sindona’s collapse, the Italians indulged in a guessing game of how much money the church had lost. Some put it as high as $750 million ($3.9 billion in 2014 dollars). The Vatican said only that it was hurt to a “limited extent.”110 The Pope established a commission of five cardinals to investigate how much damage had been incurred. The commission was in place only a couple of months when one of Italy’s most prominent newsweeklies, Panorama, reported that the cardinals had recommended that Paul VI replace Marcinkus.111 Citing anonymous sources, the magazine said the Pope had met with Marcinkus that September and told him that he would retain his title without power until he was moved to another position.112 It was not true. Marcinkus believed the story was planted by one of his many enemies. He tried to stem any damage by issuing a brief denial the day after Panorama hit the newsstands: “The magazine article is all imagination and fantasy with no foundation in fact. I do not foresee any transfer for me for a long time.”113 He also dismissed reports that the IOR had lost several hundred million dollars in Sindona’s implosion, contending that there were only some “paper losses.”114

In January 1975, the Pope vetoed the church’s proposed annual budget, concluding that the IOR losses had created “a grave burden, too grave a burden for the Holy See to bear.”115 The new budget included severe cutbacks.116

On January 30, Massimo Spada, who had been at the IOR under Nogara and Maillardoz before leaving to work for Sindona, gave an interview to the newsweekly L’Espresso, in which he estimated the Vatican had lost $56 million, or 10 percent of its liquid assets.117 Spada’s guesstimate was given wide credence because he worked with many of his former IOR colleagues on joint ventures for Group Sindona. He added to the public pressure on the Vatican by disclosing that one of the IOR’s top currency experts had developed a fondness for trading the dollar against the lira, and that his new avocation had cost the church about $10 million (Spada did not reveal the name).118 Inside the IOR, even Marcinkus, Mennini, and de Strobel struggled to figure out how much they had lost.119

Sindona wanted the bishop to know that he would not say anything to make matters worse for the church. So he used the press to send a message to Marcinkus. He told Business Week, “I acted morally, ethically, and in the correct way. I’m fighting for the principle and for my family. I want to show my friends that they were right when they placed their trust in me.”120 And he hired Fred Rosen, a New York publicist, to try and reverse the damage to his savaged reputation. He chose Rosen because the publicist was friendly with A. M. Rosenthal, The New York Times executive editor. Sindona naively thought that by hiring Rosen he might favorably influence the paper’s coverage.121 With Rosen’s help, Sindona started a rehabilitation tour in mid-April, with an address to Wharton graduate students titled “The Phantom Petrodollar.”122 It was his first public appearance since Franklin’s collapse and attracted widespread media coverage. He drew some nervous laughter when he was introduced as a “tax expert,” but used his thirty-five-minute speech to emphasize a new theme: what The New York Times called “a ringing defense of the strength of the American economy.”123 Some thought it ironic that Sindona castigated Chase Manhattan, UBS, and Lloyd’s of London for “cooking their books” and “reckless gambling” when it came to foreign exchange trading.124 Wharton was the first in a series of lectures that spring and summer, including among others Harvard, the University of Chicago, Columbia, and UCLA.125 At New York University in June, he condemned government bailouts as destabilizing the national economy, and said it was a mistake “when a country takes on itself the errors of its entrepreneurs.”126 He managed to keep his talks focused on international economics and took no questions about his legal problems.

But instead of mollifying Marcinkus, Sindona’s refusal to keep a low profile as he battled extradition caused considerable dismay.127 The fugitive financier stayed in the news. There were rumors that he had fed information to the Milan district attorney in the hope that the head of the Italian central bank—whom Sindona blamed for liquidating his own banks—might himself be indicted.128 And in April, a seventy-six-count federal indictment charging conspiracy to obstruct justice and fraud among eight of his ex-Franklin colleagues, including his right-hand man, Carlo Bordoni, insured that Sindona would not drop off the front pages anytime soon.129

Many of the stories regurgitated speculation about the extent of the Vatican’s dealings with him as well as raising questions about the size of the church’s business empire. Reports of the city-state’s great wealth caused a drop-off in Peter’s Pence contributions. Paul VI, after reading one newspaper account about the Vatican’s supposed riches, complained that such guesswork was costing the Papacy millions of dollars in donations. Many Catholics thought the church was so well off that it did not need their money.130 Although the Pope, bolstered by Marcinkus, would not broker any suggestion for more transparency of the church’s investments, the Pontiff did dispatch Cardinal Egidio Vagnozzi, the chief of the Prefecture for Economic Affairs, to talk to a small group of hand-selected journalists. Vagnozzi was the spokesman when the Vatican last tried to quell rumors with a 1971 Institutional Investor interview.131

The cardinal emphasized two related themes: that the church was not nearly as wealthy as most people believed, and that the Pope could not survive without the generosity of the faithful. He dismissed reports that the Pope oversaw a $10 billion investment portfolio ($43 billion in 2014 dollars) as “totally untrue.” The Archdiocese of Chicago, he claimed, took in twice as much annual income—$170 million—as the Holy See. As for the Vatican, Vagnozzi said its income came mostly from Peter’s Pence, trusts, last testament gifts from the faithful, and sales of stamps, gasoline, and religious artifacts. Although he claimed not to know the precise size of its investment portfolio, he said it probably contributed “less than 5%” to the church’s annual income. He not only refused any questions about Sindona, but tried to distance the church from the financier by asserting that when it came to investments, “the Vatican as such does not speculate.”132

Vagnozzi reminded the reporters that he was addressing only the finances of the city-state itself, and that he was not speaking for all the congregations and dioceses around the world that managed their own budgets. As for the Holy See, he highlighted escalating costs for the upkeep of Vatican City, increased salaries and pension requirements for an ever-expanding lay component of the Curia, as well as funds needed to maintain diplomatic missions in dozens of countries.133 Overall “the Vatican is rather poor . . . [and] it is only the voluntary help which the Pope receives from the faithful year after year that we manage—not without difficulty—to close the constant deficit in the Vatican’s relatively small budget.”134

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In November 1975, Milan’s public prosecutor and its investigating magistrate visited the U.S. Attorney and the SEC, hoping their American counterparts might expedite Sindona’s extradition.135 They presented evidence they had uncovered no fewer than forty-three Sindona-controlled offshore companies.136 Their visit prompted the financier to launch another round of PR, telling reporters that his “enemies” were Italy’s “leftists” and that his own problems were the result of his vigorous defense of the country’s free enterprise system. “They want to put me in jail and brainwash me,” he said. “They talk to me about suicide as the best thing.”137 Gelli had already assured Sindona that he was marshaling some important public figures in Italy—supporting the theme that the charges against him were a leftist vendetta—to make a personal appeal to the U.S. government to reject the Italian extradition efforts. But Gelli also confided to Sindona that his enemies wanted his head. One of Italy’s most prestigious bankers, Enrico Cuccia, had privately told some colleagues, “Sindona should not only be destroyed, but his ashes scattered to the winds.”138

As Sindona continued proclaiming his innocence from his Manhattan perch, there were signs that American probes into his activities were accelerating. In December, Peter Shaddick, one of the key defendants in the federal indictment of Franklin executives, struck a deal with prosecutors to plead guilty to participating in a scheme that cost the bank more than $30 million. He also agreed to cooperate with the U.S. Attorney in return for a reduced sentence. That prompted speculation that Shaddick was ready to buy his freedom by implicating Sindona. And the slow U.S. response to the Italian extradition request made sense if the New York prosecutors wanted instead to indict and try him in America.139

Calvi saw Sindona’s problems as an opportunity for the Ambrosiano. His bank’s shares at first had suffered because of the perception that the men were close, but they stabilized as details emerged revealing that the Ambrosiano was not damaged by Sindona’s failure.140,III The same month Italian prosecutors visited the U.S. to press for Sindona’s extradition, the Ambrosiano’s board elected Calvi as president (he had effectively been running the bank from his number two position as director). He had by then even received from the President of Italy a distinguished title, Cavaliere del Lavoro (Knight of Labor).142 And the Italian press had “discovered” Calvi, covering him often in the same glowing manner in which they had once treated Sindona.

The general social instability in Italy made Calvi conscious—some say paranoid—about business secrecy and personal security.143 Calvi now ordered scrambler telephones installed in his office and homes so his conversations could not be intercepted, and he had the bank’s executive headquarters swept weekly for listening devices. He installed separate telephone lines to talk with P2 chief Licio Gelli, as well as for another P2 member, attorney Umberto Ortolani, who had become Calvi’s trusted consigliere.144IV His fourth-floor executive suite was separated from the rest of the office with an imposing pair of bombproof doors. Later, at his Rome and Milan apartments, as well as the family’s country house, he deployed multiple alarm systems. He even carried a personal panic button that alerted the bodyguards that patrolled the buildings or the property’s perimeter. And he chose a bulletproof Mercedes as his company car. Calvi’s security bill eventually topped $1 million annually.146

Calvi was now ready to take advantage of his former partner’s downfall: to get all of Sindona’s business with the Vatican for the Ambrosiano. He met with Marcinkus and urged him to protect the church from further losses. He said the IOR’s problems were not the result of bad trades and excessive speculation, but rather matters specific to Sindona: investing too much in America, a country about which he knew too little; spreading his money too thin and acquiring too much debt; and not monitoring his operations carefully enough.

Calvi told Marcinkus that the church’s best option was to obscure its trail of investments and arrange for companies without significant assets to be responsible in case its investments turned sour. This conversation was possibly an inflection point when it came to the IOR’s reliance on so-called men of confidence.

Did the financial losses and public embarrassment over Sindona make Marcinkus skittish about further relying on men like Sindona and Calvi? There is no evidence it did. Marcinkus later said he had “no reason . . . to question [Calvi’s] honesty, integrity,” since he still had “a tremendous reputation . . . was well respected in the banking community . . . [and] was a decent fellow.”147 (Only years later Marcinkus would say that although he had “nothing to apologize for . . . I might be ashamed of one thing, if you want to call it that. Maybe I trusted Calvi, maybe, too much.”148)

Marcinkus was simply too intertwined with Calvi to consider distancing the IOR. Under his tenure thus far at the IOR, the Vatican had loaned tens of millions of dollars to Cisalpine, the Calvi-owned Bahamian bank of which Marcinkus was a director. Marcinkus had already informally given Calvi a three-year extension on the first $45 million due.149 By the close of 1975, the church had active banking relationships with almost a dozen Calvi-controlled shell companies in Panama, the Bahamas, Liechtenstein, Luxembourg, and Switzerland.150 One of the Luxembourg-based shells that had been created with the approval of the IOR, Manic, had borrowed $35 million from Calvi’s Nassau bank.151 When a Swiss banker—at Calvi’s direction—sent the IOR’s Luigi Mennini a copy of Manic’s balance sheet and asked for a written “agreement and ratification of our actions,” Marcinkus ordered Mennini not to respond. The IOR chief instead convinced Calvi to write a letter to the Vatican Bank guaranteeing that Cisalpine “assumed full responsibility, exonerating the Institute from each and every charge and responsibility.”152

In the middle of the year, the IOR bought its first public stake in the Ambrosiano. The Vatican paid $16.8 million, a 30 percent premium to the market, for 4.6 percent of the bank. Marcinkus was acting as a proxy for Calvi, who had promised to eventually buy back the shares from the church at an even higher price.153

For nearly two years, the IOR had earned a tidy profit for running questionable back-to-back operations in which it “loaned” tens of millions in U.S. dollars and Swiss francs to Calvi’s banks and companies to bolster their balance sheets when private and government audits came due. In those instances, the companies passed the financial inspections since they had enormous cash deposits. None of the auditors knew that most of that cash would be wired out of the firm usually the same day the review finished. The money was returned to the IOR, through a maze of offshore banks to mask its trail. For its efforts, the Vatican took a tiny percentage of the total sums moved as a commission, or sometimes made its profit by inflating the exchange rate at which it swapped the currencies.154 Ethics and banking regulations aside, it was easy money for the church. Moreover, Marcinkus was so stung by the financial beating the IOR had suffered in the Sindona debacle that he made a mistake common to many inexperienced investors: he had little patience in recovering the church’s losses. Consequently his appetite for risk was increased. He doubled down with Calvi.155

That decision would prove far more disastrous for the Vatican Bank than any of the fallout from il crack Sindona.


I. Another reason Sindona may have left Italy is that he had lost faith that a strong, pro-capitalist, pro-American government would be in power anytime soon. John McCaffrey, Hambros Bank’s Italian representative and a wartime British espionage agent, was a close Sindona business colleague. In a sworn 1981 statement, McCaffrey said that Sindona had approached him “with his plan for a coup” to install a conservative government and purge all socialist and communist parliamentarians and ministers. “It was clear to me from these conversations with Sindona,” said McCaffrey, “that he was the key to the entire operation.” According to McCaffrey, the coup failed in large part due to “the lack of know-how, courage, and conviction on the part of Italian politicians . . . [and the] lack of courage on the Italian military leaders.”30

II. Sindona did more than just help his friend Paul VI by contributing to political referendums. That same May, a French cardinal, Jean Daniélou, was found dead in the apartment of a twenty-four-year-old nightclub stripper whose husband had a criminal record as a pimp. Police discovered that the cardinal, appointed by Paul VI five years earlier, had about $10,000 in cash on him. The Pope sent a clandestine message to Sindona to ask if his French business contacts might prevent the story from becoming a scandal. Sindona called on banking colleagues who evidently convinced the Parisian detectives that their dossier was best kept secret.37

III. In fact, the Ambrosiano did lose some $9 million in failed Cisalpine loans to a Sindona shell company, but Calvi wisely did not write that off for more than a year, long after the initial fear in the markets over the Sindona fallout had passed.141

IV. Sindona thought Ortolani “was an excellent lawyer, but not much of a banker.” In October 1975, Calvi used Swiss-based United Trading (in which the IOR had a stake), to pay $3.25 million to an account at Geneva’s Union Bank of Switzerland in the name of Ortolani’s daughter-in-law. Calvi also sent another $3 million later that year to an account in the name of Ortolani’s son Piero. Over the next six years, Calvi sent some $250 million to Ortolani-controlled bank accounts. Italian investigators believe that Ortolani served as a conduit to other powerful Italians, even kicking some money back to Calvi and possibly even to the IOR. “If it did, I never saw it,” Marcinkus later declaimed to author John Cornwell.145