The Vatican approached its obligations under the December 2009 Monetary Convention in its typical unhurried manner, in no rush to begin the hard work of qualifying for the white list. The IOR had performed well for decades without outside interference. Few in the church believed that getting the OECD’s formal blessing would make much of a difference in its bottom line. Officials in Brussels, meanwhile, were not accustomed to the slow shuffle. The EU was focused on a promise they had secured during the negotiations: Pope Benedict was to issue a decree by which he acknowledged the church’s willingness to comply with Europe’s money laundering and antiterrorism laws. For several months, EU officials bristled as queries went unanswered or came back with unresponsive information. In the late spring, the IOR and OECD met twice. But according to Jeffrey Owens, the OECD’s director of the Center for Tax Policy and Administration, the discussions were so generic as to be nothing more than a primer about how the church might one day get on the white list. “They know what the standards are,” said Owens. “Do they want to advance the dialogue with the aim of committing to the standards?”1
The EU believed that the Holy See had no incentive to live up to its Monetary Convention obligations, in part since its sweetheart relationship with Italy meant there was little strict enforcement of rules and regulations against IOR accounts held at Italian banks. So in the summer of 2010, Brussels nudged Italy’s central bank to tighten its controls when dealing with the Vatican Bank.
There was soon evidence that the pressure was working. On September 9, the Bank of Italy distributed an internal notice advising Italian banks to more aggressively scrutinize their business with the IOR. The memo emphasized that the Vatican Bank was a non–European Union bank and that it was not on the OECD’s white list.2 Italy had recently ruled that the Vatican itself was a “non-equivalent extracommunitarian country.”3 That meant it was subject to tougher standards.4 It was the clearest sign to date that the incestuous relationship between the Vatican and Italy was ending. Still, the church did not pick up its pace in addressing its duties under its new Monetary Convention. Gotti Tedeschi and his crew did not seem particularly concerned.
They should have been. In mid-September 2010, Italian state television (RAI), citing unnamed “judicial sources,” reported that Gotti Tedeschi and the bank’s director general, Paolo Cipriani, were under investigation in a criminal investigation of possible violations of Italy’s beefed-up 2007 money laundering law.5 Some in the Vatican dismissed the report as baseless. On September 20 Italian prosecutors froze $30 million at an IOR account held at a Rome branch of Credito Artigiano S.p.A. The IOR had wanted to transfer most of that money to J. P. Morgan’s Frankfurt branch, and the rest to the Rome-based Banca del Fucino.6 Credito Artigiano had followed the letter of the law by asking the IOR the identity of the account holder and the reasons for the transfer. The Vatican Bank ignored those requests. That had prompted Credito Artigiano to inform Italy’s central bank that there were “irregularities.”7 The Bank of Italy’s financial intelligence unit in turn tipped off Rome’s prosecutors.I
The day after the $30 million was frozen, all Benedict’s public relations team could muster was to buy some time with a note published in its newspaper, L’Osservatore Romano: “The Holy See, therefore, is perplexed and astonished by the initiative of the Prosecutor of Rome, especially since the information necessary is already available from the relevant offices of the Bank of Italy. . . .” Gotti Tedeschi had been on the job only a year. “The Holy See expresses its maximum confidence in the president and director general of the IOR.”9
Two days later, press spokesman Father Federico Lombardi released a longer statement to the Financial Times. Now he claimed it was all “a misunderstanding” and “could have been clarified with great simplicity.” Lombardi raised eyebrows in Brussels and Rome when he claimed, “The IOR is located within the territory of Vatican City State, beyond the jurisdiction and surveillance of various national banks.” That seemed a throwback to the defense the church employed to avert the service of arrest warrants on Archbishop Marcinkus. But everyone seemed to agree with Lombardi’s conclusion: “The IOR is not a bank in the normal definition of the term.”10
Bank of Italy officials thought the expressions of surprise were feigned. Their pervasive view was that the Vatican had deliberately failed to answer Credito Artigiano’s queries about the $30 million. Maybe, contended some, the IOR wanted to test what would trigger Italy’s enforcement mechanism. “A well-placed Italian official, who asks not to be named,” told the Financial Times, “Perhaps they want to go back to their past special status. But the world is more complicated these days. Perhaps it is just their culture of secrecy. Who knows?”11
The following month Rome prosecutors widened their money laundering probe to include $1.3 million in withdrawals from IOR accounts at two of Italy’s largest banks, UniCredit and Intesa Sanpaolo.12 In a separate case, police arrested six people in Sicily on fraud and money laundering charges. One of them was an Italian priest who helped his father launder $350,000 in European Union grant money for a nonexistent fish farm development through an IOR account. The Vatican Bank distributed the money to a mobster uncle of the cleric.13 It highlighted the fear in Brussels that the IOR accounts held in Italian banks were still easily disguised to hide the flow of illicit cash. “IOR cannot work like this anymore,” an unidentified Italian official told the Financial Times. “People have used the IOR as a screen.”14,II
It had only taken a year for Gotti Tedeschi to find himself in the uncomfortable public spotlight of scandal that had plagued his predecessors. Behind the scenes he worked frenetically to get Italian authorities to release the $30 million. Vatican attorneys had filed emergency motions to free the funds but two judges upheld the seizure, citing the IOR’s failure to adequately explain the money’s provenance.16 Prosecutors provided the judges with additional documentation raising questions about a 2009 IOR transfer under a false name, and a million-dollar withdrawal in 2010 from an Italian bank in which the Vatican refused to provide the cash’s destination.17 The next step for the IOR was to appeal to Italy’s highest court but a decision there might not be quick.
Few knew that Gotti Tedeschi was struggling inside the Vatican Bank. Its records had been in much worse shape than he expected and he was having a tough time getting the Curia to understand what he meant by transparency.18 He decided to use the crisis to push the Vatican into the financial modern age.
Gotti Tedeschi sent a letter to the Paris-based Financial Action Task Force (FATF), the intergovernmental body set up by the G7 to combat terrorist financing and money laundering.19 The FATF was the group whose principles the Vatican had promised in 1996 to emulate in the wake of the Enimont scandal. Gotti Tedeschi now assured the FATF that the IOR was ready to strictly adhere to the group’s standards. That would subject the IOR to peer review by FATF’s European arm, the Committee of Experts on the Evaluation of Anti–Money Laundering Measures and the Financing of Terrorism (Moneyval).20 When Italian prosecutors heard about Gotti Tedeschi’s representations, they thought he was simply trying to burnish the church’s image in the legal battle over the frozen $30 million.21 But European officials were less cynical and sensed that Gotti Tedeschi was sincere. Their only question was whether he was capable of delivering on his promise.
A few weeks later, on October 15, IOR and EU officials met and this time agreed that Pope Benedict would do whatever was necessary to bring the Vatican’s laws in sync with the tough European regulations.22 When an anonymous “senior FATF official familiar with the negotiations” told the Associated Press that Gotti Tedeschi had also personally vouched for the IOR’s willingness to conform to the EU’s strict statutes, it put the Vatican Bank chief into the middle of the church’s long-fought debate about the breadth of its sovereignty.23 Since the restoration of independent statehood through Mussolini’s Lateran Pacts, it was hard to think of a more explosive political issue inside the church. Many clerics had personal memories of the brutal court battles that had gone to Italy’s highest tribunal over the Marcinkus arrest warrants.
Some top financial clerics—such as Archbishop Carlo Maria Viganò, who had become the General Secretary of the Governorate the previous year—thought the crisis so great that the church should withdraw from the euro and mint its own Vatican lira, which would float in value against other currencies.24 Viganò and several others argued that any downside risks for the Vatican launching its own currency were preferable to allowing EU officials—many of whom were entrenched secularists with outright disdain for the church—to enter Vatican City and have unprecedented access to the IOR.
Although many of Viganò’s colleagues were sympathetic to his rallying cry to preserve the bank’s sovereignty at all costs, few thought it feasible.25 If it wanted to develop its own currency, it should have started years earlier. Such a radical response to intense pressure from Brussels might lead other countries to brand the city-state a rogue outlier when it came to money laundering and antiterrorist financing laws.26 American and European banks might stop doing business with it. That would not boost the value of any currency it rolled out. With some significant undercurrent of dismay, Viganò’s proposal to leave the EU failed to get any traction. A handful of the Pope’s closest aides instead began drafting the Papal declaration that the church had promised Brussels.
The result was a remarkable December 30 decree that gave the Vatican its first ever anti–money laundering law, set to go into effect the following April 1.27 “The Prevention and Countering of Illegal Activities in the Area of Monetary and Financial Dealings” was issued as a motu proprio, a document historically signed personally by the Pope. Benedict took full responsibility for the decision. At 501 words it was short by the standards of apostolic letters and Papal decrees. The Pope deemed money laundering and terrorist financing a “phenomena” and referred to the Vatican’s pledge made with the EU in its Monetary Convention the previous December. Most important, he rolled out the Vatican’s first-ever internal oversight and enforcement authority, the Autorità di Informazione Finanziaria, AIF (literally, Financial Information Authority, but the Vatican translates it as the Financial Intelligence Authority).28
Rather than operating as a dicastery run by a cardinal, the five-member AIF—described by Fortune as “the Vatican equivalent of the Securities and Exchange Commission”—had both a religious president and a lay director.29 The Pope gave it expansive powers to investigate all suspicious money activity in every Vatican department connected to money, from the IOR to APSA to the Governorate.30 The AIF would answer only to Benedict, and he emphasized its “full autonomy and independence.” Not only did the AIF have the right to audit all the Vatican’s financial divisions, it had the authority to punish violators with stiff fines (set soon at a limit of €2 million).
APSA’s no-nonsense Cardinal Attilio Nicora was appointed president and Francesco De Pasquale, an attorney with the Bank of Italy and Italy’s Exchange Office, was tapped as its first lay director.31 Three academics filled out the rest of the directors’ seats.32
The same day as Benedict issued his motu proprio, press spokesman Federico Lombardi released a prepared statement noting that “international solidarity” was critical since criminals had become more “ingenious” and “increasingly insidious.”33
That statement was as close as the church would ever come to admitting that its informal financial monitoring in place for decades had been woefully inadequate. “The implementation of the new norms will certainly require great commitment. . . . Those errors which so quickly become the cause of ‘scandal’ for public opinion and the faithful will be avoided. In the final analysis the Church will be more ‘credible’ before the members of the international community, and this is of vital importance for her evangelical mission. . . . This is a good way to conclude the year: with a step towards transparency and credibility!”34
The OECD’s Jeffrey Owens told reporters that establishing AIF was “clearly a step in the right direction.”35 Gianluigi Nuzzi, the author of the 2009 book that precipitated the string of events from Caloia’s exit to the motu proprio, expressed the feelings of many Vaticanologists: “A few years ago, an anti-money-laundering law in the Vatican and the Holy See would have been unthinkable. They used to say, ‘We’re a sovereign state; these are our affairs.’ The important thing is that they created an anti-money-laundering law and an authority to enforce it. Without that, the Vatican Bank will remain an offshore bank.”36
The New York Times best summarized the promise and challenge inherent in Benedict’s historic declaration: “It was also seen as a victory by Benedict over factions in the hierarchy who would prefer to defend the Vatican’s sovereignty, versus those who wanted more openness. But the test will be how the new law is put into practice—especially by the Vatican bank, which has periodically come under sharp scrutiny and is now the target of a money laundering investigation.”37
I. To relieve some of the pressure on the Vatican, an unidentified Bank of Italy official confided to reporters, “This is not another Banco Ambrosiano or Enimont.” But that was not as reassuring as it was intended. Longtime Vatican Bank watchers knew that neither the Banco Ambrosiano nor Enimont scandals seemed so grand when the news first broke.8
II. By coincidence, Jonathan Levy, the plaintiff’s attorney in the Nazi gold class action against the IOR that had been dismissed the previous December, had written two months earlier to the European Central Bank in Frankfurt. Levy raised new questions about whether stolen wartime gold from IOR deposits may have been used to mint gold Vatican euros. Levy told reporters that the Italian money laundering probe into the IOR added to the credibility of survivors’ claims that the bank misused the Croatian gold it received in 1945.15