THROUGHOUT THE DECADE of the 1980s Archbishop Marcinkus and his cohorts within the Instituto per le Opere di Religione (IOR), or as it was universally referred to the Vatican Bank, continued to make money for the Church as they followed Pope John Paul II’s advice and ignored their critics. It was more difficult to ignore the Holy See’s continuing budget deficit. Year in year out, its finances were in the red. This had happened since 1970 and would continue until the early 1990s. Catholic congregations across the world were told that theirs was a Church of the poor, and asked for ever bigger donations. But the real reason for the deficit was Vatican accounting. The rare figures that the Vatican made public were only a partial declaration. Excluded were the annual accounts and profits of the Vatican Bank, and the annual accounts and profits for the Vatican City State budget. The consolidated financial statements of the Holy See listed stocks and shares at purchase price – not market value. The Holy See’s vast real estate investments were deliberately undervalued. This pick-and-mix approach ensured that the Holy See always appeared to be in deficit. In 1985, it was apparently in the red by just under $40 million and in 1990 by over $86 million.
The Vatican’s explanation was invariably the same: ‘. . . the main causes of the projected increases in the deficit are the recent salary increases for the lay employees . . . International market conditions . . . Unforeseen circumstances.’ Nothing had changed since Pope Paul VI had instructed Cardinal Vagnozzi to establish and produce an exact summary of the Vatican’s financial position. Vatican crisis meetings on finance were a regular feature. In 1985 the College of Cardinals met yet again, as the Vatican projected a shortfall for the year of just over $50 million. After the German, American and Italian Cardinals had been subjected to the customary squeeze, this figure had over $10 million shaved from it.
The process was repeated in 1986, reducing the shortfall to $22 million. Still the Vatican three, Marcinkus, Monsignors Pelligrino De Strobel and Luigi Mennini, were ignoring all demands from investigating Italian magistrates to present themselves for questioning. Archbishop Marcinkus declared: ‘Why should I answer their questions? They’re all Communists.’ He continued to divide his time between the Palace in his capacity as Deputy Governor and the Bank. Out of working hours he kept a lower profile than in former days.
In November 1986, Cardinal Joseph Höffner of Cologne demanded that Marcinkus be replaced by a non-clerical President. Cardinal John Krol of Philadelphia raised publicly a proposal for the Vatican Bank to be subjected to an annual audit by a company of international stature. The majority of the other cardinals, even the Vatican Governor Cardinal Sebastiano Baggio, complained about having a Bank president who was so mired in scandal and the constant threat of arrest that he was of little use. Most of the fifteen cardinals on the Vatican Financial Commission created in 1981 concurred with Höffner and Krol yet still nothing could be done without the Pope’s approval and that was not forthcoming.
On 11 February 1987, in a charming little ceremony Archbishop Marcinkus handed the Pope a gold medal to celebrate the centenary of the Vatican Bank and in a not too subtle nudge the Pope also received a cheque for $150 million, representing eighty per cent of his bank’s profits for the past year.
Part of those profits had been derived from administering the huge sums in dollars and gold deposited in the Vatican Bank by the Philippine dictator, Ferdinand Marcos. Handwritten notes by Marcos, made while swearing a deposition in Hawaii, confirm the details and reveal that the Holy See and specifically Pope John Paul II were trustees for the Marcos estate. They did not explain why the Pope or his bank regarded the estate, looted over decades from the people of the Philippines, as a religious foundation.
By early 1987 Marcinkus had taken up permanent residence within the Vatican, after being tipped off by Italian Minister for Foreign affairs Giulio Andreotti that an arrest warrant for the Vatican three was about to be issued by the Milan Public Prosecutor’s Office. Andreotti, a devout Roman Catholic, had no intention of watching the public arrest of the Archbishop bring further shame on the Church. When the police made a dawn raid on the Marcinkus home at Villa Stritch, the Archbishop had already taken up lodgings across the Tiber. The arrest warrants charged the three men with complicity in a fraudulent bankruptcy and accused the trio of acting for personal gain. This enabled the Pope and his advisors to declare that the accused had acted without the knowledge of those in authority above them. The Secretary of State Casaroli saw the warrants as an attempt to breach the Lateran Treaty that governed the relationship between the two states.
During the following month, March 1987, the Vatican’s representative in the United States, the Pro-Nuncio Archbishop Pio Laghi, held a meeting with his opposite number in Rome, Ambassador Frank Shakespeare. It had been less than a year since the Ambassador had replaced William Wilson who had been obliged to resign after several scandalous episodes. According to a confidential cable from the American Embassy in Rome on 16 March 1987 Laghi and Shakespeare identified five major issues that should feature in President Reagan’s forthcoming meeting with the Pope.
‘First, and most important, was the question: What is Gorbachev? Second: Central America, especially Nicaragua. Third: the Middle East and the constellation of problems in that area. Fourth: the Philippines, and finally Poland.’ An additional subject, ‘Vatican Finances’, appears to have occupied their meeting for the majority of the time available.
According to the Archbishop: “Two thirds of the Vatican is self-supporting . . . Both St Peter’s itself and the State of Vatican City operate in the black . . . The other third which maintains the Curia, L’Osservatore Romano and Radio Vatican is deeply in deficit.’ But Archbishop Laghi noted that ‘even here it is L’Osservatore and Radio Vatican that account for most of the red ink.’ It transpired that Laghi then recommended that the Vatican make most of its budget publicly known, ‘like any other government . . . This would improve the Vatican’s chances for additional funding from the Churches around the world, while protecting the rights of the bank’s depositors.’ The Archbishop did not mention that those depositors included five Mafia families still laundering their profits from illegal narcotics trade, extortion, protection, racketeering, prostitution; every Italian political party, still using secret accounts as slush funds; and members of organised crime organisations from the United States, Canada, the United Kingdom, Colombia and Venezuela.
At much the same time, Vatican finances were the subject of an acrimonious luncheon in the papal apartments with the 15 Cardinals appointed to the Church’s financial commission. Cardinal Gerald Carter of Toronto told Karol Wojtyla that it was morally indefensible to buy computers and pay Vatican salaries by diverting Peter’s Pence, which is given by the faithful to help the poor. ‘Using that money which is yours to use as you see fit, Holy Father, to prop up Vatican finances is wrong. No way to run a budget.’ Cardinal Krol, a man particularly close to the Pope, weighed in: ‘APSA (Administration of the Patrimony of the Holy See) is under-performing. An income of $15 million or so on investments of $200 million does not stack up.’ Krol and Cardinal O’Conner of New York and some others thought the solution lay in persuading an elite group of wealthy Catholics to fund a foundation that would send its yearly profits as a further additional income for the Pope. Carter and another group were opposed to the plan. ‘It will buy patronage and give too much power to a small group of people.’
The more the Pope listened the more impatient he became. He saw himself as a universal pastor not as Chairman of the Board. In reality he was both. The cardinals complained of the battle against Vatican secrecy and deplored the fact that it had taken more than five years to get even the beginning of more open accounting. They expressed bitterness of the fact that even they, the duly appointed Financial Commission, were denied even a fragment of information from the Vatican Bank. They could not ascertain how much of the bank’s annual profits were going each year from Archbishop Paul Marcinkus to the Pope.
Throughout the Vatican’s finances there were curious, inexplicable practices. The Vatican Workers’ Union believed that the Vatican was investing wisely for their retirement pensions. It would be 1993 before a properly administered pension fund was created. Over $500 million in gold assets sat in the Federal Reserve Bank of New York instead of being put to work in investment portfolios with an annual return. Vatican property worth billions of dollars had a book valuation of $100 million. The Vatican’s many embassies and residences scattered around the world were not included as assets.
In 1987 Cardinal Casaroli was supervising the rewriting of rules to limit the Vatican Bank’s financial activities with secular banks across the Tiber. But this would do nothing to remedy the Vatican’s paranoid financial secrecy or its grossly inefficient business strategies. Not only the Vatican Bank but the entire Vatican financial government needed radical overhaul. ‘I may be a lousy banker but at least I’m not in prison,’ Marcinkus would boast to callers’ enquiries. Being a fugitive from arrest appeared to sit easily on his conscience. On 17 July 1987, the Italian Court of Cassation decided that the Italian Courts’ criminal process under the existing Lateran Treaty had no jurisdiction over Vatican citizens. The Milan prosecuting magistrates immediately appealed the decision and for a further twelve months the Vatican three remained firmly as guests of the Pope. Finally, on 6 June 1988, the Supreme Court in Rome confirmed that, guilty or not, Italy could not compel citizens of the Vatican to face the Italian judicial process. Three principal actors in the theft of $1.3 billion now had official confirmation that they had got away with it.
With the threat of arrests and further disgrace for Vatican residents removed, Cardinal Casaroli could finally speed up his protracted negotiations with the Italian government over the revised Lateran Treaty. The Secretary of State was at long last finally handed the means to prise Marcinkus out of the Vatican Bank. He contacted five laymen whom he regarded as uomini di fiducia – men of trust – an Italian, a Swiss, an American, a German and a Spaniard, with decades of experience in international banking. The Italian, Professor Angelo Caloia, was elected President of the IOR to replace Archbishop Marcinkus. The five had previously advised Casaroli they would not come in until Marcinkus had been removed.
The Pope appointed five cardinals as a Commission to ensure that the lay experts did not breach any of the new statutes concerning governance of the bank. Acting as liaison between the bankers and the cardinals was a relic from the Marcinkus days, the IOR Secretary, Monsignor Donato de Bonis who had survived against formidable odds: Pope John Paul I had wanted him out of the Bank in September 1978; the Milan magistrates had withdrawn his passport along with Mennini’s and De Strobel’s, yet he avoided arrest and astonishingly slipped through the reforming purge unscathed, although without any power or authority.
This brave new world of IOR banking got off to a less than glorious start. The new board had its inaugural meeting in June 1989, yet Marcinkus had not yet left. Part of the delay was caused because the Pope wanted to promote Marcinkus from his post as Deputy Governor of Vatican City to Governor. For Marcinkus the promotion would carry with it a Cardinal’s hat and immunity from arrest. The transition would be rocky. Secretary of State Casaroli, amongst a group who had never accepted Marcinkus for no other reason than that he was an overbearing American, marshalled his allies. This final chance to put the knife into Marcinkus was too good an opportunity to pass. In December 1990 Marcinkus officially resigned as acting Governor and announced that he would not be returning to his roots in Chicago but would instead seek the warmer climes of Phoenix, Arizona. ‘After forty years in Rome, your blood thins out.’
There was a second reason for the difficulty within the Commission. Since their injection of millions to bail out the bank after the Ambrosiano débâcle, Opus Dei kept an ever-closer watch on events within the Vatican Bank. Of the five banking experts at least three were described as ‘close to’ Opus Dei: Angelo Caloia, the new Vatican Bank President, the Spanish-banker Sanchez Asiains and the Swiss banker Philippe de Weck. Among the five supervising cardinals, Opus Dei was represented by his Eminence Eduardo Martinez Somalo.
Under the statutes of the bank, which have never been made public, the account holders must be members of religious organisations recognised as such by the Vatican. There are also ethical criteria regarding share dealing, which is confined to State bonds and the bonds of major industrial companies. Investments are to be made only in triple-A companies. The Bank at this time also retained a 2.1 per cent share of the capital of the successor of Banco Ambrosiano, the Ambrovento.
In 1990 in one of Italy’s weddings of the year, Carlo Sama, managing director of the chemical giant Montedison, married one of the owners, Alessandra Ferruzzi. Young, beautiful and very determined, Alessandra was the daughter of Serafino Ferruzzi, the patriarch who built a multi-billion-dollar business in the grain and cereal industry. After Serafino’s death in an aeroplane crash in 1979 the business was controlled by his son-in-law Raul Gardini, Alessandra, her brother and two sisters. By the time of the 1990 wedding, the Ferruzzi business group were second only to the Agnelli dynasty of Fiat in the list of the hyper-rich clans. Sales of grain and sugar and starch-based produce were estimated at $12 billion per year.
Three years earlier in 1987 the group had stunned the Italian business community by seizing control of Montedison, the chemical and pharmaceutical conglomerate. The takeover, which had involved a $2 billion buyout, had been far from friendly, with the Montedison management publicly hostile and critically questioning how the two giants could possibly create synergy. Gardini’s plans included an imaginative use of Ferruzzi’s starch, grain and seeds as the biodegradable feedstocks for Montedison’s paper, pharmaceuticals and plastics. One of his schemes called for a $1 billion investment to produce ethanol, a natural petrol additive, from grain.
The Italian politicians of the day were equally sceptical and hostile to the takeover and they were able to put very serious obstacles in the way. Thanks to bribes, slush funds, kickbacks and sweeteners, the opposition melted away and the takeover proceeded. Then in 1988 Raul Gardini master minded an even more spectacular coup, a merger with ENI, the Italian state energy and chemicals giant. Gardini and the Ferruzzis used the merger to create ENIMONT, a global company. Again there was resistance to the partnership. Again huge kickbacks and bribes were handed out.
Between 1988 and 1993 Montedison was simultaneously concealing losses and hiding bribes. The losses were at least $398 million, bribes at least a further $300 million. Serafino the patriarch had once memorably observed, ‘Someone should make a monument in honour of debt.’ The company that he had created was to become precisely that. By the end of 1990 Raul Gardini and his colleagues at Montedison were in desperate need of a money laundry. The relationship with ENI had gone very sour but Gardini and ENI chief executive Gabriel Cagliari had nonetheless agreed that ENI should buy the forty per cent of ENIMONT owned by Montedison. The two men loathed each other but they now co-operated in a deal which involved paying out bribes in excess of $100 million. It would become known in Italy as ‘the mother of all bribes’.
It was agreed that Cagliari would buy back the forty per cent holding for $2.5 billion, a sum vastly in excess of its real value. To ensure a safe passage and a satisfactory conclusion to the deal bribes were made to at least two former Prime Ministers, every major political party, bankers, civil servants, financiers, executives, lawyers, upper men, middle men, lower men and as always a kickback to the laundry.
Carlo Sama had friends and contacts in a wide variety of places. One of them, Luigi Bisignani, was responsible for ensuring that the 1990 wedding had been officiated by Monsignor Donato De Bonis, the only Vatican Bank senior employee to survive the Marcinkus era. Bisignani was a man of many parts: thriller writer, editor-in-chief at the news agency ANSA, friend and confidant of Giulio Andreotti and his wing of the Christian Democrats, a good friend of the recently departed Marcinkus and many other senior members of the Vatican. Bisignani also found time to exploit his old membership of P2 and his continuing close relationships with Licio Gelli and Umberto Ortolani and to launder millions of dollars through the Vatican Bank on behalf of some of his friends. When Sama indicated that he would appreciate an account at the Vatican Bank, Bisignani yet again obliged. The method involved converting the money into Italian Government Treasury Bonds that were washed through his various accounts within the IOR. One such transaction in the supposedly corruption-free post-Marcinkus era occurred on 13 December 1990 for $2.5 million in Italian Treasury Bonds, part of the kickback being paid to Domenico Bonifaci, a property developer, to ease the ENIMONT deal.
In 1991 Carlo Sama along with his wife Alessandra and a financier, Sergio Cusani, went to the Vatican Bank where waiting for them was the man who had married Carlo and Alessandra, Monsignor Donato de Bonis. Luigi Bisignani was also on hand to ensure that all of his mutual friends were at ease. The couple that the Monsignor had wed now wanted to open a deposit account on behalf of a religious foundation. Its name, in honour of the founder of the Ferruzzi empire, was to be St Serafino. Between 1991 and mid-1992 over $100 million was banked in this account. None of it found its way to the followers of the nineteenth-century Russian saint. It went instead to three foreign accounts, two in Switzerland and one in Luxembourg, where the money was converted into Italian Treasury Bonds. The ever-busy Luigi Bisignani became an even more frequent visitor to the Bank as he hurried in with the numbers of the foreign accounts. He was well rewarded for his work as postman with some four billion lire ($2.3 million) in Treasury Bonds.
When the storm eventually broke, at the first attempt Bisignani avoided arrest because the warrant was deemed to be ‘legally flawed’ by the Court of Cassation. By the time that this had been remedied the ‘postman’ had taken holiday leave abroad ‘for health reasons’. Carlo Sama had also been handsomely remunerated by two to three billion lire – $1.7 million. The leaders of all wings of the Christian Democrats, the Socialist Party including former Prime Minister Craxi, the Banco Commerciale President, Enrico Braggiotti, politicians of every hue, industrialists, journalists, bankers, brokers were implicated. Before the Milan trial had commenced Braggiotti left for Monaco where he has remained a Monegasque national.
The only religious organisation to derive direct financial benefit was the Vatican Bank. There were ‘conversion charges’ and there were the ‘agreed percentages’ which are ‘withheld by the institution (the bank) for “charity works” ’. Cardinal Rosario Castillo Lara, head of the Commission, considered that the Vatican had been ‘used for an instrumental operation, the purpose of which we were unaware of’. He denied that the bank asked the devout three who had created the San Serafino account for thirteen per cent commission as was widely believed to be the case. That commission would have amounted to some ten billion lire, approximately $7 million.
Refuting that allegation, the cardinal said, ‘It would be absurd that in order to exchange stock (government bonds) a commission of thirteen per cent was paid. They could have made that exchange anywhere else, without that kind of cost.’ Which is true if they had not needed to launder over one hundred million dollars offshore in an independent country, on the other side of the Tiber.
Public exposure of the mother of all bribes came in the midst of the ‘clean hands’ campaign by a group of very courageous investigating magistrates led by Antonio Di Pietro. The scams and the corruption ranged far and wide. Every walk of life, every form of Italian business had, it seemed, been contaminated by the culture of bribes. The ENIMONT scandal was but one of a large number but it rapidly became apparent that it was special both in its size and the range of people who had profited. Eventually 127 people were charged but the man who had been called ‘Monsignor Montedison’ on both sides of the Tiber, Donato De Bonis, continued to work in the Vatican Bank until 25 March 1992. By that date the Italian media had become as cynical about the protests of innocence from the Vatican officials as they had been during the Banco Ambrosiano scandal. The only one to walk free from the trial absolved of all charges was Alessandra. Her husband, Carlo, was sentenced to four and a half years. His good friend, Luigi Bisignani, was sentenced to five years’ imprisonment.
In March 1992 De Bonis was quietly removed. He reappeared on Sunday, 24 April the following year in the Church of Santa Maria della Fiducia as a newly ordained bishop, to receive what several Vatican sources have described as ‘his just reward for accepting the role of scapegoat in the ENIMONT scandal’. De Bonis’s sermon drew from the bishops and cardinals present sustained applause for Giulio Andreotti who was in the congregation. De Bonis praised Andreotti for saving the Vatican Bank from total disaster ‘in the dark days that had followed the Ambrosiano-Calvi scandal’. No one mentioned the role played by De Bonis in that scandal or in the mother of all bribes.
However, the aftermath of the mother of all bribes brought a refreshing change in the Vatican Bank. Its first lay President, Angelo Caloia, and his colleagues agreed to co-operate with the Italian investigating magistrates. But Caloia also decreed the line on the San Serafino affair which the cardinals dutifully followed: the Vatican Bank had been the innocent dupe in ‘a technical operation’. Di Pietro and his fellow judges, relieved to get any co-operation from the Vatican, refrained from asking the new expert directors why the Bank had failed to carry out even the most basic checks on the San Serafino foundation.
The Vatican never returned any of the $7 million ‘donation’ it received from the foundation. Indeed only a tiny percentage of the $100 million it laundered was ever recovered. The rest remained with a wide variety of corrupt Italian citizens. Sergio Cusani, one of the three devout account holders, served four years in prison. The two men who had put together the corrupt ENIMONT deal both killed themselves. Cagliari suffocated himself with a plastic bag and three days later Gardini shot himself. The note that was found near his body had one word on it: ‘Grazie’. The principal actors in the ‘wedding of the year’, Alessandra and Carlo Sama, surface from time to time in the society pages sinking the occasional yacht or hosting yet another lavish party.
Although the Vatican Bank was doing well from money laundering and black money, Cardinal Edmund Casimir Szoka of Detroit, the new President of the Prefecture for the Economic Affairs of the Holy See, found a more traditional and legal solution to the eternal problem of acquiring more money for the Roman Catholic Church. He invoked Canon Law 1271 from the code of laws governing the Roman Catholic Church first published in 1983, ‘Bishops are to join together to produce those means which the Apostolic See may from time to time need to exercise properly its service to the universal Church.’ To make sure that his audience of Cardinals got the message Szoka also quoted Canon Law 1260: ‘The Church has the inherent right to acquire from the faithful whatever is necessary for its proper objectives.’
He also revealed that the anticipated deficit for 1991 was $90 million. It was to be the last year in that decade that the Vatican books would finish so deeply in the red. Szoka brought in computers and other essential technology and cut administration expenses wherever he could, but his greatest single contribution to Vatican finances were increased donations from dioceses. Between 1990 and 2000 this source of income more than tripled to $22 million per year. Added to that was Vatican access to the extraordinary annual income of the German Church from the state and (after 1993) that of the Italian Church.
The scale of overseas annual donations to the Holy See is not widely appreciated by local Roman Catholics. Peter’s Pence, the annual collection that goes directly to the Pope, and plebeian items such as sales of Vatican stamps are no secret but the Holy See remains reluctant to reveal exactly how much it receives from its foreign cash cows.
An ingenious renegotiation by Cardinal Casaroli of the Lateran Treaty in the 1980s was particularly beneficial. Instead of the Italian Finance Ministry paying direct contributions to maintain the Italian dioceses, a system was introduced to allow Italian taxpayers to elect on their tax returns which religion/charity should receive eight lire for every 1,000 lire of tax that they were paying. During the next three years while the Italian Government carefully monitored returns, the annual payments were held at the 1989 figure of 406 billion lire (approximately $320 million or £246 million). Then the jackpot began to roll in from Italian taxpayers. For the year 2000, the Roman Catholic Church in Italy received 1,500 billion lire, approximately $750 million or nearly £500 million. In the same year, the money that went to the German Roman Catholic Church from the German taxpayers’ similar system was 9.1 billion Deutschmarks or $4.5 billion dollars or £3 billion.
In January 1992 the Vatican began to sell off some of the gold it had hoarded since before the Second World War; gold acquired by the creator of Vatican Incorporated, Bernardino Nogara. Unfortunately, Cardinal Szoka demonstrated that, while his grasp of Canon Law was excellent, he had something to learn about gold markets. He sold when the market was low and held stock when the market was high.
It was such ineptitude which provoked the laymen running the Vatican Bank to organise a Vatican conference on business techniques and ethics in 1992. The Vatican wise man from Spain, José Sanchez Asiains gained great kudos by persuading the current star of Spanish banking Mario Conde, president of Banco Español de Credito (Banesto) to come and lecture. He received a standing ovation. The following year his reception in Madrid was somewhat less effusive when he was arrested after a deficit of over £3.5 billion (approximately $5.1 billion) was discovered at his Banesto Bank. As El Pais observed at the time, ‘Mario Conde has beaten many records, two of them very difficult to better in the future. He was the youngest man to become President of a Spanish bank and he has been the youngest to leave it.’ Conde was sentenced to ten years’ imprisonment.
However, Conde’s lecture was not the only link between the Vatican and the Banesto crash. The common thread between them, and the Ferruzzi and Montedison débâcles, also joins the Vatican to a much greater disaster – the fall of BCCI. In an attempt to salvage the international reputation of the Vatican Bank, Philippe De Weck and his fellow expert directors appointed outside auditors. They claimed that this would be the first step towards complete banking transparency. De Weck was insistent that the company chosen should be non-Italian and have a faultless reputation. The company chosen was Revisuisse of Zurich, part of Price Waterhouse. For two years, in De Weck’s words,
‘they controlled everything, as we wanted to obtain the certification given to the main banks world-wide, based on international standards. The balance sheets in 1995 and 1996 were certified by Price Waterhouse, in accordance with the hallowed expression, “fair and true-international standards”. That was a gigantic task. Now the IOR can see its profits progressing from year to year and from now on it is a certified bank.’
By any criteria the choice of Price Waterhouse as auditors was bizarre. During the 1980s Price Waterhouse was one of the then Big Eight accountancy firms in the world. One of their most lucrative contracts was with the Bank of Credit and Commerce International (BCCI). Price Waterhouse did the accounts for the Grand Cayman division of BCCI from its inception in 1975, and in 1986 they assumed responsibility for the audit of the entire BCCI international infrastructure. They continued to sign off the annual accounts based upon seriously inadequate records as being ‘true and fair’. A United States Senate Committee on Foreign Relations investigation into the BCCI concluded: ‘BCCI’s accountants failed to protect BCCI’s innocent depositors and creditors from the consequences of poor practices at the Bank of which the auditors were aware for years.’
The Senate Committee also established that
‘BCCI’s criminality included fraud by BCCI and BCCI customers involving billions of dollars; money laundering in Europe, Africa, Asia and the Americas; BCCI’s bribery of officials in most of those locations; support of terrorism, arms trafficking, and the sale of nuclear technologies; management of prostitution; the commission and facilitation of income tax evasion, smuggling, and illegal immigration; illicit purchases of banks and real estate; and a panoply of financial crimes limited only by the imagination of its officers and customers.’
Price Waterhouse had deliberately failed to protect innocent depositors and creditors, but suppressing the knowledge they had of ‘gross irregularities’ allowed BCCI’s criminality to continue. The crash, when it came in 1991, revealed the biggest bank fraud in world history. $13 billion had vanished. Creditors subsequently brought an action against both Price Waterhouse and Ernst and Young who had audited part of BCCI until 1987. The sum claimed was $11 billion. The accountancy firms eventually settled out of court.
At exactly the time that the auditors of Price Waterhouse were being ushered into the Vatican they were also being sued by Montedison for negligence and failure to provide adequate controls over the company’s accounts during a ten-year period from 1983 to 1992. Two months after that action began Ferruzzi also launched a similar suit against Price Waterhouse. Their joint action outlined a catalogue of accounting malpractices that included an irrecoverable credit of $261 million to a company in the British Virgin Islands, recognition of revenues of $146 million on nonexistent sales and huge undocumented payments to offshore companies, supposedly for consulting work. The combined claims for over $1 billion were eventually settled by Price Waterhouse in 1996 when they paid out $33.68 million.
The accountants acting for the Banesto Bank in Spain at the time of discovery of a £3.5 billion/$5.1 billion hole were Price Waterhouse. The Banesto affair like the other cases involving Price Waterhouse raised at the highest level the most serious questions about their performance as auditors, and about the ability of any auditors to detect major financial crime. Only four months before the discovery of not so much a hole as a chasm, Banesto had successfully completed the first two parts of the biggest share issue in Spanish banking history for 130,000 million pesetas. The issue had been made with the approval of the Central Bank of Spain and with a share document and recent annual accounts sanctioned by Price Waterhouse. In essence the auditors approved accounts which were not an accurate reflection of the net worth of the bank. Less than six months after these unqualified accounts had influenced millions of small investors to buy Banesto shares, the discovery of the multi-million-dollar hole demonstrated an over-valuation of the assets of astronomical proportions.
In early 1994 Price Waterhouse found itself yet again being sued for negligence, this time by the association that had been created to protect the small shareholders. A Spanish Parliamentary Commission unanimously concluded that Price Waterhouse’s audit report on Banesto’s 1992 accounts masked the bank’s underlying position.
It remains a mystery why the cardinals and the wise laymen on the Vatican Bank Commission appointed auditors with this track record. Meanwhile, under the noses of Price Waterhouse, the Mafia continued to launder its profits from the illegal narcotics industry through the Vatican Bank and rich and powerful members of Italian society continued to use it for tax evasion and hiding illegal profits.
While Price Waterhouse got down to controlling the entire Vatican Bank operation, Cardinal Szoka and his colleagues pressed on with their attempts to increase both income and donations. While the dioceses were being asked for more and more donations each year, the Pope also looked closer to home. He created an Italian equivalent of the American Papal Foundation, an organisation of rich and successful Catholics who had been persuaded to contribute to the economic needs of the Holy See. In its first year, 1993, the Italian foundation brought in five billion lire ($3 million).
Yet some within the Church were uneasy. Many bishops agreed with the chairman of the German Bishops’ Conference, Bishop Karl Lehmann, when he urged the need for complete transparency and for independent controls not just on the Vatican Bank but the entire Holy See spending programmes. He suspected that the lack of budgetary transparency hid black money, particularly among those congregations whose financial status remained a closely guarded secret.
Thanks largely to the generosity of the global Catholic population, the Vatican went into the black in 1993. After twenty-three years of deficits, the Vatican balance sheet in summer 1994 showed a modest working surplus of £1 million or $1.5 million. Cardinal Szoka described the document as ‘the first consolidated balance sheet in the history of the financial institution of the Papal State, including all the Vatican organisations and companies’.
It fell a long way short of that, but in view of the fact that the Vatican had never published any accounts at all until 1985 it represented a step towards the much talked-about ‘total transparency’. Missing from the figures were the total for ‘Peter’s Pence’ or any revenues from the Vatican City State, including income from the Vatican Museum and stamp sales. The so-called ‘consolidated balance sheet’ contained not one single reference to the IOR – the Vatican Bank.
The Vatican stayed in the black for the rest of the decade, mainly because of the new annual income from the Italian state. After being frozen for three years at the 1989 figure of 406 billion lire, it all but quadrupled to 1,500 billion lire in 2000, close to half a billion pounds sterling or in excess of three quarters of a billion US dollars. The new income was not accompanied by any greater accountability to the Italian taxpayers who provided it. The Vatican continued to withhold the profits and assets of the IOR and even the Statutes which defined the criteria for permitted investment and account holders. They maintained that the religious nature of both the holders and their intended use of their money must be ‘paramount’.
The President of the Board of Directors was obliged to oversee the documentation personally and vet every prospective new client. In turn his Supervisory Commission was overseen by a five-man Council of Cardinals and the auditors Price Waterhouse. In theory it was a watertight structure that ensured a total elimination of even one dubious account. However, it did not prevent the bogus San Serafino foundation, nor the money laundering activities of Luigi Bisignani. Neither did criminal activity cease with the arrival of the men and women from Price Waterhouse in 1993/94.
In 1994 Antonio Di Luca disappeared from his hotel room in San Diego. No trace of Di Luca has ever been found. In his hotel room he had left a number of documents relating to a real estate transaction worth $342 million. Among the documents were records that established the money had been deposited in the Vatican Bank. Among Di Luca’s papers was a note with the names of five men: four were either Mafiosi or men linked to organised crime activities; the fifth name was Alfonso Gagliano.
The Sicilian-born Gagliano has been for decades a powerful figure in the ruling Canadian Liberal Party. As Minister of Works in the years 1997 to 2002 there were constant allegations from opposition MPs and the media that Gagliano had behaved corruptly in the granting of lucrative government contracts.
Prime Minister Jean Chrétien moved Gagliano from his ministerial post at precisely the time when he was due to face hostile questioning on the various allegations from opposition MPs. Gagliano was posted to Denmark as Canadian Ambassador. Outraged MPs protested. Apart from allegations of political graft and corruption there had also been accusations that Gagliano had strong Mafia links which Gagliano has always denied. In mid-2003 the Canadian Prime Minister was obliged to cancel his plans to send Gagliano to Italy as Canada’s Ambassador to the Vatican as the Vatican had objected to the posting.
A Vatican Bank ‘religious foundation’ was used in 1995 for laundering $100 million. It featured in what became known as ‘the cheque to cheque’ investigation. In November 1995 Italian prosecutors asked Spain for permission to interrogate Cardinal Carles, an Opus Dei favourite and close friend of the Pope’s who was frequently tipped as his successor. They wanted to investigate whether the account was in Carles’s name or controlled by him and whether he had guaranteed the recycling of $100 million through the Bank. The money was destined for a Swiss businessman, as part of the proceeds from illicit trading of arms, precious stones and radioactive material. Arrest warrants were issued for thirty-six people and a further thirty-one were advised they were under investigation.
Cardinal Carles refused to respond to the Italian summons and to all subsequent requests to make himself available for questioning. Carles, politically to the far right, uttered what could be called the Sindona defence, that it was all a plot by the enemies of Liberty against the Church: ‘These attacks have in the past been levelled at particular Cardinals and have been subsequently found to be false. Now it’s my turn.’ Fellow Opus Dei member, the Vatican’s spokesman Navarro-Valls, issued a statement declaring that ‘. . . no relations exist between the Cardinal, the IOR and the people mentioned in the Naples investigation.’ The Spanish Justice Department also weighed in on behalf of the Cardinal, dismissing the allegations.
In June 1996 what had appeared to be a closed investigation erupted. In Italy twenty people were arrested and a further ten were sought on international warrants. The investigating magistrate yet again declared his belief that the Archbishop of Barcelona had assisted in the laundering of at least $100 million through the Vatican Bank. Karol Wojtyla, concerned that a close friend and Opus Dei favourite for the Papal succession was on the brink of disaster, summoned Cardinal Carles to Rome and had a private meeting of nearly one hour with him. Subsequently Wojtyla promoted Carles to the governing board of the Holy See’s Prefecture for Economic Affairs headed by Cardinal Szoka. Under the terms of the Lateran Treaty between the Vatican and Italy, cardinals are immune from arrest. Eventually prosecutor Ormanni was forced to abandon this part of his investigation.
Martin Frankel was a serial fantasist who developed an early obsession with Wall Street. His first job was at the Toledo, Ohio, branch of the New York brokerage firm, Dominick and Dominick. He was fired in 1987 by head of the branch, John Schulte, for ‘failing to produce’, but not before he entered a long-term relationship with Sonia Schulte, his boss’s wife. Frankel left Toledo, hired a bodyguard/security man, David Rosse, and began to invest increasingly in security equipment. Then in the late 1980s he ran a money management firm, boasting of exotic clients such as the former King of Yugoslavia and a former queen of Romania. Some of his real clients noticed significant shrinkage in their investments and brought a series of legal actions against the ‘Frankel Fund’. The Securities and Exchange Commission froze the company’s assets and imposed a lifetime ban on Frankel dealing in securities.
Undeterred, Frankel moved on to greener pastures and greener people. He took to saying that his name was Eric Stevens and went into business with Tennessee bank executive John Hackney. Frankel began to target struggling insurance companies, which were state-regulated and not policed by the SEC. Their funds were therefore vulnerable to embezzlement. Hackney acquired the insurance companies on behalf of ‘Stevens’ and was paid a salary for managing them. They created a company called Thunor Trust and their first acquisition was the Tennessee company, Franklin American Corp. Frankel’s name does not appear on the acquisition documents but among those that do is Sonia Schulte. Within one month of acquisition of Franklin, he had wired the entire assets of the associated insurance company, the Franklin American Life Insurance Company, some $17.5 million, via a series of money transfers to his account at Banque SCS Alliance in Switzerland.
Between 1993 and 1999 Frankel through Thunor, his front company, acquired eight further insurance companies, including some based in Mississippi, Oklahoma, Arkansas and Missouri, and stole all their assets. With false statements and false declarations Frankel, Hackney and an increasing number of friends and associates duped the state regulatory bodies and stole over $200 million. Some of the funds went to acquire yet more insurance companies; some went to set up Frankel’s increasingly bizarre life-style; more went as kickbacks to those who were in on the scam. On paper all of the insurance companies were thriving.
Soon after he got his hands on that first $17.5 million, Frankel bought a large mansion in Greenwich, Connecticut. He converted much of it into a replica of a Wall Street trading floor complete with 80 computers, countless satellite dishes and direct links to the New York Stock Exchange. He bought several other houses in the area, to house a collection of pornography, sadomasochistic accessories and bought-in mistresses. He continued to demonstrate acute paranoia about his personal safety, using armed guards, six-feet-high metal fences, security cameras and floodlights. His neighbours were periodically disturbed by continuous screaming and on one occasion the body of twenty-two-year-old Frances Burge was found lying on the ground outside a house bought by Frankel under a new alias of Michael King. The police concluded that Frances had committed suicide and ignored the testimony from neighbours about the repeated screaming they had heard before the discovery of the body.
In spring 1998 Frankel decided to operate on a far greater scale. He would need to create a new and far more credible front to conceal his intended acquisition of up to $150 billion in additional insurance holdings. At much the same time he met Thomas Corbally, who was then employed by the internationally known private detective agency, Kroll Associates. Corbally had an impressive and extensive range of contacts – business, personal, religious, political – not merely in the United States but globally.
Shortly afterwards, Frankel (now using the name of his head of security, David Rosse) decided that the perfect front would be the Vatican. While the ever-obliging Corbally provided high-level contacts, Frankel procured through an Italian businessman an introduction to Father Christopher Zielinski, a well-connected priest who was the director of The Genesis Centre in Florence. The Jewish-born Frankel was simultaneously doing a crash course on the Roman Catholic faith. His library in the Greenwich home soon had Catholic literature by the yard, histories of the saints, and Papal encyclicals. Alongside his porn videos there was now a copy of Brother Sun and Sister Moon, Franco Zeffirelli’s film on the life of St Francis.
The Italian businessman told Father Zielinski that ‘a wealthy investor wanted to donate $50 million to the Centre’. Subsequently the Centre’s lawyer met the ever-helpful Thomas Corbally who outlined the proposition. Frankel would not actually ‘donate’ the $50 million to the Centre, but would maintain control of the money using it to purchase United States insurance companies. When these insurance companies went into profit the Genesis Centre would receive donations from these profits. The Centre’s suspicions that it was being asked to participate in a money laundering operation were not assuaged when the Italian businessman, aptly named Fausto Fausti, turned up for a meeting with Father Christopher Zielinski accompanied by one of Frankel’s former girlfriends and co-conspirators, Kaethe Schuchter, who was wearing just a brief pair of hot pants and a bikini top. Father Christopher and the Centre’s attorney, by now convinced they had been targeted as a laundry by the elusive David Rosse, turned down the offer.
Frankel merely raised his sights. Through Corbally he met Thomas A. Bolan, a New York lawyer with excellent links within the Roman Catholic Church. Before the introduction, Corbally had explained to Bolan that he was friendly with a man who was making millions a day through his trading on Wall Street, who wanted to help the poor and thought he should do it through the Roman Catholic Church. Through Bolan, Frankel was introduced to Father Peter Jacobs, a Roman Catholic priest with ties to the Vatican, who in turn contacted his friend Monsignor Emilio Colagiovanni.
With Colagiovanni, Frankel had struck gold. The elderly Monsignor was President of the Monitor Ecclesiasticus Foundation, which publishes a journal on Canon Law, and had served as a judge on the august Church Tribunal, the Roman Rota. The Foundation that he controlled had bank accounts both at the IOR and the Vatican’s other bank, the APSA. The Monsignor also had personal bank accounts at both. He was a highly respected man who could open virtually any door within the Vatican.
At Frankel’s invitation the Monsignor, accompanied by Father Jacobs, flew from Rome to the United States and together with lawyer Bolan met with ‘David Rosse’ at his home in Greenwich, Connecticut. Rosse impressed all of his guests with his knowledge of St Francis of Assisi and talked of his desire to emulate the saint and help the poor and what better way than through the Church that had inspired St Francis? Looking Monsignor Colagiovanni directly in the eyes he exclaimed, ‘If I cannot trust the Catholic Church, who can I trust?’ The Monsignor shook his head vigorously in agreement. Confident that he had landed his fish Frankel elaborated:
‘I plan to set up a charitable foundation. It will be formed in the Vatican, under Vatican law. I will not be named or identified on any documents and I do not wish any outsider to know that I, David Rosse, am the true source of the funds. I seek no public acknowledgment or honour for this. Like St Francis I want no credit for any good I am able to achieve. This work is for the greater glory of God.’
Frankel proposed to control the foundation secretly through ‘my ability to elect a majority on the Board of Trustees who share my vision’. He added,
‘I am prepared to transfer $55 million to this Vatican foundation. The Vatican will be permitted to keep $5 million of that amount to do with as they see fit. I will retain control of the balance, which will be used to assist in the acquisitions in the insurance industry.’
Frankel told the Monsignor that subsequent profits from the acquisitions would also be donated to the foundation. His guests were entirely taken with the proposal and over a meal prepared by Frankel’s two chefs they eagerly discussed how to spend the promised $5 million.
Subsequently Frankel confirmed in a letter to the lawyer Bolan a key element of the concept.
‘Our agreement will include the Vatican’s promise that the Vatican will aid me in my effort to acquire insurance companies by allowing Father Jacobs or another Vatican official to certify to the authorities, if necessary, that the source of the funds for the foundation is the Vatican.’
While the shy Frankel divided his time between his dealing floor and his extracurricular activities within his mansion, Thomas Bolan and Monsignor Colagiovanni flew to the Vatican to propose the plan to Bishop Francesco Salerno. Bishop Salerno was then the highly placed Secretary of the Prefecture for the Economic Affairs of the Holy See. He was also, by one of those happy coincidences with which this tale abounds, on the board of Monsignor Colagiovanni’s Foundation, Monitor Ecclesiasticus. The Frankel proposal was discussed in great detail, specifically the aspect where ‘Rosse’ would retain control over the $50 million even after it was ‘donated’ to the Vatican foundation.
On 18 August 1998, Salerno approved the plan declaring it to be ‘a good idea’. He instructed Bolan to draw up the protocols of the foundation. He did so, including a clause allowing Frankel to appoint two of the proposed foundation’s three trustees with the third to be appointed by the Vatican. Salerno subsequently contacted the Cardinal of New York, John O’Conner, seeking a recommendation for the third position on the board of trustees.
Father Jacobs then, however, received a telephone call from Bishop Salerno, saying that the Secretariat of State had expressed some misgivings about the plan. The Secretary of State, Cardinal Angelo Sodano (who had replaced the tough-minded Cardinal Casaroli in 1990) had commented that Frankel/Rosse ‘could not control a Vatican foundation as we should not create the perception that we are running insurance companies’. Frankel’s increasingly well-paid lawyer Bolan and Father Jacobs were again despatched to the Vatican where they held a meeting in the Secretariat of State’s offices with two of the Secretariat staff, Monsignor Gianfranco Piovano and Father Brian Farrell. As they explored the problem, the accommodating Monsignor Piovano declared that ‘some other way will have to be found to make the donation’.
The ever-inventive Frankel had the answer. He would form a new foundation that would be created outside the Vatican, the St Francis of Assisi Foundation to Serve and Help the Poor and Alleviate Suffering, not exactly the most memorable of names. A Vatican-related charity would be the settlor for the foundation and this charity would be able to state that it was funded by the Vatican, so that Frankel would be able to claim that its funding originated from Vatican sources. In reality St Francis would be entirely funded by looted funds held in Frankel’s Swiss bank account. Monsignor Colagiovanni then agreed to allow his own foundation, Monitor Ecclesiasticus, to be identified as the ‘settlor’ for St Francis.
If this scheme could be sold to the Vatican executives Frankel was up and running. No one would be wary of doing business with a foundation which had the Vatican as the lender of last resort. What better guarantor could a company wish for? Monsignor Colagiovanni spoke to Bishop Salerno of the Prefecture of Economic Affairs and Monsignor Piovano at the Secretariat of State. Both gave the scheme their blessing and Colagiovanni then faxed a letter to Bolan on Rota letter-headed paper informing him that his foundation, the Monitor Ecclesiasticus Foundation (MEF) ‘had been authorised’ to receive Frankel’s $55 million. Others within the Vatican were made fully aware of what was being done. These included Monsignor Giovanni Battista Re, head of the First Section of the Vatican Secretariat of State and at the time the third highest-ranking Vatican official.
Father Jacobs discussed Frankel’s plan with Cardinal Pio Laghi, former Vatican Nuncio (ambassador) to the United States. At the time of this discussion Laghi was the head of the Congregation for Catholic Education. When Frankel was still trying to win approval for his scheme Laghi intervened on Frankel’s behalf within the Vatican. In return he received in August 1998 a ‘donation’ of $100,000 for a hospital. When Cardinal Laghi responded with a gracious thank you letter it was returned to him via Father Jacobs with the request that he should refrain from thanking ‘Rosse’ personally for the payment. A new letter was sent thanking Frankel’s foundation for the funds.
Others who were fully conversant and approving of the scheme included Father Giovanni D’Ercole, a leading official in the first section of the Secretariat of State and Archbishop Alberto Tricarico from the Second Section of the Secretariat, who oversaw the Holy See’s relations with the former countries of the Soviet Union. So taken was he by the scheme he considered flying to Connecticut to meet ‘Rosse’ in person. The Archbishop was anxious to persuade him to ‘donate’ funds to Kazakhstan. The Vatican Bank was also touched by the Frankel charm and impressed by his apparent endless wealth. Frankel frequently wired some of his stolen funds to Colagiovanni and Jacobs for their IOR accounts. He requested from Monsignor Colagiovanni a letter from the IOR declaring that the Monitor Ecclesiasticus Foundation (MEF) was in good standing. Before they issued such a letter the Vatican Bank requested full information on the ‘Rosse’ plan.
Surely with all of those top international bankers and Price Waterhouse at the helm, to say nothing of the Commission of Cardinals keeping a close watch on the Bank the game would now be up for Frankel and his co-conspirators? Once the experts took even the most cursory of glances at the details surely it would be obvious that what was being created was a money laundry. In fact once the IOR had satisfied itself that Frankel did indeed have funds to the value of $55 million in his Swiss account they were entirely content. The Vatican Directors, Dr Lelio Scaletti and Dr Anthony Chiminello, were happy to sign a letter that confirmed the long ‘uninterrupted relationship’ between the Vatican Bank and Monsignor Colagiovanni’s Monitor Ecclesiasticus Foundation. The letter along with the letter of thanks from Cardinal Pio Laghi and other documents all served to bolster the credibility of St Francis with insurance regulators and lawyers.
The documents registering St Francis as a British Virgin Islands trust were backdated to 10 August 1998 to accommodate Frankel’s belief that it was an astrologically favourable date for him. In the Deed of Settlement, the MEF was identified as the settlor and suggested that it had contributed $90 million to St Francis.
Emboldened by the ease with which he and his co-conspirators had conned so many within the Vatican, Frankel’s associates began to make more and more outlandish claims. While negotiating to buy the Western United Life Assurance Company of Spokane, Washington, the men from St Francis revealed that ‘Rosse’ did bond trading for the Vatican and that the source of the funds for the Western Union deal was the Vatican. They claimed that the purchase was part of a strategy to bring about substantial growth of Vatican assets and the Pope himself had authorised the funds to go through the MEF, which had then contributed them to St Francis.
The Vatican were aware of these dramatic claims. They were informed on several occasions that individuals representing St Francis were demonstrably misrepresenting their relationship with the Vatican and the source of their funds. In January 1999 C. Paul Sandifur, the President of Western United’s parent company, wrote directly to the Secretary of State, Cardinal Sodano, asking for confirmation of three statements. Was St Francis an agent of the Holy See? Was the MEF a Vatican foundation? Had the Holy See given $190 million to the MEF and St Francis as had been represented? Monsignor Giovanni Re replied on behalf of the Vatican. He stated that with respect to St Francis ‘no such foundation has the approval of the Holy See or exists in the Vatican’. The Cardinal did not deny that the Vatican had donated $190 million to the MEF or that the MEF had donated $190 million to St Francis. Nor did he deny that the MEF was a Vatican foundation. The careful cryptic response was in sharp contrast to the Vatican’s reaction when the scam became an international scandal.
Neither Re, the number three in the Vatican, nor anyone else took any steps to correct a situation where they knew that false statements and misrepresentations about the Vatican’s relationship with Frankel and his accomplices were being made to insurance companies in the United States. Indeed by giving only a fragmented response to very specific questions Cardinal Re had boosted confidence in the statements that he had failed to address. Monsignor Colagiovanni helpfully explained to the insurance companies that it was Vatican policy that failure to address certain facts in a response of this nature indicated that those facts were indeed true. Ever eager to serve Frankel, the Monsignor then faxed Western United to advise them that as President of the MEF he had contributed $1 billion to St Francis. These funds had come from ‘various Roman Catholic tribunals and Roman Catholic charitable and cultural institutions’.
To allay any remaining unease within the minds of the men from Western United, Frankel and Monsignor Colagiovanni arranged for two executives from the parent company to travel to Rome, meet Vatican representatives and clarify whether or not the various representations that had been made were in fact true. It was a bold move but their insurance company had huge assets and Frankel wished to buy control.
On their trip, the Western United executives Sandifur and his Chief Financial Officer William Snider shrewdly brought with them Father Eugene Tracey, a former insurance executive now serving as a Catholic priest in Spokane. The three met Colagiovanni, who confirmed that the funds from the MEF had been provided to St Francis and that they included secret Vatican funds that officially did not exist.
Colagiovanni gave Frankel excellent value. On an appropriate cue, the trio met Bishop Salerno, who posed for a photograph with the visitors. Colagiovanni then took them on a tour of the Vatican which included a number of areas that the general public never see. The Spokane executives were reassured. The MEF and St Francis were indeed known within the Vatican. Colagiovanni was who he claimed to be and the MEF and St Francis were indeed recipients of Vatican money. Colagiovanni also arranged a meeting with Alan Kershaw, an American lawyer who frequently argued cases before Vatican tribunals and from time to time represented the Vatican interest in legal proceedings. Kershaw assured the insurance executives that a group of ‘northern Italian laypeople’ who wanted to obtain the tax benefits available by a donation to the Vatican had secretly given large sums of money to the MEF, and confirmed that the MEF received funds from the Vatican. Kershaw also told the executives that in fact the Vatican exercised supervisory power over St Francis and that St Francis funds and money management would go through the IOR.
Yet the initial letter that Monsignor Re had written had rankled with Frankel, attorney Bolan and the irrepressible Monsignor Colagiovanni. His minimal response to the Western United questions had put the conspirators to considerable trouble and they wished to avoid a repetition. In March 1999 the Monsignor arranged for Bolan to meet with Re. In the event he met Cardinal Agostino Cacciavillan, the President of the Administration of the Patrimony of the Holy See, APSA, the supreme government official in charge of the Holy See’s investments. The Sandifur letter and Cardinal Re’s response were discussed at length.
Cacciavillan was informed that a private individual (Rosse) and not the MEF or the Vatican was the source of St Francis funds. He was aware that the MEF would be used as a vehicle through which this private individual would make ‘donations’ to St Francis. Armed with this knowledge it is astonishing that the cardinal did not on the spot demand that Bolan, Colagiovanni and their colleagues stop claiming that the funds originated with either the MEF or the Vatican. He confined himself to one request, that St Francis should not be described as being a Vatican foundation. He expressed not the slightest concern about the other false accounts of the relationship between St Francis and the MEF and the Vatican. It was agreed by all three that if the Vatican received any future enquiries about the St Francis purchase of United States insurance companies they would be referred to Colagiovanni or to someone else who understood the MEF/St Francis plan.
Notwithstanding the great success achieved within the Vatican by Bolan and Colagiovanni, the end was near for the latterday St Francis. Frankel had been stupid. He and his colleagues had gone to extraordinary lengths to sell the concept that either the St Francis Foundation was Vatican-owned or had Vatican money flowing into it and that it was underwritten by the Monitor Ecclesiasticus Foundation based in Rome.
However, foreign ownership of insurance companies is specifically forbidden in a number of American states, including Colorado and Washington.
Therefore the attempted purchase of Capital Life Insurance in Denver and Western United in Spokane by Frankel’s Thunor Trust was impossible once Frankel had arranged for St Francis to acquire Thunor Trust. By early May 1999 Martin Frankel was on the run and a $200 million hole had been discovered in the insurance companies that he had bought and plundered.
In the light of all of the above, the following statement by Vatican spokesman Joaquin Navarro-Valls is as slippery as the 1982 Vatican denial of any involvement in the Banco Ambrosiano crash and its 1974 self-exonerations after Il Crack Sindona.
‘I wish to make it clear that the “Monitor Ecclesiasticus” and “St Francis of Assisi” Foundations do not have Vatican juridical character and are not inscribed in the registers of Vatican juridical personalities. I wish to add that the Holy See does not have any relationship with Father Peter Jacobs and had neither furnished nor received funds from either the Monitor Ecclesiasticus Foundation or the St Francis of Assisi Foundation. Contrary to what has been affirmed, the St Francis of Assisi Foundation does not have an account in the Institute for Works of Religion (IOR) and indeed is not recognised by this Institution. Monsignor Emilio Colagiovanni is president of the Monitor Ecclesiasticus Foundation, established by the archdiocese of Naples in 1967. This foundation has always acted totally outside of any Vatican context, and does not have any relationship with it whatsoever.’
Like many Vatican statements, that of Navarro-Valls begged more questions than it answered. Why did it take until 30 June 1999 for the Vatican to issue such a denial, when the Frankel scam and the plundering of insurance companies’ funds had been international front-page news for two months? During the previous twelve months the Vatican had been presented with mounting evidence of the scam, but it did nothing to warn anyone that Frankel’s scheme was bogus and illegal. Instead, the Vatican had effectively encouraged insurance companies to trust Frankel and his associates. By the time that Navarro-Valls made his statement Frankel and his millions were long gone.
By April 1999 Frankel had obviously realised the game was up. During that month the bulk of the missing funds had been moved to the Swiss bank account. On 15 May firemen were called to the $3 million Frankel mansion. They found blazing documents falling out of some of the fireplaces and a filing cabinet on fire in the kitchen. With the fires doused, one of the surviving items caught their attention. It was a ‘To-do’ list. Number one on the list read ‘Launder money’. They also found evidence of Frankel’s obsession with astrology: he had asked his stars for answers to pressing questions that included ‘Will I go to prison?’ and ‘Should I leave?’ Meanwhile account number 70026 at Banque SCS Alliance in Switzerland was extremely active.
Frankel was eventually arrested after a four-month manhunt. He spent the last eight weeks of freedom at one of Germany’s best hotels, the Prem Hotel in Hamburg. Along with Frankel in his room was yet another long-time girlfriend, Cynthia Allison, and $2 million in diamonds and cash. Subsequently Frankel was charged by the Hamburg authorities with smuggling diamonds and possessing false passports. He was sentenced to three years’ imprisonment. He was extradited to the United States after serving eighteen months. In his absence he had been indicted by a Connecticut Grand Jury on thirty-six counts of wire fraud and money laundering. He was also wanted on a great many other charges in different states.
On 5 May 2002, Frankel pleaded guilty in a Connecticut court on twenty-four charges involving racketeering, wire and securities fraud, and conspiracy. Sentencing was suspended until Tennessee and Mississippi court hearings could take place and then further delayed while Frankel assisted the various prosecutors in their attempts to recoup the stolen millions. Eventually in late 2004, Martin Frankel was sentenced to sixteen years’ imprisonment.
On 9 September 2002, Monsignor Emilio Colagiovanni pleaded guilty to criminal fraud and conspiracy. The Monsignor was another who eagerly offered his full cooperation to the insurance commissioners.
After Martin Frankel had pleaded guilty, Joaquin Navarro-Valls popped up again to assure all and sundry that the Vatican had no involvement in Frankel’s schemes. As for Monsignor Emilio Colagiovanni and the foundation he controlled, Navarro-Valls declared, ‘Colagiovanni was already retired at the time of his dealings with Frankel, and the Monitor Ecclesiasticus Foundation, incorporated in Naples, is in no way a Vatican foundation.’ Colagiovanni ‘acted purely as a private Italian citizen and the Vatican received no funds from Frankel’s enterprises’.
The insurance commissioners of Mississippi, Tennessee, Missouri, Oklahoma and Arkansas filed a Federal lawsuit against the Vatican. They claimed more than $200 million. As Mississippi commissioner Lee Harrell explained,
‘The fact that the Vatican never benefited from the $200 million is not relevant. Under the Racketeer Influenced and Corrupt Organisations (RICO) Statute, a party involved in the conspiracy is responsible for the entire amount stolen.’
Despite his role Monsignor Re was promoted by Karol Wojtyla. He was elevated to cardinal on 21 February 2001. The implications of the RICO statute had demonstrably not been conveyed to Pope John Paul II when he discussed the affair with Cardinal Re. His advice to the cardinal when he complained of some of the media coverage of the affair was precisely the same that he had offered after the Banco Ambrosiano crash to Bishop Paul Marcinkus. ‘Ignore them. We haven’t lost any money, have we?’
‘No, Holy Father.’
‘Then ignore them. It will pass.’
By 2002 the amount that the US insurance commissioners were seeking from the Vatican Bank had risen to $600 million.
One group that still considers itself to be good God-fearing Catholics is the Mafia. They regard themselves as ‘Cristiani che corrono’ – Christians on the run. The Mafia have maintained close links with the Catholic faith and its hierarchy from the mid-nineteenth century. The Church’s historic silence on the activities of Cosa Nostra has resonated down the years more powerfully than her occasional criticism of an organisation that regards murder as a legitimate business strategy.
In 1993 while in Sicily the Pope broke his own long silence on the Mafia with a powerful denunciation when he referred to the assassinations of Judges Giovanni Falcone and Pablo Borsellino and defined the Mafia as the ‘devil’ and those who had been murdered as ‘martyrs’. The Mafia with its ‘culture of death’ was ‘profoundly inhuman, anti-evangelical’ and, calling for it to repent, he reminded it that ‘One day the judgement of God will come!’
The Mafia got their judgement in first. They had been at a state of war with the Italian government and the judiciary for some time. In July 1993 a car bomb at Via Ruggero in Rome had as its target the journalist Maurizio Costanzo. His crime had been to write critically of the Mafia. Twenty-one other people who happened to be in the area were also injured. On 27 July 1993 a massive explosion in the centre of Florence destroyed a large section of the Georgofili Academy killing the caretaker, his wife and their two young daughters. Thirty-six people were injured and a huge collection of irreplaceable works of art were either destroyed or seriously damaged.
On the same day as the Florence atrocity two further Fiat car bombs were exploded in Rome. This time their target was the Catholic Church in response to the Pope’s May condemnation. The first bomb exploded in the Piazza San Giovanni in Laterano and the other attacked the church of San Giorgio al Velabro. Because of the timing of these two attacks, the former occurring at two minutes to midnight, the latter four minutes later, there were no casualties.
There were a number of other bomb attacks on the Italian mainland at this time but the two on the Rome churches were seen by Italian investigators not as part of the Mafia’s war on the Italian state but as its direct response to the Pope and to the growing number of anti-Mafia priests who, with great courage, were attempting to loosen the grip of the Cosa Nostra on Italian and Sicilian society. The Mafia leaders considered that their mother church had betrayed them. In September 1993 the most outspoken of the anti-Mafia priests, Father Puglisi, was murdered by four men on the orders of Giuseppe Graviano who controlled the Brancaccio district to the east of Palermo.
From then on Pope John Paul II remained silent on the Mafia and the Catholic Church’s long relationship with it continued to flourish.
In October 2000 police in Palermo, Sicily, arrested twenty-one members of a criminal group, including some with direct links to the Mafia. The gang had succeeded in cloning a replica of the computer system used at a branch of Banco de Sicilia. Preparations to divert $500 million were well advanced and included telephonic negotiations with members of staff at the Vatican Bank where the money would have been transferred onward to banks in Portugal and Belgium.
Doubtless the Mafia in Sicily knew that the Vatican Bank regularly features in official global top ten money laundries. A 2001 report placed the Vatican at number eight, and estimated the annual amount laundered through the Vatican Bank at $50 billion. This almost certainly explains the absence of the Holy See among the list of members of the Financial Action Task Force on Money Laundering and its absence among the list of international bodies and organisations that have observer status with the Task Force.
The Vatican hierarchy ignored these facts and continued to lecture the financial world. Cardinal Tettamanzi in November 2003 proclaimed,
‘Man is not made for the financial world; the financial world is made for man . . . Profit is not the only criterion for the proper functioning of a business . . . One should consider the effects of the pursuit of profit upon the individual.’
In January 2004 the President of the Italian Bishops’ Conference, Cardinal Camillo Ruini, told his fellow bishops that they should draw the correct lessons from Italy’s latest financial scandal, the collapse of Parmalat. ‘It could help Italian business leader to rediscover the value of ethics . . .’
Vatican Incorporated meanwhile was more concerned at rediscovering greater profitability. The annual budget for the financial year 2003 showed a ‘deficit’ of nearly $12 million, the third consecutive budget deficit for the Holy See. The latest figures for 2004 showed the budget had crept back into the black by $3.71 million. Fifteen million euros had been unnecessarily lost by the failure to hedge against the Holy See’s dollar exposure. The positive trend was maintained in 2005 with another small surplus but the ‘accounts’ continue to be inadequate, the financial operations of the IOR are not disclosed, and investments continue to be recorded at cost rather than at market value, a practice that is widely considered by auditors to be unacceptable. There are lessons to be learned about the ‘value of ethics’ on both sides of the Tiber. As of mid-2006 the action against the Vatican to recover the $600 million lost in the Frankel Affair was unresolved.
By the same period the trial of Flavio Cerbini and three other defendants for the murder of Roberto Calvi was heading towards its second anniversary. One key witness, Archbishop Marcinkus, eluded all attempts to compel his appearance. His death in February 2006 left unresolved the allegation to the author from a Mafia source: namely, that Marcinkus was present when the decision to murder Calvi was taken.
‘A culture of respect for the rule of law is urgently required.
Nor can we pass over in silence the evil of corruption which is undermining the social and political development of so many peoples. It is a growing phenomenon insidiously infiltrating many sections of society, mocking the law and ignoring the rules of justice and truth. Corruption is hard to combat, because it takes many different forms: when it has been suppressed in one area, it springs up in another. Courage is needed just to denounce it. To eliminate it, together with the resolute determination of the Authorities, the generous support of all citizens is needed, sustained by a firm moral conscience.’
From the speech ‘From the Justice
of Each Comes Peace for All’
by Pope John Paul II, 1 January 1988