Italian Officials Impound Funds, Launch Money-Laundering Probe of Vatican Bank

Just after the conclusion of Pope Benedict’s dramatic 4-day trip to Scotland and England, Italian officials have launched a “money-laundering” probe aimed at the Vatican’s bank, casting the shadow of scandal again over the Holy See. What is the real story here?

By Robert Moynihan

Money Laundering?

Today in Italy, Italian finance police seized about $30 million of funds held in a Vatican bank account in an Italian bank.

The action raises the spectre of another scandal, this time financial, in addition to years of scandal involving sexual abuse of young people by priests.

In short, it is a new, powerful blow against the pontificate of Pope Benedict XVI (photo).

This is a real story, not simply a verbal accusation: the funds have actually been impounded — $30 million, a considerable sum.

Even more important, Italian finance officials now say they are pursuing “money laundering” allegations against the Pope’s top financial official, a prominent Italian Catholic banker and scholar of economics named Prof. Ettore Gotti Tedeschi (photo below).

Gotti Tedeschi was Pope Benedicts’s choice to lead the Vatican’s Istituto per le Opere di Religione (“Institute for Religious Works,” commonly known as the Vatican bank).

Also under investigation is Gotti Tedeschi’s “number two,” the bank’s director general, Paolo Cipriani.

The Vatican Reaction

What is the Vatican’s reaction to this attack?

In a statement today, the Vatican said that it is “perplexed and surprised” by these events and has the “greatest trust” in the two men.

The statement also said the Vatican has already been working for greater transparency in its finances, to comply with new international banking regulations.

Further Questions, and Some Background

So why is this happening now? This is what is not clear.

Gotti Tedeschi, a devout Catholic and a member of the Prelature of Opus Dei, has taught financial ethics at the Catholic University of Milan. He is a close adviser to Italy’s Treasury Minister, Giulio Tremonti.

I have met and spoken with him at some length about the functions of the Vatican bank, and problems in the world economy. From my contacts with him, I judge him to be a man of considerable integrity and high ideals. This does not mean that the accusations made against him cannot be true, but it does mean that I would have to be persuaded by weighty evidence before drawing the conclusion that he had done something intentionally illegal.

He was a contributor in the drafting process of the Pope’s encyclical last summer on the economy, Caritas in Veritate (“Charity in Truth”), which was critical of the wild, unregulated excesses of the current international financial system, where capital can move, in size, with astonishing rapidity, improving or crushing the prospects for industries, and nations, literally overnight.

I have been in the offices of the IOR many times.

In fact, I knew Gotti Tedeschi’s predecessor, the late American Archbishop Paul Casimir Marcinkus (photo), very well, and often spoke with him in his offices.

Marcinkus, too, was accused of financial crimes in the late 1970 and early 1980s, 30 years ago now.

And there has never been complete clarity on what actually happened on that occasion.

Some people swear that Marcinkus was involved in nefarious dealings; others swear the opposite, saying he was naive, or out of his depth, and so got caught up in affairs that he had never been trained to deal with.

(This much is true: he was not a trained banker or economist, as he himself told me, and this is part of the reason the Vatican has decided to have trained laymen in these delicate posts. “He had no experience of international banking prior to his appointment in 1971, his sole preparation for which had been a short crash course in banking at Harvard University,” David Willey of the BBC wrote at the time of his death. See:

The IOR principally manages funds for the Vatican and religious institutions around the world, such as charity organisations and religious orders of priests and nuns.

Yes, you can see many nuns in the offices of the Vatican bank, making deposits, and taking withdrawals.

The Church needs the ability to support missionary and other efforts around the world, through financial institutions, just as she needs access to visas to travel, or legal protection to found and build orphanages and schools.

The Church is “in” the world — though she should not be “of” the world.

This need for an institutional support network was famously summarized by Marcinkus in the perhaps somewhat scandalous phrase, for an archbishop: “You can’t run the Church on Hail Marys.”

But that phrase can be taken as a mark of healthy realism, the same type of realism expressed in the words of Christ’s himself when he said: “Render to Caesar that which is Caesar’s, and to God that which is God’s.”

In this world, a mechanism of exchange for goods and services (money) is a means members of the Church, like all others in society, often need to use.

So one point may be made about this latest development: it strikes directly at the Church’s ability to have the institutional banking structure that she needs to support her global mission.

And this blow comes just following the moment when Benedict seemed to have recovered a considerable moral capital for the Church with his quiet, eloquent, visit to the very heart of “the City” (London) — the most influential financial capital in the world, at least until recently.

Marcinkus. as head of the IOR, was involved in a worldwide scandal in 1982 when the IOR was entangled in the fraudulent bankruptcy of Milan’s Banco Ambrosiano, then Italy’s largest private bank.

The IOR held a small stake in the Ambrosiano, whose president, Roberto Calvi, was found hanged under London’s Blackfriars Bridge in June of that year. (A first investigation concluded that the death was a suicide, but a more recent investigation has concluded that it was a murder. No suspects in the killing have been named.)

Marcinkus, who died in Arizona in 2006, always maintained — also to me — that the Vatican had not been responsible for the collapse of Banco Ambrosiano.

Marcinkus told me he was opposed to making what the Vatican later called a “goodwill payment” of $242 million to compensate Ambrosiano creditors — Cardinal Agostino Casaroli, then Secretary of State, was the one who persuaded the Pope to make that payment, against Marcinkus’s strong objections, Marcinkus once told me.

And so the matter was settled, though a shadow remained against Marcinkus’ name.

(In 1990, Marcinkus told me, “Before I die, come talk to me. I will tell you things that will curl your hair.” He then retired to Sun City, Arizona. Early in 2006, I phoned him there. “Would it be the right time now for me to come talk to you?” I asked him. He said, “Not yet.” A week later, I called a second time — I felt it was about time to see him, as 16 years had passed since our last meeting. “Not yet, but soon,” he told me. A few days later, he died.)

Vatican Bank Tied to Money Laundering Scandal

Here is the report today of Rachel Donadio, reporter on Vatican and Italian affairs for the New York Times, on this latest story (link to the web posting:

ROME — Italian monetary authorities said Tuesday that they had impounded $30 million from the Vatican bank and placed its top two officers under investigation in connection with a money laundering inquiry. The announcement amounted to another potential storm confronting the papacy of Benedict XVI, who is struggling with the effects of a priestly abuse scandal.

In a statement, the Vatican expressed “perplexity and surprise” that the bank’s chairman, Ettore Gotti Tedeschi, and its director general, Paolo Cipriani, had been placed under investigation. It added that it had the “greatest trust” in the two men and had been working for greater transparency in its finances.

The investigation is the first into the Vatican bank since the early 1980’s, when it was implicated in the collapse of an Italian bank whose director, nicknamed “God’s banker,” was mysteriously found dead, hanging from Blackfriars Bridge in London.

Italian authorities have historically shied away from investigating the Vatican’s finances — as much out of deference to the church as owing to the complex relationship between Italy and the Holy See, a sovereign state.

“The era of omertà is over,” said Gianluigi Nuzzi, the author of the 2009 bestseller “Vaticano S.P.A.,” using the Italian term for the code of silence. S.P.A. stands for limited liability corporation in Italian.

The investigation was undertaken because of a new directive by the Bank of Italy. Aimed at preventing financing of terrorist groups and money laundering, it now requires all foreign banks operating in Italy — including the Vatican Bank — to provide detailed information about the origins of the money it transfers.

Officials said that Mr. Gotti Tedeschi and Mr. Cipriani were under investigation for having failed adequately to explain the origins of funds transferred from one account held by the Vatican Bank to two others it holds. They said the seizure was preventive and neither man had been formally charged or placed under arrest. In the coming months, a judge is expected to rule on whether to proceed with the investigation.

The investigation could potentially blight the record of Mr. Gotti Tedeschi, a well-respected banker and a former head of operations in Italy for Spain’s Banco Santander who was brought in by the pope last year to help clean up the murky finances of the Vatican bank, a private bank formally known as the Institute for Works of Religion, or IOR, which manages funds aimed at charitable activities.

The new investigation appeared more mundane but no less explosive.

Officials said they had opened the investigation on Monday after the Bank of Italy, adhering to anti-money-laundering directives, alerted them to two suspicious transfers on Sept. 6 from an account held by the Vatican bank at a Rome branch of Credito Artigiano S.P.A., a bank based in Northern Italy.

One transfer of $26 million was directed to an account held by the Vatican bank at a Frankfurt branch of the U.S. bank J.P. Morgan, and another of $4 million was directed at an account it held at a Rome branch of the Banca di Fucino.

Under Italian law, magistrates are required to open an investigation if there is a suspicion that a crime may have been committed. Magistrates in Rome opened the investigation because the accounts in question were in bank branches in Rome.

News reports last year said that the same magistrates had opened up a broader investigation last year into bank accounts held by Vatican officials and charitable entities in Rome banks.

In both cases, investigators bypassed the sovereignty of the Holy See by looking into Italian accounts that had received funds from the Vatican Bank.

In a statement, the Holy See said it expressed “perplexity and surprise at the initiative taken by the Rome court, considering that all the necessary data were already made available to the competent office at the Bank of Italy and similar operations are ongoing with other Italian credit institutions.”

It added that the funds were transfers originating within the Vatican bank itself, and that the bank was working to join the “white list” of the Organization for Economic Cooperation and Development, the highest ranking on its transparency charts.

In the early 1980’s, the Vatican bank was involved in a scandal at Italy’s Banco Ambrosiano, which collapsed after the disappearance of $1.3 billion in loans to companies in Latin America. The Vatican bank denied wrongdoing but paid $250 million to Banco Ambrosiano’s creditors.

The new investigation appeared to show a more aggressive stance by the Bank of Italy, a player in the complex power dynamics of contemporary Italy. “It has a central role, whereas before it had a subaltern role,” Mr. Nuzzi said.

A spokeswoman for the Bank of Italy said it had been acting under European Union directives.

(end of New York Times story)

“European Union Directives”

It is the very last phrase of this article which catches my attention.

Here, in the final sentence of the story, we learn something that turns the entire story upside down, as it were.

Throughout the story, we are under the impression that someone at the Bank of Italy was responsible for this decision to sequester Vatican funds and open an investigation of the Vatican bank’s top two officials.

Then, here, at the end of the story, we learn that the Bank of Italy was “acting under European Union directives.”

We know that the European Union began — with considerable input from leading Catholic laymen, like Konrad Adenauer, Alcide de Gasperi, Robert Schuman — as a political structure to try to ensure that Europeans would never again engage in a fratricidal civil war.

We know that Europe has become something different than what those three men envisioned: a place where the Christian roots of Europe are denied, and where many Christian moral beliefs have been cast aside.

What were the “European Union directives” which led to this action against the Vatican by the Bank of Italy. Who issued those directives, and for what reason?

These are open questions.

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