Transparency vs. Money Laundering: Catholic Church Fears Growing Vatican Bank Scandal

The
Vatican scandal over shady bank accounts and millions in suspect transfers
began shortly before sunrise on June 5 on Via Giuseppe Verdi, a picturesque
street in the old part of Piacenza, a town in northeastern Italy. An elderly
gentleman in a tailor-made suit had just left his house with a leather
briefcase dangling from his right hand. He was on his way to his car.

ANZEIGE

It
was to be an important day for Ettore Gotti Tedeschi, who had recently been
fired as the head of the Vatican bank — even if it turned out differently than
he’d expected. Tedeschi was planning to go to the Vatican on that morning, but
he never got there. The 67-year-old banker missed the high-speed train to Rome,
meaning he couldn’t, as he had planned, get into a taxi at the Italian
capital’s central station for the short journey across the Tiber River to the
Vatican. There, he had hoped to take the documents out of his briefcase and
hand them over to a confidant of the pope.

Instead,
Gotti Tedeschi found four men waiting for him in the street — not a hit squad
as he feared at first, but investigators with the Carabinieri, Italy’s national
military police force. Even before he reached his car, they presented him with a
search warrant and escorted him back to his house. For several hours, they
searched through his sparsely furnished, cloister-like home office. At the same
time, other officers were searching through Gotti Tedeschi’s office in Milan.
Among the objects they confiscated were two computers, two cabinets’ full of
binders, a planner and his briefcase.

The
investigators were pleased. While they made but little headway in their
corruption investigation involving a client of a company Gotti Tedeschi had
once headed, an Italian subsidiary of the Spanish banking giant Santander, they
stumbled upon something else in there search which proved to be spectacular.

The
documents confiscated from Gotti Tadeschi, a former confidant of the pope,
provided Italian law-enforcement officials insight into the innermost workings
of the Vatican bank. The secret dossier includes references to anonymous
numbered accounts and questionable transactions as well as written and
electronic communications reportedly showing how Church banking officials
circumvented European regulations aimed at combating money-laundering.

A Possible Motive

The
drama unfolding in the Vatican is now heading toward a climax. First, it was
“il corvo,” the raven, whose revelations about life in the court
of the embattled and exhausted Pope Benedict XVI caused
months of unease. Then came the arrest of Paolo Gabriele, the pope’s butler,
whom the Vatican has fingered as the source of td that the situation had reached “a point of imminent danger.”

The
next act in the drama is set for Wednesday. Money-laundering experts from the
Council of Europe will present a preliminary rparently tasked the financial executive with making the Vatican bank
more transparent. But by approaching his task with perhaps an excess of zeal
Gotti Tedeschi upset powerful forces within the Roman Curia, the Vatican’s
administrative and judicial apparatus. Several high-ranking officials within
the Curia viewed the bank, officially known as the Institute for Works of
Religion (IOR), as something akin to a trust company for clandestine monetary
transactions that is not only used by the Church, but allegedly also by the
mafia as well as corrupt politicians and companies. In one of the seized Gotti
Tedeschi memos, he wrote: “I’ve seen things in the Vatican that scare
me.”

It
is a clear turning, one which transforms the so-called “Vatileaks” affair
into a financial scandal that could seriously damage the reputation of the Holy
See. Internal correspondence dated May 22 from a member of the bank’s
supervisory board to the Vatican’s Secretariat of State notes that the Vatican
bank is presently “in an extremely fragile and precarious position”
and that the situation had reached “a point of imminent danger.”

The
next act in the drama is set for Wednesday. Money-laundering experts from the
Council of Europe will present a preliminary report on the Vatican in
Strasbourg. It currently looks as though they will indicate serious misgivings
about whether the IOR has taking sufficient precautions against
money-laundering.

Their
worries are corroborated by the work of Italian authorities. In questioning
sessions sometimes lasting several hours, Gotti Tedeschi told public
prosecutors whom he trusted in the Vatican, other than Pope Benedict XVI, and
whom he didn’t. The banker reportedly fingered Secretary of State Tarcisio
Bertone as the ringleader of his “enemies,” accusing him of doing
everything possible to keep the Curia’s accounts hidden from Italian
authorities. The Vatican has been trying to make its bank eligible for
inclusion ozed during the search
of Gotti Tedeschi’s home should not be in the hands of Italian investigators.

The
fears of the pope and the Curia are well-founded. In the past, every time
Italian prosecutors have stepped in and confidential documents have found their
way to light, the secretive ways of the Vatican bank have always ended up
damaging the Church’s prestige. For more than 40 years, the IOR, founded in
1942, has been regularly embroiled in scandals, including bribery money for political
parties, mafia money-laundering and, repeatedly, anodiscuss details
of the interrogations and the content of the documents seized from his client.
Nevertheless, he stresses that the documents contain “useful facts”
that would indicate that there were no legitimate grounds for sacking Gotti
Tedeschi as head of the bank.

The
Vatican leadership is alarmed. Archbishops and cardinals are far from thrilled
that Italian officials are now rummaging around in their secret affairs. Papal
spokesman Federico Lombardi has openly threatened Italy’s law-enforcement
apparatus and urged it to kindly respect “the sovereign rights of the Holy
See.” In other words, he believes that all those documents including
confidential details about the Vatican bank that were seized during the search
of Gotti Tedeschi’s home should not be in the hands of Italian investigators.

The
fears of the pope and the Curia are well-founded. In the past, every time
Italian prosecutors have stepped in and confidential documents have found their
way to light, the secretive ways of the Vatican bank have always ended up
damaging the Church’s prestige. For more than 40 years, the IOR, founded in
1942, has been regularly embroiled in scandals, including bribery money for political
parties, mafia money-laundering and, repeatedly, anonymous accounts.

Many
who have become ensnarled in illegal business dealings with the Vatican bank
have been forced to pay with their lives, while others have spent years behind
bars. Despite all of its sacred and solemn promises, the Vatican has succeeded
in keeping the pope’s bank a haven for money-launderers. An: Arial, sans-serif;”>Whereas
Benedict XVI and his predecessors have preached humility and ethical financial
dealings from the window overlooking St. Peter’s Square, his confidants working
directly beneath the papal windows have continued to pursue shady financial
transactions.

The
Vatican has yet to divulge the business practices its bank has been using for
decades. “There is fear that, owing to the transparency necessary today,
one will find something in the past that one doesn’t want to,” says Marco
Politi, a Rome-based Vatican expert.

Such
things could include a complex system of ghost accounts and shell companies
like the bank had when Archbishop Paul Casimir Marcinkus was its head in the
1980s. At the time, the bank did business involving foreign currency and
weapons with the Milanese banker Robert Calvi and the mafia financier Michele
Sidonaurch; 2010
earnings from the bank were €55 million. Such revenues help make up for a
decline in donations from members of his global congregation.

[Part 2] The Shady Past of the Vatican Bank

Whereas
Benedict XVI and his predecessors have preached humility and ethical financial
dealings from the window overlooking St. Peter’s Square, his confidants working
directly beneath the papal windows have continued to pursue shady financial
transactions.

The
Vatican has yet to divulge the business practices its bank has been using for
decades. “There is fear that, owing to the transparency necessary today,
one will find something in the past that one doesn’t want to,” says Marco
Politi, a Rome-based Vatican expert.

Such
things could include a complex system of ghost accounts and shell companies
like the bank had when Archbishop Paul Casimir Marcinkus was its head in the
1980s. At the time, the bank did business involving foreign currency and
weapons with the Milanese banker Robert Calvi and the mafia financier Michele
Sidona — and helped launder illegal proceeds the mafia earned from
drug-trafficking as well as bribes paid to Christian-conservative Italian
politicians.

In
the end, Calvi was found dangling beneath London’s Blackfriars Bridge and his
private secretary fell to her death from the window of his Banco Ambrosiano.
Four years later, in 1986, Sidona would die in prison after drinking a morning
espresso laced with cyanide.

Under
Monsignor Angelo Caloia, Marcinkus’ successor as head of the bank, the Vatican
consistently expanded its money-laundering activities. While he was in charge,
there were secret accounts such as that for Giulio Andreotti, the controversial
former Italian prime minister. On an almost weekly basis, Caloia would bring
suitcases into the Vatican full of donations from Italian companies in the form
of cash and securities. There, the origin of the money would be obscured using
accounts such as the one with the number 001-3-14772-C owned by the nonexistent
“Cardinal Spellman Foundation.” Likewise, relief organizations were
founded with nice-sounding names masking the identity of their true
beneficiaries.

It
wasn’t until about three years ago, when evidence of such dealings came to
light, that Pope Benedict XVI ousted Caloia. What prompted his change of heart
were the more than 4,000 documents that Vatican financial expert Renato
Dardozzi had assembled and hidden before his death in 2003. In his will,
Dardozzi had written: “These documents should be published so that
everyone can learn what has happened here.”

Eliminating the Traces

It
became Gotti Tedeschi’s job to clean things up. As a married layman who didn’t
belong to the clique of curial cardinals, he was well-qualified for the task.

Still,
as a Catholic bound by a sense of loyalty to the pope, Gotti Tedeschi found the
new job challenging. Owing to the shady dealings in the past, the IOR enjoyed a
reputation in the global financial word as being about aan with the number 1365, a
so-called “sweep facility account,” which was automatically zeroed
out at the end of each day. The Vatican bank confirmed the existence of this
account late last week, though it said it was primarily used for handling securities
transactions.

Through
last year, this financial set-up was allegedly used to process more than a
billion euros for the Vatican bank. Italian investigators suspect that it was
also used to launder funds from dubious sources.

The
transfers via JP Morgan would likely have remained unnoticed if the IOR hadn’t
involved another Italian bank two years earlier in two cases. The attention of
Italian financial regulators had been attracted by curious transactions the
Vatican bank had made via Credito Artigiano. In 2010, a total of €23 million
had been transferred from several accountsr as president of the IOR, the
bank set up an account with the Milan-based branch of the American bank
JPMorgan Chase. From that point on, millions started flowing on an almost daily
basis from JPMorgan’s Milan office to the one in Frankfurt, where the IOR also
had a JPMorgan account.

Distressing Financial Storm

Before
the transactions could be completed, federal prosecutors in Rome had the funds
frozen. Then they launched investigations against Gotti Tedeschi and Paolo
Cipriani, the IOR’s general director, on suspicion of having violated
anti-money-laundering regulations. Alarmed by the Italian investigations,
JPMorgan executives started asking Vatican officials where the money that had been
regularly flowing through the Milan account was actually coming from. But they
didn’t get any satisfactory answers. As a result, the bank then gave the IOR an
internal classification as a high-risk client and started monitoring its
transactions for clues that might point to money-laundering.

The
probes of the prosecutors in Rome and the distrust of the bankers in Frankfurt
forced the Vatican to act — more, one is te at that bank, but without listing
the account holders or purposes of the transfers. Of that, €20 million was
reportedly supposed to make its way to the Vatican’s JPMorgan account in
Frankfurt, while the remaining €3 million was destined for an account at
another bank in Rome.

Distres:p>
With
these emergency measures, the Vatican succeeded in getting Italian officials to
release the €23 million in frozen IOR funds. But the calm it had hoped they
would bring to the distressing financial storm did not materialize.

‘Remaining a Tax Haven’

The
pope’s bankers faced another bitter setback early this year when JPMorgen closed
the IOR’s transfer account in Milan. In explaining its decision, the American
bank wrote to Rome in mid-February that strict anti-money-laundering
regulations no longer permit “additional deposits or withdrawals via
account No. 1365.”

Meanwhile,
the situation back at IOR headquarters was becoming increasingly unchristian.
While Gotti Tedeschi lost support from above, Cardinal Secretary of State
Bertone took care to see that Benedict’s decree was watered down. In the ne pope’s bank a clean bill of
health if all of those points are answered positively.

On
top of that, federal prosecutors in Rome are moving forward with their
investigations. Last October, they asked their German counterparts for
assistance in obtaining documents related to the IOR account at the JPMorgan
branch in Frankfurt. The move failed in November, however, when a judge in
Frankfurt refused to issue a seizure order due to a “lack of
evidence.”

‘Remaining a Tax Haven’

The
pope’s bankers faced another bitter setback early this year when JPMorgen closed
the IOR’s transfer account in Milan. In explaining its decision, the American
bank wrote to Rome in mid-February thaty
requirements.” It then goes on to say that there is a “concrete risk
of a rating downgrade and, thereby, of a significant loss in the prestige of
the Holy See.”

The
new panel charged with supervising the Vatican bank began operations in May. In
impassioned letters to Cardinal Secretary of State Bertone, two of its members
– the former banker Ronaldoew
version, it says that monitoring of the Vatican bank is only permissible with
the consent of Bertone himself. Cardinal Nicora, the man originally assigned to
become the Vatican’s new financial watchdog, was not pleased. In a letter to
Bertone written soon after the change, Nicora complained that, with it,
“we are taking a step back and remaining a tax haven.”

A
confidential memo leaked to the Roman daily Il Fatto Quotidiano makes
clear just how dramatic and divisive things have gotten in the Vatican’s top
echelon. Although the document is undated and bears no indication of who wrote
it, the newspaper claims it comes from “the very top,” perhaps among
those close to Georg Gänswein, the pope’s private secretary and extremely close
confidant. In the document, the anonymous author describes the Vatican bank’s
current business practices as “inconsistent with the transparency
requirements.” It then goes on to say that there is a “concrete risk
of a rating downgrade and, thereby, of a significant loss in the prestige of
the Holy See.”

The
new panel charged with supervising the Vatican bank began operations in May. In
impassioned letters to Cardinal Secretary of State Bertone, two of its members
– the former banker Ronaldo Schmitz, a German, and his American colleague Carl
Anderson — expressed their lack of faith in Gotti Tedeschi. In his letter,
Anderson specifically eluded to the closure of the JPMorgen account. Given the
“difficult times,” Anderson wrote, Gotti Tedeschi had failed to
“vigorously defend the institution.” Schmitz, on the other hand,
lamented Gotti Tedeschi’s “wanting loyalty.”

Two
days later, Gotti Tedeschi was forced to abandon his uncomfortable position.

In
order to establish at least a bit of transparency, pa-842140-esman Lombardi
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