Vatican Bank (Institute for Religious Works)

“The Holy See’s financial statement values St Peter’s Basilica at one euro.
The Vatican Bank...is ‘off the books’, i.e. not listed on the financial statement.” [1]

A US court described it as “murky” [2] and the last President of the Vatican Bank admits that it offers secret accounts to many who “have had problems with the law”. There are no cheque books. Everything is done by transfer, by cash or in gold bullion, so as to be untraceable. This would be perfect for money-laundering. Indeed, “largely because of the Vatican’s reluctance to reveal its account holders to outside authorities — and especially to subject itself to scrutiny of past transactions — suspicion has swirled for years about whether some of its accounts had ties to organized crime or Italian political slush funds”. [3] And, as if the nine-metre thick walls of its tower in the Vatican did not offer enough privacy, “God’s bank” appears to have quietly established itself in the offshore financial centre of the Cayman Islands. [4]

As the bank of an independent state, the Vatican Bank escapes scrutiny from Italy. The Bank of Italy suspects that Italians are hiding taxable income in the bank and the Vatican Bank has even admitted that its insistence on special bilateral financial agreements (memoranda of understanding) with specific countries is to shield itself from the Italian financial authorities. [5] 

The Vatican Bank also has an impenetrable organisation, with three separate boards of directors. And it boasts another curious feature: it is said to be “never audited”, hence funds deposited there may simply vanish without a trace. [6] This bank even maintains that it adopts the remarkable practice of destroying all of its records every ten years. [7]

Increased international oversight

The Vatican Bank is now coming under pressure from three organisations to conform more closely to international banking rules designed to prevent fraud.

♦ In 2009, to be able to continue using the euro, the Vatican Bank agreed to submit to the anti-money-laundering laws of the European Union thus putting itself under the jurisdiction of the European Court of Justice. It updated its agreement with Italy and the European Commission to come closer to conforming to European Union monetary regulations against financial fraud  (Article 8) [8] and brought in a Vatican law “approximating” the EU rules at the end of 2010, in order for it to better monitor itself....  [9] (A spokesman has claimed that it is “not a bank in the normal definition of the term” and therefore expects special treatment.) [10]

♦ The Vatican Bank has been in talks with the Organisation for Economic Co-operation and Development which sets transparency standards. However, more than a decade after the OECD began its investigation of tax havens in 1998, the Vatican is still not on its “white list” of countries with good records on transparency. [11]

♦ The Vatican Bank is also negotiating with the Council of Europe’s Financial Action Task Force (FATF), which imposes measures against money laundering and terrorist financing and is also known as Moneyval. The Vatican promised to adopt the anti-money laundering standards set by the FATF, which obliged it to pass anti-money laundering legislation and set up the equivalent of the Bank of Italy’s Financial Intelligence Unit to monitor the IOR’s activities. [12]

Money laundering investigation

 On the one hand, it has used its “less than clear” relationship to the Vatican State to claim “sovereign immunity”. [13] This connection with the Vatican State has enabled it to avoid having to answer charges in a US court that after WWII it helped hide and launder millions of dollars of concentration camp loot. [14] And it continues ― when convenient ― to assert its immunity from scrutiny as an organ of the Vatican State. Thus in September 2010 a Vatican spokesman claimed that “The IOR is located within the territory of Vatican City State, beyond the jurisdiction and surveillance of various national banks”. [15] 

Yet, on the other hand, the IOR was discovered in 2010 to be acting as if it were an Italian bank, thus avoiding scrutiny of certain money transfers. The Italian prosecutor said that in refusing to give an Italian Bank the requested information the Vatican Bank had demonstrated “a deliberate failure to observe the anti-laundering laws with the aim of hiding the ownership, destination and origin of the capital.” [16] Although the Vatican insists this is a “misunderstanding” which can be easily cleared up, an Italian judge has twice upheld the seizure of €23 million ( $33 million) and denied the Vatican’s request for a return of the funds until mid 2011 [17]. In December 2010, three months after the mysterious transaction came to light, an Italian judge criticised the Vatican bank for continuing to hide the identity of its clients. [18]

Additional unrelated cases have also come to the attention of the Italian police. In one instance the agent caught shifting mysterious funds for a rich client was a priest. [19] And another priest apparently used the Vatican Bank to help his father launder the €250,000 he had obtained from European Union funding for a non-existent fish farm, a grant which was then withdrawn from his account by an uncle previously convicted for being with the mafia. [20]

At one time this would have been passed over in silence. However, although the former President of the Vatican Bank, Gotti Tedeschi, (reported to be a member of Opus Dei) is a close adviser to Italy’s Finance Minister, [21] the climate of deference before the Vatican appears to be changing and the Italian authorities are becoming bolder in enforcing financial regulation on the Vatican Bank. “The era of omertà is over,” said an expert, referring to the mafia code of silence. [22] 

Tax haven investigation by OECD

The Vatican Bank is effectively “off-shore” from Italy.

IOR does not publish its accounts but is reported to hold €5bn in assets. It provides banking operations for Vatican staff, charitable operations and missions worldwide. It also serves an unknown number of private Italian account holders who use the Vatican as a tax haven. [23]

And, in addition, this “off-shore” tax haven appears to have its own “off-shore” havens. Curious is the location of two of the Church’s “independent missions”. These are missions too small to be set up as apostolic prefectures, yet which are still given autonomy, and thus are not part of any diocese. [24] There are nine  “independent missions” worldwide, most of them in remote areas with a sparse Catholic population, like Azerbaijan and Tajikistan. [25] However, two of them have been hived off from pre-existing dioceses. These are the Cayman Islands (left) and the Turk and Caicos Islands (right), both of them offshore financial centres.

It is difficult to use pastoral needs to explain the Vatican’s decision to excise the Cayman Islands [in 2000] from its natural Jamaican diocese of Kingston, in order to proclaim them missio sui juris [“independent missions”] under the direct control of the Holy See and entrust them to Cardinal Adam Joseph Maida, a member of the IOR board. [26]

For every person in the Cayman Islands, there are two companies and about five investment funds registered there. [27] In 1998, however, the Organisation for Economic Co-operation and Development began cracking down on tax havens. [28] 

Q. What is a tax haven? A. Any country that offers low rates of tax to attract business is to some extent a tax haven. The real problem is that many countries refuse to release details on suspected tax dodgers to other countries. [29]

Even after a decade of prodding by the OECD, the Caymans and Turk and Caicos Islands have remained on the list of “promise to do better” tax havens. [30] Another curious fact is that in 1998, the year the OECD started to examine tax havens, the administration, (and presumably its financial records) of the “independent missions” in the Turk and Caicos Islands was moved from neighbouring Nassau away from the Caribbean to, of all places, Newark, New Jersey. [31] “Due to its proximity to New York, Northern New Jersey in particular has become susceptible to the money laundering industry.” [32] ...Guess where Newark is.

Of course, none of this has stopped the Pope from attacking tax havens for robbing the poor and laying the blame for the global financial crisis at the door of “offshore centres”. [33]

According to the editors of Lancet, “If international corporations did not channel more than half the world's trade through tax havens, but instead paid local taxes, then 230 deaths in children due to starvation could be prevented each day by the extra revenue.” [34]

Vatican Bank tries to satisfy high-profile Council of Europe, (FATF or Moneyval)

Internal criticism of the bank was leaked in Janaury 2012, when letters from Carlo Maria Vigano, secretary general of the governorate of the Vatican, were published in Italian papers.

Much of his criticism was focused on a Vatican financial committee that includes the head of the Vatican bank, Ettore Gotti Tedeschi. He said the bankers were favouring “their interests” more than the Vatican's. In one financial operation by the bankers that went wrong, the Vatican made a net loss of 2.5 million euros ($3.2 million), the archbishop said. [35]

Two further blows to the reputation of the Vatican Bank were delivered in March 2012. The US State Department for the first time listed the Vatican as potentially vulnerable to money laundering, a notch below those states for which it has solid proof of this. [36] And a few days later the large American bank JP Morgan Chase announced that it was closing the Vatican Bank's account, This account, number 1365, was a “sweeping facility,” meaning that it was emptied out at the end of each day with funds transferred to another IOR account in Germany. Over a period of about 18 months some 1.5 billion euros passed through this mysterious account. [37]

All this was followed in May by the forced resignation of the Vatican Bank’s director, Gotti Tedeschi, a member of Opus Dei who had been in charge since 2009. [38] 

In 2012 the Council of Europe reported that the Vatican Bank had made progress in satisfying the transparency test of its FATF or Moneyval. It managed to pass nine of 16 “key and core” aspects of its financial dealings. However, perhaps predictably, its promises were better than its performance: 

The 241-page report found serious problems with the agency's role as a supervisor or regulator of the Vatican's finances, giving it a failing grade. It said the agency had yet to conduct any inspections, can't sanction one of the two key Vatican financial institutions and that its role, authority and independence needed clarification. [39]

When the COE report was released Monsignor Ettore Balestrero, the head of the Vatican delegation to the Moneyval committee, was asked whether the Vatican was still trying to get onto the FATF and OECD's “white lists” of states with the highest standards in fighting money laundering. Noncompliance with these does not carry the same penalties as can be applied by the European body —  withdrawal of the right to use the euro. Nor does not making it onto the two "white lists" prompt banks that traditionally handle the Holy See's financial transactions to sever ties, as happened when EU rules appeared to have been flouted. [40] When questioned, the Monsignor said that trying to satisfy the FATF would be next on the list and he hedged about the OECD. [41]

Bishop: It’s theologically impossible for the Church to launder money

In an unguarded moment in 2005 the Bishop of Aguascalientes and former head of the Education Commission of the Mexican Bishops’ Conference (CEM) revealed how the Church can let the end justify the means. Giving money to the Church, he said, “purified” it. Monsignor Ramón Godínez Flores who had studied theology and canon law in Rome explained that “It is immaterial where the donations from drug trafficking originate and it’s not up to us to investigate the source of the money.” 

Bishop Godínez said, “Whatever donations I get, I accept with thanks.” [42]

A Church official has admitted to knowing of the Church accepting drug money. [43] And, in fact, this appears to be so widespread that the spokesman of the President used the customary term for this ―  “narco-alms”. Even the Bishop admitted, “I have known of cases, but they have been purified”. [44]

Related

Rachel Donadio and Andrew Higgins, “Power Struggle on Reforming Vatican Bank”, New York Times, 9 March 2013. http://www.nytimes.com/2013/03/10/world/europe/power-struggle-on-reforming-vatican-bank.html

Curzio Maltese, “The Secrets of the Vatican Bank” (“Scandali, affari e misteri: tutti i segreti dello Ior”), La Repubblica, 26 January 2008, translated by Graham Hunter. 

Elisabetta Povoledo, “Transfer of Vatican Official Who Exposed Corruption Hints at Power Struggle”, New York Times, 26 January 2012. http://www.nytimes.com/2012/01/27/world/europe/archbishop-viganos-transfer-hints-at-vatican-power-struggle.html

Notes

1. “Book Review: Render unto Rome: The Secret Life of Money in the Catholic Church”, National Secular Society, 17 June 2011. http://www.secularism.org.uk/book-review-render-unto-rome-the.html

2. Judgement of the Ninth U.S. Circuit Court, 12 April 2005. “Court clears way for suit against the Vatican Bank for Nazi gold”, San Jose Business Journal, 18 April 2005. http://www.bizjournals.com/sanjose/stories/2005/04/18/daily9.html 

3. Rachel Donadio and Andrew Higgins, “Power Struggle on Reforming Vatican Bank”, New York Times, 9 March 2013. http://www.nytimes.com/2013/03/10/world/europe/power-struggle-on-reforming-vatican-bank.html

4. “The Secrets of the Vatican Bank”, translated from La Repubblica, 26 January 2008. 
http://www.concordatwatch.eu/showdoc.php?org_id=843&doc_id=1821  

5. “Vatican, US Treasury agree to share financial data”, AP, 7 May 2013.
http://bigstory.ap.org/article/vatican-us-treasury-agree-share-financial-data

6. John Loftus, former US Department of Justice prosecutor with the Nazi-hunting OSI unit, quoted by Jonathan Levy, “The Vatican Bank”, ed. Russ Kick, Everything You Know Is Wrong: The Disinformation Guide to Secrets and Lies, 2002, p. 19.
http://books.google.com/books?id=T75G7hLlk80C&pg=PA19&lpg=PA19&dq=loftus+%22osi+unit%22&source=web&ots=ABfGVLzusl&sig=SeGIC9RubNBDZGHwzRXVsUEh96U#PPA20,M1 

7. “Declaration of Avvocato (lawyer) Franzo Grande Stevens in support of defendant IOR's (Institute for Religious Works', i.e., Vatican Bank's) motion to dismiss plaintiff's third amended complaint”, 30 October 2000, Turin, Case No. C-99-4941 MMC, United States District Court, Northern District of California, § 21, “It is the custom and practice of the IOR not to retain records after ten years”. http://www.vaticanbankclaims.com/vatpr.html 

8. Monetary Agreement between the European Union and the Vatican City State, 17 December 2009,  Article 8 and the Annex. http://ec.europa.eu/economy_finance/euro/world/outside_euro_area/documents/2010-01-01-vatican_monetary_agreement.pdf 

9. EU Directives are not directly applicable end even EU states (which the Vatican is not) must transpose the requirements into their national legislation. 

Jeffrey Donovan and Lorenzo Totaro, “Pope to Bind Vatican to Money-Laundering Law, EU Says”, Bloomberg News, 29 October 2010. http://www.bloomberg.com/news/2010-10-29/-papal-act-set-to-commit-the-vatican-to-money-laundering-laws-eu-says.html 

10. “Vatican Finances Aboveboard, Affirms Aide”, Zenit, 23 September 2010. http://www.zenit.org/article-30465?l=english 

11. Guy Dinmore, “The Vatican: A murky See”, Financial Times, 24 September 2010. http://www.ft.com/cms/s/0/4c7e5606-c802-11df-ae3a-00144feab49a.html#axzz150QiGLfh 

12. Guy Dinmore, “Sicily probe adds to Vatican bank pressure in Rome”, Financial Times, 3 November 2010. http://www.ft.com/cms/s/0/3a207e64-e736-11df-880d-00144feab49a.html#axzz14zXPKrYj 

13. Judgement of the Ninth U.S. Circuit Court, 12 April 2005. “Court clears way for suit against the Vatican Bank for Nazi gold”, San Jose Business Journal, 18 April 2005. http://www.bizjournals.com/sanjose/stories/2005/04/18/daily9.html 

14. “Lawsuit charges that Nazi gold funded Vatican ratlines”, Concordat Watch. http://www.concordatwatch.eu/showtopic.php?org_id=890&kb_header_id=6151 

15. “Vatican Finances Aboveboard, Affirms Aide”, Zenit, 23 September 2010. http://www.zenit.org/article-30465?l=english 

16. “Prosecutors: Vatican Bank Defying Laundering Laws”, The Associated Press, 22 October 2010. http://abcnews.go.com/Business/wirestory?id=11947823 

17.  “Vatican's Move to Financial Transparency Rewarded”, Zenit, 2 June 2011. http://www.zenit.org/e-32737

18. “Italian judge upholds seizure of Vatican assets”, The Associated Press, 20 December 2010. http://www.msnbc.msn.com/id/40754048/ns/world_news-europe/

“Vatican bank sets up money-laundering unit hoping to escape scandal”, Guardian, 29 December 2010. http://www.guardian.co.uk/world/2010/dec/29/vatican-bank-money-laundering-authority

“Vatican Creates Financial Watchdog”, The Associated Press, 30 December 2010. http://www.nytimes.com/aponline/2010/12/30/world/europe/AP-EU-Vatican-Bank.html

“Pope acts to tackle money-laundering in Vatican”, Agence France Press, 31 December 2010. http://uk.news.yahoo.com/18/20101230/tbs-pope-acts-to-tackle-money-laundering-5268574.html

19. Lorenzo Totaro, “Vatican Bank Probe Extended to Suspect Clergymen Accounts, Corriere Says”, Bloomberg News, 21 October 2010. http://www.bloomberg.com/news/2010-10-21/vatican-bank-probe-extended-to-suspect-clergymen-accounts-corriere-says.html  

20. Guy Dinmore, “Sicily probe adds to Vatican bank pressure in Rome”, Financial Times, 3 November 2010. http://www.ft.com/cms/s/0/3a207e64-e736-11df-880d-00144feab49a.html#axzz14zXPKrYj 

21. Paola Totaro, “Vatican in shock as its bankers investigated”, Sydney Morning Herald, 23 September 2010. http://www.smh.com.au/world/vatican-in-shock-as-its-bankers-investigated-20100922-15mzu.html

22. Rachel Donadio, “With Bank Inquiry, Vatican Confronts Modern Life”, New York Times,  28 September 2010. http://www.nytimes.com/2010/09/30/world/europe/30vatican.html 

23. Guy Dinmore, “Sicily probe adds to Vatican bank pressure in Rome”, Financial Times, 3 November 2010. http://www.ft.com/cms/s/0/3a207e64-e736-11df-880d-00144feab49a.html#axzz14zXPKrYj 

24. “Sui iuris” http://www.statemaster.com/encyclopedia/Sui-iuris 

25. “Hunger: enough is enough”, Lancet editorial, Volume 381, Issue 9864, Page 348, 2 February 2013,
http://www.thelancet.com/journals/lancet/article/PIIS0140-6736(13)60150-6/fulltext

26. Catholic Dioceses in the World by Type: Independent Missions (Missions “sui iuris”)  http://www.gcatholic.com/dioceses/data/type-miss.htm 

27. “The Secrets of the Vatican Bank”, translated from La Repubblica, 26 January 2008. http://www.concordatwatch.eu/showdoc.php?org_id=843&doc_id=1821 

28. Iain Dey, “Last orders: Is the sun about to set on tax havens?” The Times, 8 March 2009. http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article5864693.ece 

29. “Harmful Tax Competition: An Emerging Global Issue” [title of OECD report, 1998], Wikipedia. http://en.wikipedia.org/wiki/Harmful_Tax_Competition:_An_Emerging_Global_Issue 

30. Iain Dey, “Last orders: Is the sun about to set on tax havens?” The Times, 8 March 2009. http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article5864693.ece 

31. Willem Buiter, “Non-doms and tax havens: the Chancellor’s good fortune”, Financial Times, 29 February 2008. http://blogs.ft.com/maverecon/2008/02/non-doms-and-tax-havens-the-chancellors-good-fortune/ Officially it’s called “Jurisdictions Committed to Improving Transparency and Establishing Effective Exchange of Information in Tax Matters”.

32. “Roman Catholic Mission Sui Iuris Of Turks And Caicos” http://www.servinghistory.com/topics/Roman_Catholic_Mission_Sui_Iuris_of_Turks_and_Caicos 

33. James B. Johnston, “An Examination of New Jersey’s Money Laundering Statutes”, Seton Hall Legislative Journal, Vol. 30.1, 2005, p. 2. http://works.bepress.com/cgi/viewcontent.cgi?article=1004&context=james_johnston 

34. “Pope attacks tax havens for robbing poor”, Guardian, 7 December 2008. http://www.guardian.co.uk/world/2008/dec/07/pope-benedict-vatican-tax-havens-credit-crunch

35. “Top archbishop 'denounces Vatican corruption' ”, AFP, 25 January 2012. http://www.google.com/hostednews/afp/article/ALeqM5hcJstSgPS-bwlQLRjIWf9BXE5vJQ?docId=CNG.3248d6bb9b1f306d64ddfceb443a1871.8c1

36. “US sees Vatican as potential money laundering hub”, AFP, 7 March 2012. http://news.yahoo.com/us-sees-vatican-potential-money-laundering-hub-235850767.html 

The 2012 International Narcotics Control Strategy Report (volume 2) has three categories for the list of 190 countries vulnerable to money-laundering activities: of primary concern, of concern and monitored. The Vatican has been placed in the second category, "of concern". (pp. 31, 33) https://www.hsdl.org/?view&did=702517

37. “Vatican bank image hurt as JP Morgan closes account”, Reuters, 19 March 2012. http://uk.reuters.com/article/2012/03/19/uk-vatican-bank-idUKBRE82I0P820120319

“ 'Cliente a rischio'. JPMorgan chiude il conto dello Ior”, Il sole 24 ore, 18 March 2012. http://www.ilsole24ore.com/art/finanza-e-mercati/2012-03-18/morgan-chiude-conto-143759.shtml

http://www.google.com/hostednews/afp/article/ALeqM5hcJstSgPS-bwlQLRjIWf9BXE5vJQ?docId=CNG.3248d6bb9b1f306d64ddfceb443a1871.8c1

38. “God’s bankers:A beleaguered papacy is embroiled in intrigue. Some scent a succession struggle”, Economist, 7 July 2012. http://www.economist.com/node/21558249

Sandro Magister, “The Hunt for Thieves in the Vatican”, Chiesa, 31 May 2012. http://chiesa.espresso.repubblica.it/articolo/1350256?eng=y

“Cardinals split on whether to sack head of Vatican Bank”, AFP, 2 June 2012. http://www.thejournal.ie/cardinals-split-on-whether-to-sack-head-of-vatican-bank-472636-Jun2012/

39. “Vatican Passes Key Financial Transparency Test”, Associated Press, 18 July 2012. http://abcnews.go.com/International/wireStory/report-card-vatican-transparency-released-16799879

The press release fo the COE itself carries a less sanguine title:

“Council of Europe report calls on the Holy See to strengthen supervisory regime”, Council of Europe, 18 July 2012. https://wcd.coe.int/ViewDoc.jsp?Ref=DC-PR079(2012)&Language=lanEnglish&Ver=original&Site=DC&BackColorInternet=F5CA75&BackColorIntranet=F5CA75&BackColorLogged=A9BACE

See also:

Mutual Evaluation Report – Executive Summary
Anti-Money Laundering and Combating the Financing of Terrrorism
The Holy See (including Vatican City State) 4 July 2012
http://www.coe.int/t/dghl/monitoring/moneyval/Evaluations/round4/MONEYVAL(2012)17_MER_HS_en.pdf

Mutual Evaluation Report – Annexes
Anti-Money Laundering and Combating the Financing of Terrrorism
The Holy See (including Vatican City State) 4 July 2012
http://www.coe.int/t/dghl/monitoring/moneyval/Evaluations/round4/MONEYVAL(2012)17ANN_HS_en.pdf

40. “Vatican Urged to Strengthen Bank Controls”, Wall Street Journal, 19 July 2012. http://online.wsj.com/article/SB10001424052702304039104577534370025033112.html

41. “Vatican Passes Key Financial Transparency Test”, Associated Press, 18 July 2012. http://abcnews.go.com/International/wireStory/report-card-vatican-transparency-released-16799879

42. “La Iglesia católica dice purificar las limosnas del narcotráfico en México”, AFP, 20 September 2005. http://www.absurddiari.com/s/llegir.php?llegir=llegir&ref=7837

43. “Admite Iglesia recibir narco limosnas”, Terra TV, 10 April 2007. http://www.terra.com.mx/articulo.aspx?articuloid=170552

44. “México: Obispo acepta que Iglesia reciba narcolimosnas”, Reuters, 21 September 2005. http://archivo.abc.com.py/2005-09-21/articulos/205752/mexico-obispo-acepta-que-iglesia-reciba-narcolimosnas

 

Last update 11 May 2013