Canon Law in action: Were the Papal States a “perfect society”?
One night in 1859 in the pope's kingdom his police raided a Jewish home. In accordance with one of the “sacred canons” and at the pope's behest, they kidnapped the family's six-year-old. Almost a century later, at the end of WWII, in accordance with the same Church law, the Vatican refused to return baptised Jewish children to surviving relatives. Canon law still gives the final say to the bishop, not the parents, and to its own rules, not civil law.
Until 1871 the pope was head of both church and state in his kingdom in central Italy. Known as the Papal States, this society was run by the Vatican on its own territory and its own terms: that is to say, according to the “sacred canons”. Several decades later these canons were organised into a code of Canon Law and a revised version of this remains in force today in both the Vatican City State and in Catholic institutionsaround the world.
Pius IX, the last pope to rule over the Papal States, was opposed to "reason" since it interfered with obedience to Church laws. He told his cardinals,
Take pains to impress on the Christian people a due obedience and subjection to rulers and governments. Do this by teaching, in accordance with the warning of the Apostle, that all authority comes from God. Whoever resists authority resists the ordering made by God Himself,... 
These authoritarian governments were, in turn, to be subjected to the papacy. But the laws of the two powers, Church and state were not equal. "In the case of conflicting laws enacted by the two powers" the law of the Church should prevail. Pius IX claimed that the Church was a “perfect society”  and this is echoed in several concordats. “The Spanish State recognises in the Catholic Church the character of the perfect society...” So begins Article 2 of the Franco concordat. And in Article 3.1 of the Trujillo concordat the Dominican Republic also acknowledges the Church as a “perfect society”.
So much for the theory, but what actually happened when these “sacred canons” were used to run a whole society? The rest of Italy did not envy the subjects of the pope. In fact, in the last years of the Pius IX’s reign foreign troops were needed to keep his subjects from rebelling in the name of democracy. A newspaper from Genoa described the pope’s government in 1859 as one “that the oppressed and outraged peoples have repeatedly expelled every time it has been left unprotected by a foreign army”.  And even more than a decade after they were freed of the pope’s rule, the anger of his former subjects was such that a large group of them tried to toss his coffin into the Tiber.  Contemporary descriptions show the reasons for their dissatisfaction at being forced to live in this “perfect society”.
Rome, 1849: Victor Hugo reports on the Papal States
…An utter chaos of feudal and monkish laws…. For Rome alone fourteen special tribunals. In these tribunals, no guarantee of any kind about the proceedings. The deliberations are secret, oral defence is forbidden. Ecclesiastical judges pass judgement on secular matters and on laymen….
The Jews penned [into the ghetto] and locked up every evening, as in the fifteenth century … the clergy mixed up in everything. Priests report to the police. Treasury officials — and this is their own ruling — do not consider it their duty to be accountable to the Treasury, but ‘only to God Himself’.
A double censorship oppresses thought: political censorship and religious censorship. One throttles public opinion, the other silences the conscience. They have just re-established the Inquisition. 
Victor Hugo's account is backed up by a memorial in Rome's Piazza del Popolo to two Carbonari, who were beheaded in 1825 by order of the pope. (The Carbonari was a secret society which aimed to establish democracy, a dangerous position to take in the Papal States.) These two men were executed “without proof and without defence”.
How little had changed in the papal states since mediaeval times is also shown by a petition from the mid-19th century. It was submitted to the pope by Baron Solomon Rothschild on behalf of the Jews living there and lists in great detail the hardships facing them.
Rothschild complained in particular about the confinement of the Jews in the ghetto, the ban on the possession of property outside the ghetto, the prohibition on the exercise of the professions and of many other occupations, the annual carnival rites of degradation, the heavy annual special levies they were subjected to, their exclusion from Rome's hospitals, the obligation of attending forced conversionary sermons (by then just four times a year), and other such burdens. 
This was how the popes treated their most vulnerable subjects — those living outside the fold of the Church in a theocratic state.
Bologne, 1858: Kidnapping in accordance with the “Sacred Canons”
However, it took It wasn't until several decades later that the suffering of the pope's subjects, especially his Jewish ones, attracted international attention. In 1858 an incident occurred that shocked the world and probably hastened the end of the pope's reign over central Italy. What Italian statesmen “could not accomplish in the halls of Versailles and London, and even on the battlefield, the kidnapping of Edgardo Mortara did by arousing anti-Church feeling in the cause of national unification”. On a summer night in 1858 there was a knock at the door of a Jewish family in Bologne. It was the papal police, and their visit was mandated by the “Sacred Canons”. They came to forcibly remove a six-year-old child from his loving family — forever.
No one would tell the Mortara family why they were losing their son. Only later would the distraught parents learn that an illiterate Catholic servant girl who had worked for the family claimed to have “baptised” Edgardo five years before, when the infant was sick — and when his parents were not in the room. Allegedly in exchange for the price of a dowry, the Inquisitor, Father Feletti, got the servant girl to acknowledge the “facts” to him. Once she admitted baptising the child, the Inquisitor’s “investigation” was concluded. The police could then “legally” take the child from his parents and his home. 
It was all in accordance with the “Sacred Canons”, which stipulated that if a child were near death, any Catholic could baptise the child, even if the child’s parents did not approve. And this is still Church policy. According to Canon 861 §2 " in a case of necessity any person with the right intention, confers baptism licitly" and Canon 868 §2 says that "An infant of Catholic parents or even of non-Catholic parents is baptized licitly in danger of death even against the will of the parents. The “sacred canons” also stated that if a Jewish child had been baptised, the child was a Christian and could not be raised in a Jewish home, even if the home belonged to his parents. 
Satisfied that he had upheld Church law, the Inquisitor, Father Feletti felt no qualms: “I have acted in good conscience, for everything has been done punctiliously according to the Sacred Canons”. 
And this was no isolated example. For centuries non-Catholic children had been removed from their parents, and non-Catholics had been persecuted, all properly authorised by the “Sacred Canons”. As early as 1215 the Fourth Lateran Council foreshadowed of Hitler's yellow star, by decreeing that “Jews and Saracens [...] must be distinguished from the Christian by a difference of dress.” This Church council even prepared the way for the kidnapping of little Edgardo by stipulating that “Jews who have received baptism are to be restrained by the prelates from returning to their former rite.” 
In the hope of converting Jews more quickly by making them more accessible to preachers, popes and bishops confined them in ghettos.  This practice received official sanction in the papal bull of 1555 which, of course, became part of the “Sacred Canons”. It begins,
Since it is completely senseless and inappropriate to be in a situation where Christian piety allows the Jews (whose guilt — all of their own doing — has condemned them to eternal slavery) access to our society and even to live among us.... 
Three centuries later Pius IX was in full accord. He was indignant that the international press questioned his kidnapping of Edgardo: “The newspapers can write all they want. I couldn't care less about what the world thinks,” he told a Jewish delegation. And he added a threat: “Take care. I could have made you go back into your hole.”  In fact he had already confined the Jews to the ghetto again and rescinded their civil rights. In 1871 he said “We have today in Rome unfortunately too many of these dogs...”. 
The requirement that Jews in the Pope’s domain live within the ghetto was only abolished when the last remnant of the Papal State was overthrown on September 20, 1870. The ghetto of Rome was the last remaining ghetto in Western Europe until its later reintroduction by Nazi Germany.
In 1870 Italian forces breached the walls of Rome and ended papal rule, freeing the inhabitants to live under modern civil law. Since then the temporal control of the Church has been confined to the Vatican City, a city-state within Rome of less than half a square kilometre, where Italian law has no jurisdiction. Canon law has free rein in the Vatican City, whose 500 citizens are all adults and all clerics. Few would quarrel with this, as it is their choice to live under Canon Law.
However, canon law also reigns — as specified in numerous concordats — in Church institutions worldwide. The problem with this is that this puts under canon law laymen who have not entered Catholic religious orders and therefore have not agreed to live under this regime.
Today this can affect laymen who work in a Church institution and who can be fired for an infraction of canon law, such as remarrying after a civil divorce. However, during the Nazi era large numbers of laymen, and non-Catholics, at that, found themselves under canon law, not because they wanted a job, but because desperate parents wanted the children to survive.
That's when Church institutions, because of their protected position, found themselves besieged by frantic people in countries occupied by the Germans during World War II. Jewish parents who saw no chance of saving their children unless they parted with them, handed them over to Catholic convents. This, of course, put the children under canon law. And when these children were baptised, they then faced the same fate as little Edgardo.
In a recently revealed letter “approved by the Holy Father”, Pius XII, and dated 20 November 1946, it is ordered that only those children be returned to their parents who had not been baptised as Catholics.  Anything else, of course, was forbidden by canon law. Says Father Peter Blet, the Church's whitewashing official chronicler of Pius XII's wartime activities: "On the basis of the canon law of that period, it was obligatory to provide a Catholic education" — which Jewish parents would not do — "to a person who had been baptised." 
He makes it sound as if this is confined to the past, but in fact today's version retains this requirement, though it is stated obliquely. Can. 794 §2 says that "Pastors of souls have the duty of arranging everything so that all the faithful have a Catholic education". And Canon 98 §2 still gives control over a baptised Catholic child to the bishop whenever he sees fit, regardless of the wishes of the parents — and also in cases where canon law conflicts with the requirements of civil law. 
However, the problem appears to go deeper than canon law, which often provides enough wiggle room to justify many different stances. It seems, instead, to lie in a fundamental matter of priorities. Pius IX, with his characteristic lack of tact, stated it more frankly than his successors are ever likely to do. Between the two competing authorities — that of God and that of the parents — God's must prevali, for was He not the author of the natural rights that parents enjoyed?
The right "acquired by the Church over the baptised infant is of a superior and more noble order" than that of the parents. 
Related story about this little-known tradition of kidnapping and conversion:
French baby's human rights cause confrontation with Pope
The new baby caused a classic collision between a secular state and a theocracy: No, Your Holiness, she is not a baptised Jewish baby who belongs to the Church. She is a tiny citizen of France and has the rights of any other Frenchman....
James Walston, "Holy fathers and suffering sons: The Catholic church, embroiled in a row over a Jewish boy abducted by Pope Pius IX in 1858, has a new critic - the child's great-great-niece", The Guardian, 11 March 2000.
"Jews and Catholics: An Exchange", by A.F. Crispin, David Kertzer, reply by Istvan Deak, New York Review of Books, vol. 50, no. 4, 13 March 2003.
3. Pius IX, Allocution “Singulari quadam”, 9 December 1854, quoted in Syllabus of Errors, #19. Ibid.
4. Gazzetta del populo, Bologne, 28 November 1859, quoted in David I. Kertzer, The Kidnapping of Edgardo Mortara, 1997, p. 248.
5. Pius IX. http://www.csun.edu/~hcfll004/PiusIX.html
6. Victor Hugo, “Assemblée Législative 1849-1851”, [II, Expédition de Rome], 15 October 1849, Actes et Paroles, vol. I, [Online reader, page 131] http://www.gutenberg.org/etext/8186 Translated by Dr. David Holohan.
7. David I. Kertzer, The Kidnapping of Edgardo Mortara, 1997, p. 89.
8. Harry V. Willems, Review of David I. Kertzer, The Kidnapping of Edgardo Mortara, Library Journal, 5/01/1997 http://www.davidkertzer.com/en/books/kidnapping_of_edgardo_mortara_reviews.html
9. Carole D. Bos, J.D. (Juris Doctor), “The Kidnapping of Edgardo Mortara”, Chapter 5. http://www.lawbuzz.com/tyranny/mortara/outrage.htm
10. Bos, Ibid., Chapter 3. http://www.lawbuzz.com/tyranny/mortara/bad_laws.htm
11. David I. Kertzer, The Kidnapping of Edgardo Mortara, 1997. Chapter I (containing this quote) is posted at: http://www.randomhouse.com/vintage/catalog/display.pperl?isbn=9780679768173&view=excerpt
12. Medieval Sourcebook: Twelfth Ecumenical Council: Lateran IV, 1215, Canons 68 and 70. http://www.fordham.edu/halsall/basis/lateran4.html
13. Stacie Johnson, “The History of Jews in Rome and the Jewish Ghetto”, University of Washington History Department, 2 March 2009. http://staciesromeadventures2009.blogspot.com/search
14. Pope Paul IV, “Cum nimis absurdum”, 14 July 1555. Apparently this Wikipedia article is the only place a full translation can be found. http://en.wikipedia.org/wiki/Cum_nimis_absurdum
15. “Not So Saintly?”, Time Magazine, 4 September 2000. http://www.time.com/time/magazine/article/0,9171,997840-3,00.html
16. Garry Wills, “‘The Popes Against the Jews’: Before the Holocaust”, New York Times, 23 September 2001. http://www.nytimes.com/2001/09/23/books/before-the-holocaust.html reposted: http://online.sfsu.edu/~rone/Religion/popesagainstjews.html
17. Document revives WWII-era Vatican debate, AP, 31 December 2004. http://www.foxnews.com/story/0,2933,143030,00.html
Elaine Sciolino and Jason Horowitz, “Saving Jewish Children, but at What Cost?”, New York Times, 9 January 2005. http://www.nytimes.com/2005/01/09/world/09vatican.html
18. Daniel Jonah Goldhagen, “The Church’s Kidnapping Policy: A damning document shows the Catholic Church tried to keep some Jewish children it sheltered from returning to their families”, New Republic, 31 January 2005. http://www.beliefnet.com/story/159/story_15937.html
98. Canon 98 §2: “...In what pertains to the appointment of guardians and their authority, the prescripts of civil law are to be observed unless canon law provides otherwise or unless in certain cases the diocesan bishop, for a just cause, has decided to provide for the matter through the appointment of another guardian.”
20. "Cronaca", Il Cattolico, 1858, p. 18, cited by Kertzer, p. 147.