The report of the inspection to the Institute for Religious Works (IOR) commissioned by the Vatican Financial Information Authority should be hopefully ready by the end of April. In the meantime, it is already known that the Institute – misleadingly called the “Vatican bank” – will carry forward its mission, continuing to offer all the services it provides currently. There is a proposal for a reform on the Pope’s desk, which is to be discussed at the next meeting of the Council of Eight Cardinals, as well as in the next meeting of the recently-established Council for the Economy. The reform, in any case, should not deal with the ‘architecture’ of the Institute. Rather, it will address the way the Institute will be inserted in the new Vatican economic-financial structure taking shape.
The pillars of this structure had been built by Benedict XVI, from the 2010 Motu Proprio through which he established the Financial Information Authority and issued the first anti-money laundering law, subsequently improved and superseded under Pope Francis in order to make a financial system that would meet international standards and at the same time was cognizant of Vatican sovereignty and uniqueness. Both sovereignty and uniqueness are indispensible to carry on the mission of the Church.
IOR, Myths and Facts
The Institute for Religious Works, also known by the Italian acronym IOR, is only one part of the financial structure of the Holy See, even if it is constantly identified as one of its most important. It is commonly known as the “Vatican bank”, and even when it is properly described as a financial institution, press editors tend to revert to the expression “Vatican bank”.
In fact, defining the IOR as a “bank” overlooks a series of essential nuances which are very important in a public discussion about it.
The first “essential” nuance is that the IOR is not a bank, but a financial institution. It carries out some banking functions, but not all. The IOR’s ultimate goal is not to earn banking profits. The IOR does not give out credits and loans. The IOR is a central body of the Church, whose funds and profits are at the Pope’s disposal. It serves the mission of the Church and it is at the service of the Church.
These are the facts. There is a IOR reality that goes beyond its 6 billion in assets and 18,900 customers. During an unprecedented closed-door meeting with journalists on June 28, 2012, the then General Director of the IOR Paolo Cipriani noted: «We provide financial support in more than 150 countries. Where a diocese is, it is our duty to support it in its most important services. I had the honor to visit some of the poorest countries, and I found out that the Church does fantistic things. I have been in Peru, I saw missionaries taking care of people in villages with houses made of mud. It is incredible what the Church does in the world».
Yet, the IOR is put on the spot every time there is talk of scandals in Vatican finances. As if the roots of evil present in the Church were to be found at the IOR. There are often references to the so-called IOR/Banco Ambrosiano scandal. The IOR became enmeshed in the bankruptcy of Banco Ambrosiano, which president, Roberto Calvi, was found hanging dead from the Blackfriars Bridge in London in 1981.
In a book entitled “Ambrosiano: il contro processo” (Ambrosiano: a counter investigation), Mario Tedeschi, certainly not a Catholic, analyzed all the documents of the trial and reached the conclusion that the IOR was just a scapegoat, a distraction by men of the Italian government and of the Bank of Italy to hide their dangerous liaisons. These men failed to exercise proper oversight on the financial operations carried out by Roberto Calvi, the so-called “God’s banker”, which in fact financed communist parties and the Sandinista rebels in South America.
That of Mario Tedeschi is a reading of the facts that is never considered in the public discussion. The myth of the IOR as a place of illicit dealings has persisted until today. So much so, that the president of the IOR Board of Superintendence, Ernst von Freyberg, has had to work hard to rebuild the Institute’s image.
Pressures on the IOR
Appointed president of the IOR on Feb. 15, 2013 (four days after Benedict XVI had announced his renunciation) von Freyberg had to overcome opposition to the Institute from even some members of the College of Cardinals. During the pre-conclave meetings, some of the cardinals clearly attacked the existence of the “bank”. Thus, von Freyberg had to work faster to clean up the Institute’s image, substantially accelerating the execution of what was already planned.
The election of Pope Francis, the expectation of renewal created around his election, the eagerness of many to set an agenda for the pontiff himself (probably hoping to weaken the Holy See’s sovereignty) called attention on IOR issues. The pressure was also coming from some of Pope Francis off-the-cuff remarks during his homilies in the morning masses he celebrates at the Domus Sanctae Marthae. The day IOR employees were attending the mass, Pope Francis said that «institutions are not essential». In another occasion, Pope Francis underscored that «Saint Peter did not have a bank account.»
These words sounded like the Institute’s final condemnation. But, also in this case, facts diverted from the myths.
The IOR according to MONEYVAL
Taking into account that the IOR is just one part of the Vatican “financial branch,” and that the reform began by Benedict XVI and continued by Pope Francis is not centered on the so-called Vatican bank, it is worthwhile to revisit the MONEYVAL report, the Council of Europe’s committee which provides an independent and internationally recognized evaluation of the financial transparency standards of the Council’s member states.
The report, issued on July 4, 2012, gave a generally positive evaluation of the measures and reform adopted by the Holy See and the Vatican City State to prevent and combat illicit activities of a financial nature. The report recognizes the IOR’s commitment to meet international standards.
According to the report, the IOR procedures on customer due diligence «went, to some extent, beyond the requirements set out by the Law» (i.e.. law n. CXXVII, reformed with a decree issued January 25, 2012 precisely to fix some of its shortcomings in this regard). Paragraph 471 of the report states that «the procedures partly contain requirements which were missing or unclear in the original version of the Anti-Money Laundering/Combatting the Finance of Terrorism (AML/CFT) Law. This mitigates to some extent the negative impact on effectiveness attributable to the fact that a significant number of elements in the legal framework were introduced only after the first MONEYVAL on-site visit.»
The MONEYVAL report also stressed (paragraph 476) that «the IOR had launched a process of review and update of its client database in November 2010. The IOR demonstrated its commitment and dedication to the completion of this process by the end of 2012. Six persons are involved in this project and are actively approaching clients to receive updated information. By the end of 2011, the Institute had updated the information of approximately 50% of natural persons and 11% of legal persons in its client database module (Sintacs)».
These procedures were based, of course, on some guidelines. There was already a manual (cited, for instance, in paragraphs 411, 412, and 482), and also a categorization of the risks: the different types of clients accepted by the IOR had been classified into five different risk categories (par. 478). In any case, the categorization needed to be updated, because (as mentioned in paragraph 479) «the current approach does not take into account geographic risk, product/service risk, type and frequency of transactions, activity carried out, operative volumes, behavior of the client, or others.» This was normal, as all procedures can be improved.
The new management and the Scarano case
Von Freyberg work started from the basis of this good framework set by the previous management. The new president had also the goal of freshening up the image of the Institute. Von Freyberg promised the publication of the balance sheet, later published and even posted on the IOR official website. At the same time, he had to manage the storm linked to the Scarano Case.
Monsignor Scarano, a suspended accountant for the Administration of the Patrimony of the Apostolic See (APSA), is currently under house arrest and charged with planning to illegally bring 20 million euro in cash from Switzerland into Italy aboard a government airplane. Msgr. Scarano is also under investigation for a separate alleged instance of money laundering, which is what triggered his funds being frozen by the Vatican on July 9, according to a source who works in one of the Vatican offices related to APSA. The investigation concerns transactions Msgr. Scarano made in 2009. At that time, he took 560,000 euro in cash out of his personal Vatican bank account and carried it into Italy, to help pay off a mortgage on his Salerno home. According to the Salerno public prosecutor, Msgr. Scarano asked 56 close friends to accept 10,000 euros in cash in exchange for writing checks for this same amount for deposit into an Italian bank account
The 20 million euro to be brought into Italy would come from the D’Amico brothers, rich ship-owners friend of Scarano, donors to charity causes like the opening of a center for the terminal ill in Salerno. The Vatican Financial Information Authority promptly froze funds and sent – for the first time ever – an international letter rogatory to Italy. There has been no news of a response to the letter so far.
Following the case, it is evident that Scarano’s is an Italian scandal: it is yet to be proven that funds to be donated by the D’Amico brothers were part of the 20 million euro that were going to be transferred into Italy; all of those involved in the trial are Italian and are claiming that the money was going to be transferred to Italy; and tax evasion is not a crime formally linked to money laundering in Italy or in the Vatican. The Rome prosecutor is investigating tax evasion on the part of the Italians D’Amico and corrupted Italian officials.
However, there is the image of this being a Vatican scandal with Scarano under the spotlight. When the scandal broke out, the Institute’s General Director and his deputy resigned (July 1, 2013) and von Freyberg called the American experts of the Promontory Financial Group to carry out a more in depth screening of the accounts, that should be completed within the half of 2014. It was a way to show an acceleration of the process of transparency and projecting an image of renewal.
The mission continues. Despite the pressures
The public discussions about the Institute and the Scarano scandal once again showed that the IOR is often shortchanged by the media narrative. This narrative has simplistically divided the work of the IOR in what has happened before and after Pope Francis, and before and after the change of management.
The pressure continued, embolden by the fact that Pope Francis decided to take stock of the aim and mission of the IOR without reservations, appointing a pontifical commission of reference for the purpose headed by Cardinal Raffaele Farina. The work of the IOR Commission was then sustained by the work of the Pontifical Commission for Reference on the Organization of the Economic-Administrative Structure of the Holy See, and finally by the establishment of a Secretariat for the Economy.
In the end, all of these commissions and offices agreed that the mission of the IOR must not be brought to an end. A press release on April 7 states that the IOR «will continue to serve with prudence and provide specialized financial services to the Catholic Church worldwide. The valuable services that can be offered by the Institute assist the Holy Father in his mission as universal pastor and also aid those institutions and individuals who collaborate with him in his ministry.»
Pell has requested von Freyberg, and the management of the IOR, to «finalize their plan to ensure that the IOR can fulfill its mission as part of the new financial structures of the Holy See/Vatican City State. The plan will be presented to the Holy Father’s Council of Cardinals and the Council for the Economy.»
«In that respect, the Cardinal-Prefect Pell has confirmed the importance of a sustainable systematic alignment of the legal and regulatory framework of the Holy See/Vatican City State with regulatory international best practices. Strict regulatory supervision and improvements in compliance, transparency and operations initiated in 2012 and substantially accelerated in 2013 are critical for the Institute’s future,» the press release stresses.
The IOR activities should remain the same, and will be inserted within the framework that Dominique Mamberti, Vatican Secretary for Relations with States, described as a sort of Holy See unified text for financial matters, i.e. the law n. XVIII on transparency, supervision and financial information which went into effect on October 8, 2013. The law introduced a broad and articulated legal and institutional framework to regulate financial activities within the Holy See and Vatican City State.
In the end, Pope Francis is not thinking about a revolution of Vatican finances. It would not make sense. The Pope is very well aware of the importance of the mission of the IOR. The Argentine Church, in financial turmoil, was saved by the intervention of the Institute at the end of the nineties. More than a revolution, Pope Francis is carrying forward the updating and renewal started with Benedict XVI.