One area for improvement concerned the functions of the AIF, which operates both as a Financial Intelligence Unit (FIU) and an oversight mechanism.  MONEYVAL judged AIF «not compliant» in its oversight function (Intergovernmental Financial Action Group (GAFI) recommendation 23) and «largely compliant» as a FIU (GAFI recommendation 26).  MONEYVAL recommended a clear separation of the two functions, without addressing if they can remain under a common AIF umbrella.

After the publication of the MONEYVAL report, the Holy See resumed its initiatives for greater transparency.  The goal now was to address the «not compliant» or «partially compliant» assessment with respect to specific recommendations for transparency,  and to harmonize further reforms with the GAFI’s own realignment of recommendations.  GAFI had a list of 40+9 recommendations, which the MONEYVAL evaluators used as their guide.  Recently, GAFI realigned its set of recommendations: there are now 40 recommendations, including several that are completely new – for example, recommendations that deal with financing of the proliferation of weapons of mass destruction, which also meets the Holy See commitment.  The Holy See has always been engaged in raising awareness about non proliferation issues, and is thus particularly attentive to these new recommendations.

The Holy See needed to thrust a new impetus to the AIF.  Francesco De Pasquale had been AIF’s director since its establishment.  De Pasquale is an appeals lawyer, and had 20 years of experience dealing with anti-money laundering legislation.  He is also a former Bank of Italy official.  Marcello Condemi, who drafted the first Vatican City State anti-money laundering law (law n. 127, later reformed), had also been a Bank of Italy official.  But even if there were plenty former Bank of Italy officials at the Vatican, the Bank of Italy showed some hostility towards the Vatican.  Jeffrey Lena, the Holy See lawyer and international law expert, plainly stated in an interview that the Holy See maintains cordial financial relations with all the countries, except Italy, the only country that «considers the Vatican non equivalent for what concerns anti-moneylaudering»

(Ultimately, the way in which financial relations are managed is a matter in which the very sovereignty of the Holy See is at stake.  All too often, Italy falls into treating the Holy See as if the Vatican were a multinational company on Italian territory –which is not.  History reminds us how the Holy See preferred to sign a Concordat with the dictator Mussolini rather than with the previous Italian liberal administrations, as only Mussolini was disposed to recognize the Vatican City State’s sovereignty, «that piece of land that allows us to carry out our mission,» as Pope Pius X used to say).

How was the Authority for Financial Information improved? At first, by hiring René Bruelhart as a Secretariat of State ad hoc consultant for anti-money laundering issues. Young (he is just 40) and hailing from Freiburg, Bruelhart had ran for 8 years the Lichtenstein Financial Intelligence Unit.  In 2010 he was named vice president of the Egmont Group, the FIUs global network.  Bruelhart’s experience makes him one of the most eminent international experts in the prevention of money laundering and the financing of terrorism.  His recruitment also made the anti-money laundering team at the Vatican more international.

Now, the Holy See felt it was time for a further step.  Card. Attilio Nicora, president of the AIF Board of Directors, supported the notion that it was time for a change.  This was significant, because Nicora himself was one of the most strenuous defenders of the first Vatican anti-money laundering law.  The law had been later reformed, following the first on site visit of MONEYVAL evaluators (who felt very strongly about the need for this reform).  Nicora, however, referred to the reform as «a step backwards».  But Nicora held a position subject to «conflict of interests», as the MONEYVAL report points out, even if Nicora was never explicitly mentioned.  Paragraph 797 of the Report mentions a «serious conflict of interests» for a cardinal that is a member of the IOR Cardinals’ Commission and, at the same time, president of the AIF Board of Directors.  The report did not question Nicora’s personal performance.  Rather, it merely underscored incompatibility among these two responsibilities.

In fact, Nicora’s remaining on board is not at stake, even though he has reached retirement age.  Because Nicora understood that a change was needed, he named René Bruelhart director of the AIF, to make the authority increasingly more independent and international (even inside the Vatican, the board of the AIF was considered disproportionately Italian, compared with the relatively international Holy See personnel).  Francesco De Pasquale was promoted to member of the AIF Board of Directors (AIF Board of Directors members are named by the Pope).  This choice would indicate that De Pasquale had never lost the confidence of  the Secretariat State or the AIF.  Notwithstanding lively internal debates –De Pasquale was also a strong supporter of the first anti-money laundering law– the contribution of the now ex AIF Director was crucial during the first year of the AIF and during these past recent months. When the MONEYVAL report was then published, the Holy See vigorously undertook the commitment to achieve full financial transparency.

What will be De Pasquale’s new responsibilities? The AIF statutes note that AIF Board members must «program, manage and control the Authority’s activity.»  Thus, De Pasquale will be able to contribute his experience to the Vatican’s path to full financial transparency.

At the same time, the appointment of Bruelhart as new director of the AIF may be considered a first step toward the reforms in the Authority recommended by MONEYVAL, and certainly the first of the steps needed to strengthen the AIF’s internal structure.

After the no confidence vote. The words of Gotti Tedeschi

After receiving a no confidence vote by the IOR Board of Superintendence, Ettore Gotti Tedeschi became part of the investigation on the Italian defense company Finmeccanica. He is not charged with any crime, but he is suspected to have stored documents of Finmeccanica CEO Fernando Orsi. As Gotti Tedeschi, Orsi hails from Piacenza. They are long-time friends. That is why Gotti Tedeschi’s house in Piacenza and his office in Milan were searched. The police took 47 folders, that are said to contain Gotti Tedeschi’s private documents – and not IOR correspondence. These folders are now in the hands of the Public Prosecutor of Naples investigating Finmenccanica. The Public Prosecutor of Naples sent to the Public Prosecutor of Rome some of the documents. The Public Prosecutor of Rome is still investigating 23 million euro transferred by the IOR in September 2010 (20 million were transferred from a IOR account to a branch of Credito Artigiano and 3 million from a IOR account to Banco del Fucino toward a IOR account to a JpMorgan branch in Frankfurt). Gotti Tedeschi has been questioned by both Public Prosecutors. On the one hand – according to the press – he said he wanted to be discreet and not to speak about the IOR in order not to cause pain to the Pope (he insistently has asked for a private audience with Benedict XVI); on the other hand, he reportedly said that there had been opposition to him for his commitment to transparency, his desire not to have any more cipher accounts in the IOR, and his work to add the IOR to the list of virtuous banks compiled and monitored by the Bank of Italy.  On this, he would have had the collaboration of Anna Maria Tarantola, then number two of the vigilance in the Bank of Italy and now general manager-elect of Italy’s public broadcaster, RAI Television.

IOR transparency

These allegations  are a strong blow to the IOR image. But they are not true. One telling conversation – that is in some ways confirmed from what Paolo Cipriani, IOR general manager, recently told in an interview – even if no one will ever officially confirm it, offers insights.  When Ettore Gotti Tedeschi was still the president of the Institute, Paolo Cipriani, the IOR general manager, asked Gotti Tedeschi to show him where the cipher accounts were, since Tedeschi had been repeatedly calling for their closing. Gotti Tedeschi, angry, did not want to identify which accounts he was talking about and said: «There are such accounts, the Bank of Italy told me about them». Cipriani explained the IOR security and transparency procedures in an interview to the Italian newspaper Corriere della Sera. The policy of the Institute changed in 2002, when the KYC procedures was first and scrupulously applied. KYC stands for «know your customer», and involves a thorough screening of customers.

The IOR has always maintained informal but close cooperation with the Guardia di Finanza, i.e. the Italian financial police. The cooperation is so strong that it is told that Paolo Cipriani once got a letter from the Guardia di Finanza, thanking him for the expediency and the precision of his information in response whenever Guardia de Finanza asked for anything. This was a relationship based on trust.  But the handling of the IOR. account at the JP Morgan branch in Milan did not follow this pattern.

The news of the closing of the account was made public the day after the press release of the second on-site visit to the Vatican of the MONEYVAL advisors. The press release acknowledged the steps forward taken by the Holy See.

Il Sole24Ore – the Italian newspaper that spread the news – claimed that the account was closed because the IOR was «unable to answer» requests for further information regarding some payments of the account to the branch of Milan – a peculiar account, which balance was brought to zero at the end of every day. JPMorgan also recalled that the bank activities of the branch are subject «both to the law of the Italian State and to internal regulations». That is why – after looking atthe IOR needs and the requirements imposed by Italian law and bank regulations – JPMorgan reportedly did not think it had enough information to offer pay and cash services to the 1365 account. However, in fact, it was the IOR that closed the account. The decision to close it was in part also a response to the way in which Italian magistrates had asked for information about the account.

FIUs’ – Financial Intelligence Units –purpose is the exchange of internal information. When there is suspicion of money laundering, the bank alerts the vigilance of the Central Bank, which then alerts its financial intelligence unit. The alerts are kept anonymous, to protect the way that the systemprevents money laundering. These parameters are designed by the Egmont Group of Financial Intelligence Units, a «working group» of FIUs to improve cooperation in combating money laundering and the financing of terrorism, and to help develop each State’s programs against money laundering.

The confidentiality of information is a key element in efforts to combat money laundering, as is also stated in Italy in the law 231/2007, that deals with the competences of the Bank of Italy. Art. 6 of the law says that «the FIU carries its functions with full autonomy and independence. To implement these principles, the Bank of Italy regulates the organization and the functioning of the FIU, including the confidentiality of the information collected. The Bank of Italy provides the FIU with financial means and other adequate resources to insure the efficient pursuit of its institutional goals».

In the case of the closing of the JPMorgan account, none of the standard procedures were followed: the Rome’s Public Prosecutor directly alerted the FIU of the Bank of Italy; the FIU then alerted the vigilance of the Bank of Italy; and the vigilance asked the JPMorgan branch information on the account. But, if the public prosecutors want to investigate an account, they must do it through the Guardia di Finaza. Yet, Ettore Gotti Tedeschi maintained that there were valid reasons why  JPMorgan closed the IOR account of its Milan branch. Gotti Tedeschi’s lack of initiative to defend the Institute was noticed by the IOR Board of Superintendence in the now famous meeting of May, 24, when the board passed the no confidence resolution on its president.

The 24 May board of Superintendence

Usually, the meeting of the Council of Superintendence – called on trimestral basis – are divided in two parts: during the first part – that lasts about half an hour – the members of the Board meet; only after – and this is the second part – Paolo Cipriani, general manager of the Institute, enters, and reports on technical aspects and bank operations of the previous semester.

On May 24, Cipriani had to wait two and a half hours. When he was called by the board, Ettore Gotti Tedeschi had already left the meeting, and the no confidence vote had already taken place. The memorandum was already drafted by Carl A. Anderson, who was the secretary of the Board.

Gotti Tedeschi – as written in the memorandum – began the meeting, and spoke for about 70 minutes. After his speech, the members of the board raised some issues. They remarked to the president his unjustified absence to the last two scheduled meetings of the board (on February, 24 and April, 17). The absence to the last meeting was very disappointing: it was the meeting when the board approved the balances and the earnings to be allocated to the Pope. The IOR, in fact, is not a bank, and its fund are at the Papal disposal. Rumors says that Gotti Tedeschi was in Rome, and he was invited to join the meeting. He did not go.

The board also raised with Gotti Tedeschi news leaks. Among the several documents of the institute leaked to the press in the previous months, there was an e-mail sent by Francesco De Pasquale (general manager of the Authority for Financial Information, so formally a controller) to Ettore Gotti Tedeschi (formally, one of the ones controlled) that complained about the ramifications of the Vatican anti-money laundering law – the law n. 127.  The law had been amended as per MONEYVAL recommendations, and this had sparked a lively debate inside the Vatican.   The e-mail – the members of the board noticed – could have only been leaked by Ettore Gotti Tedeschi’s office.

Last key issue, the closing of the JPMorgan account: why did the president not defend the Institute from the attacks and the inaccuracies of the press? It was then that Gotti Tedeschi, angry, abandoned the meeting. It was – for the members of the board – the climax of a tense and overdue situation. In order to manage thecontroversy,it was decided to publicly release the memorandum of the meeting.

On May, 25 – the day after the no confidence motion– the IOR Commission of Cardinals was convoked to decide how to manage the new situation. Only Card. Odilo Scherer could not be part of the meeting, while Card. Telesphore Toppo arrived right in time from India. In that meeting, the cardinals decided how would Gotti Tedeschi be let go from the institute.

What will follow

While awaiting how the investigation would proceed, and as soon as the news of the «memorandum» of Gotti Tedeschi spread, the Holy See released a press communiqué in which it maintained that it trusted that «the prerogatives acknowledged to the Holy See by the international legal order are being adequately considered and respected by the Italian judicial authorities». It is a clear statement: the Holy See reminds all that those are documents from a sovereign country, seized from an ex president of a «body of State».

To think that this would be of detriment to the evaluation of the Holy See Transparency by the Council of Europe would be wrong. It seems MONEYVAL evaluated the IOR «largely compliant» with international standards.  It was just part of the evaluation. The evaluation is not just about the IOR.  It includes the 120 Vatican bodies that deals with budgets and financial transfers.

Holy See financial transparency. Risks and procedures.

It is worth to clarify some assertions made in the last few days. These assertions had partially come out from the same environment that defended Ettore Gotti Tedeschi. They claim that the Holy See risks not to be added to the white list of the virtuous States in terms of prevention of money laundering; the Holy See has been selected to undergo MONEYVAL inspections; and that the Holy See does not want to cooperate with Italian authorities. But these statements are false or grossly inaccurate. It is thus worthwhile to be  very thorough, and explain everything step by step.

White list

Let us begin with the so-called «white list» issue. MONEYVAL – the body of the Council of Europe that evaluates the adherence to the anti-money laundering norms of Council of Europe State members – does not have a white list. MONEYVAL is a body where peer-to-peer evaluations of member States takes place. There are no inspections. There are processes of mutual evaluation. And these evaluations are part of an on-going process. After the plenary assembly of MONEYVAL – 2-6 of July – the report about the Holy See will be public. The draft of this report was first discussed in Strasbourg, during the meeting between Holy See officials and MONEYVAL evaluators in May. Some weaknesseshave been noted. But these weaknesses often deal with the fact that the Holy See is a peculiar State. MONEYVAL reports are divided in three parts: legal, financial and law enforcement. The evaluators rate the adherence to each GAFI recommendation (40+9 until February, now 40, with several novelties). Rating can be: non-compliant, partially compliant, largely compliant or compliant. Of the GAFI recommendations, 16 are «key and core». Of these 16 key and core recommendations, the Holy See – according to the press – would be partially compliant or non-compliant in 8. Obviously, this could change after discussionsat the plenary assembly. If it got 10 negative ratings, the evaluation of the Holy See adherence to international standards would be then assigned to the GAFI International Cooperation Review Group, and so it would take more time to be evaluated largely compliant. There are also infringement procedures on particular ratings. In 2005, Italy was evaluated generally largely compliant. At the same time, there were – in the Mutual Evaluation Report – several non compliant or partially compliant ratings. After two years, the GAFI closed the infringement procedure.

The meetings with the evaluators.

In fact, there is no intention to vote out a State. And the fact that there are 8 points to discuss does not necessarily lead to a general negative rating. The meetings with the MONEYVAL evaluators are characterized by an open discussion. The Holy See could eventually challenge the rating, and explain to the evaluators the reason for some of its peculiarities. The procedure is very well defined in several steps. During the plenary assembly of MONEYVAL, at least one whole day will be dedicated to discuss the draft report about the Holy See/Vatican City State. Three countries must canvass each of the three parts of the report. Then, the assembly as a whole will hold an open discussion. At the end of this discussion, the draft report could be amended. The final decision will be taken by all the delegates that will take part in the plenary assembly in July.

This will not lead directly to the Holy See being added to the white list. There is not a white list that is directly linked to the MONEYVAL evaluation. The white list generally refers to the Common Understanding – i.e. the criteria (defined by the EU. regulation 2005/60/EC) used by EU members about efforts against money laundering. A country is added to this white list only if sponsored by a member State, and only after getting a positive evaluation on its AML/FT (Anti Money Laundering/Financing of Terrorism) policies by an independent and authoritative international body. This white list is not perfect or definitive. For example, the list of virtuous countries published every year by the American Secretary of State follows a different approach. Another aspect of this white list is that States can acknowledge the European white list, and still consider a particular country not trustworthy. For example, Italy has excluded Switzerland from Italy’s white list.

Financial transparency is never ending

Even if MONEYVAL will positively rate the Holy See/Vatican City State, the path to transparency will not stop there. MONEYVAL has already done three evaluation rounds, and at this time some countries are being evaluated for a «follow up round», i.e. a fourth round that – beyond the implementation of specific GAFI recommendations – takes into consideration statistics and effectiveness of the legislation adopted by the member States. The first evaluation round took place in 1998-2000, the second in 2001-2004 and the third in 2005-2009. The Holy See became a MONEYVAL member on April 6^th 2011, and it was promptly admitted to the third evaluation round, that looks at the legislation of a country and the international  standards – for example, if the countries evaluated signed and ratified the Palermo and Wien conventions.

MONEYVAL on site visits to the Vatican

MONEYVAL evaluators went for the first time for an on site visit to the Vatican on November, 21-26. The evaluators assess the legislative situation of the countries incombating money laundering. The result of the visit is reserved to the counterpart: it is a report that shows the key findings of the evaluators and that rates the adherence of the country evaluated to each GAFI recommendation. After the completion of the report, the evaluated country has two months to implement the MONEYVAL recommendations.

On January, 25 2012, with the decree n. 59, the Holy See amended its anti-money laundering law n. 127, following MONEYVAL recommendations, and making it more compliant with international standards. That same day, the Holy See signed and ratified the conventions of New York, Wien and Palermo: this was proof of a long-term commitment to financial transparency. The new law was substantially different from the old one, and outlined a better power distribution. The control of Vatican finances was not exclusively entrusted to the one and only Authority for Financial Information. The amendment of the law was the focus of a strong internal debate, and some – in primis Card. Attilio Nicora, president of the Authority for Financial Information – defined the new law «a step back». In fact, the Holy See followed the MONEYVAL recommendations. Jeffrey Owens, head of tax issues at the Organization for Economic Cooperation and Development, praised the Holy See’s reforms. «The Vatican is heading in the right direction with the revised norms», he said to the Associated Press.

This amendment profoundly changed the Vatican legislative scenario. That is why there was the need for a second on site visit of MONEYVAL evaluators, that took place March 14 to 16 . This visit was not an inspection: it was an assessment of progress. After this second evaluation, the draft report was completed and sent out to the Holy See in April. In May – from the 14th to 16th – a delegation of the Holy See went to Strasbourg to comment on the report and get it ready to be presented to the next plenary assembly. Now, a pre-meeting will probably be held before the plenary assembly of July. And finally, the plenary assembly in July, where a decision will be taken: will the Vatican be subjected to an infringement process? Or will its efforts be awarded? « I have not seen any State – a MONEYVAL evaluator said informally to a Vatican official – going so quickly toward the financial transparency, and making so many changements». These words confirms the Strasbourg appreciation for the Holy See job. Neverthless the difficulties, one could also preview a positive MONEYVAL evaluation. And this would be gained in a very short time.

His reform is something more similar to Gregory VII. That of Gregorian reform is an heroic enterprise, brought on by a few man that works to re-moralized their society and so purify the Church. People gathered around Ildebrando of Soana begins a movement whose effect were so vast that a whole world change. Will this happen with the Benedict XVI’s Papacy?

Elected Pope with the name of Gregory VII, Ildebrando do not only care about the purification and moralization of the Church. He also collect the ancient sources, so creating a corpus of papers that will be the first global law of the world, the Canon Law. More, he defends the autonomy of the Church. In Dictatus Papae, Gregory VII affirms the supremacy of the Pope on any other power, the imperial one included. Then, he organizes the Pontifical Legates network. He establishes two kind of Pontifical Legates: the one in loco, charged by the Pope to look after the application of Gregorian reform on a territory; and the one sent by  Rome to accomplish mission in a foreign countries. The defense of the autonomy and sovereignty of the Church is also brought on, during the Gregorian Age, by creating new canonic collection. Gregory VII auspicates the research of the sources of the law, and so many researchers look for documents that affirms that the Papal authority is the source of the law. This research will bring to light the writings of Attone, Anselm from Lucca, Deusdedit.

It is the work Benedict XVI is doing as well. Joseph Ratzinger began his theological research with his Doctoral thesis on the «People of God and House of God in Saint Augustine’s Doctrine of the Church» – defended in 1951 -, and he has always been aware that he needed to look back to the Church, and then he understood that the Church needed to be less worldy, and that being less wordly means to change and unify. Finally, the Canon Law is the tool that the Church has to do it.

Benedict XVI wants to focus on Canon Law, and this is one of the reasons why the Secretary of State is a Canonist and the last Papal nuncios appointed is Charles J. Brown, a non diplomat that served for years in the Congregation for the Doctrine of the Faith. This comeback of the Canon Law is driving the Benedict XVI’s choice for what concern international relations, and even for what concern its commitment for financial transparency. This led to a renewed Vatican anti-money laundering law. Not everybody had been happy about it, inside and outside the Vatican Walls. Why?

The new text of anti-money laundering Vatican Law come into effect

There had been no modification to the Decree n. 159 issued by the Pontifical Commission for Vatican City State. The last 25th of January, Holy See issued the decree n. 159 to amend the Vatican City State Law n. 127 concerning the countering of money laundering and financing of terrorism. As the art. 7 of the Fundamental Law of Vatican City State, the President of the Pontifical Commission for Vatican City State  «in cases of urgent necessity, he can issue dispositions having the force of law, which  however lose their force if they are not confirmed by the Commission within ninety days». The Commission confirmed the decree and – beyond whatever it has been written and told during these last three months – there were no doubts about it.

Anti money-laundering Vatican law: a never ending debate

Ever since the Law n. 127 had been issued, the Governatorate knew that this law had been written in a hurry, under the pressure of the investigation of the Public Prosecutor of Rome on two money transfer ordered by the I.O.R. (the Institute for Religious Works), and with the necessity to fully comply to the norms required by the European Union in the Monetary Convention signed by the Holy See in 2009. Yet while Holy See and European Union were discussing the terms of the Monetary Convention, the then number two of Vatican City State Carlo Maria Viganò showed himself doubtful about what the on-going discussion was going to ask to the Holy See, and proposed to unhook the Holy See by Euro area, in order to preserve its sovereignty.

The law n. 127 reassured Italian prosecutors, but on the other hand it did not completely fit to the international standards. The decree was an improvement of the law promoted by the Vatican City State administration in order to fit to international standards and at the same time to let them adhere to a peculiar State that is Vatican City State, while preserving the Holy See sovereignty.

An Italian problem?

Yet, during these last three months, Italian medias highlighted several rumors coming from «inside the Vatican» against the improvement of the law 127. Il Fatto Quotidiano – one of the most prominent and aggressive Italian newspaper – published a series of leaks of reserved documents. Among these documents, there was also an e-mail sent by the Director of the Authority for Financial Information Francesco De Pasquale (the controller) to the president of the Council of Superintendency of the I.O.R. (the controlled). This documents proved a questionable relationship between two parts of the mechanism of control of the Holy See, and at the same time proved that an animated debate took place within the Sacred Walls about the improvement of the Vatican Law n. 127.

It had been also leaked to Il Fatto Quotidiano a notation by cardinal Attilio Nicora, president of the Authority for Financial Information (but also member of the Council of Superintendecy of the I.O.R., member of the Commission for the Governatorate of Vatican City State and member of the so-called Council of 15, the assembly of 15 cardinals that periodically meet to take stock of the Vatican financial situation). In this notation, Nicora described the amendments to the Law n. 127 as “step behind” confronting with the previous text, which he blessed and promoted. More. The last March, the 19th, an article published on Il Corriere della Sera, the most spread Italian newspaper, let understand that Nicora himself was working to rewrite the text of the decree n.159, in order to bring the law back to the “old” law n. 127. The article proved that – inside the Vatican – the debate never ended.

Why the anti-money laundering law changed

The amendments to the Law n.127 had been requested by the advisors of MONEYVAL, the body of the Council of Europe that analyze and judge the adherence of the States to the 40+9 GAFI recommendations for contrasting money laundering and financing of terrorism. Marcello Condemi, a member of the Vatican Authority for Financial Information and draftsman of the first sketch of the old law n. 127, worked on a second sketch of the law right after the first on site visit of the MONEYVAL advisors in Vatican, that took place in November 2011. Several debates within the Sacred Walls followed. Finally, with the decree n. 159, the law n. 127 had been essentially modified. The “new” law n. 127 is now more adherent to international standard. It strengthens the power of controlling of the Authority for Financial Information, but at the same time distributed the controlling powers on several bodies of the Holy See, according to the principle of the separation of powers (even the Gendarm Corps is now encouraged to strengthen its intelligence in order to take part to the countering of money laundering with proper tools of investigation).  It gave to the Vatican Secreteriat of State the complete management of the relationships between States – «The Secretariat of State – it is written in the decree n. 159, art. 2 quinquies – foster the adhesion of the Holy See to treaties and international agreements, as well as the relations and the participation of the Holy See to institution and international organization qualified to define norms and good practices for what concerns the prevention and countering of money laundering and financing of terrorism».

That the effort of the Holy See had been to adhere to international standards for what concerns the countering of money laundering without denaturalize its own institution is evident when – in the decree n. 159 – the procedures to take into consideration the list of terror organizations issued by the Security Council of United Nations. According to the law n. 127, Holy See does not mechanically transpose the United Nations Lists. This choice is aimed to preserve the Holy See and Vatican neutrality. In fact, lists are written under the «Chapter 7» of Charter of the United Nations, and that Chapter is applied in war time. Holy See could be embarrassed by a mechanical transposition of the lists, since it could be in contradiction with the Holy See orientation –  Holy See is traditionally neutral and in favor of peace. Since Holy See is a Permanent Observer to the Assembly of United Nations, and not a Full Member, a settlement has been made to the autonomy of the Holy See: the Vatican Secretariat of State – according to the new article 24 of the law n. 127– will draw up its own list of terror organizations that will be based on the one issued by the United Nations, so keeping its autonomy, and at the same time showing to be sensitive to the international security goals. Holy See so maintain its autonomy, but at the same time proves sensibility to the international security goal .

Is there a biggest target?

Maybe there is a biggest target on the basis of the polemics that followed the one the another from the moment in which the Holy See began the process enrolled in the «White List», the list of states most active in preventing and fighting the financial crimes.. The critics to the lack of transparency of Vatican finance would hide a sort of attack to the sovereignty of the Holy See itself. Documents leaked by the press – the so-called Vatileaks, that are now under the investigation of a commission made up of the cardinals Herranz, De Giorgi and Tomko – prove that the «sovereignty issue» has never been taken into consideration by the «step behind» theorists. The leaks are about the retroactivity of the «new» law n. 127; about the will to cooperate with Italian investigators; about a diligence toward Italian authorities that led Ettore Gotti Tedeschi to be voluntarily questioned by the Italian magistrates without these latter submitted the request internationally.

Yet, Paolo Cipriani, General Director of the Institute for Religious Works, explained – during one of the seminars periodically held by the I.O:R. to train the administrators of the Congregation with deposits in the «Vatican bank» – that the Institute has always responded to any request submitted by Prosecutors or Central Banks. The responses by the Holy See, Cipriani explained, had come formally – there had been during the last ten years 20 requests submitted internationally to the Holy See (it is a global data, it does not concerns the only I.O.R.): 19 had been fulfilled by the Vatican City State, the last one has been judged by a Vatican Court – and not formally, for a sort of «good neighborhood relationships» with the other financial institutes. Holy See – Cipriani also underlined – did not answer in the only case the request would be considered a vulnus to its sovereignty.

A wider – international – perspective

It is now time to see things from a wider perspective. The announcement of the improvement of the law n. 127 has been launch in the Osservatore Romano, the newspaper of the Holy See, in an article by msgr. Dominique Mamberti, the «foreign minister» of the Holy See. Mamberti linked the news of the improvement of the law n. 127 to the ratification by the Holy See of three international threaties – the news about the ratification had been given the 25th of January as well. Holy See adhered to and ratified the International Convention for the Suppression of the financing of terrorism(Onu, New York, 1999) and the United Nations Conventions against the transnational organized crime (Palermo, 2000). Holy See also announced the ratification of the United Nations Convention against illicit traffic in narcotics drugs and psychotropic substances (Wien, 1998): this latter Convention had been already signed by the Holy See when it had been adopted by United Nations.

It’s a long time that the campaigns to expell Holy See by the concert of Nations – as the See Change campaign – broke down in the public opinion. In 2007, The Economist – one of the most authoritative magazines in the world – published an article headlined “God’s ambassadors” about the Vatican diplomacy. The article ended with this advice for the Holy See: «It could renounce its special diplomatic status and call itself what it is – the biggest non-governmental organization in the world».

Within the bureaus of the United Nations and of the other major international organization in which the Holy See seats as an observer, the idea to expel Holy See from the concert of nations is widely spreads. Even if this idea did not succed, and – on the other hand – on July 2004 the General Assembly of United Nations approved a resolution that not only confirm, but even enhanced the presence of the Holy See within the United Nations.

So, a more subtle strategy began. This strategy – brought on in international environments – aims to undermine the moral power of the Catholic Church and of religions in general. It consists in remarking that religious freedom is something like the freedom of expression, or in confusing the religious freedom with the freedom of worship. Vatican diplomacy is undermined, too. If Italian Prime Minister Mario Monti caused an «earthquake» at the Italian Ministry for Foreign Affair by showing his intention to appoint ambassadors not raised up with a diplomatic career, Vatican insiders refer about the intention to appoint lay people as diplomatic representative of the Holy See. Pontifical Legates must be bishops, since they represent the Pope. This rule is valid and effective only for Papal nuncios: they work as Papal ambassadors, they keep relationships with the governments, and at the same time they work as bishops, speaking to the Episcopal Conferences of the countries they are appointed at, give their opinion about the to-be-appointed bishops.

Nuncios that are appointed as permanent observer within the International organizations (United Nations, U.N.E.S.C.O., F.A.O., European Parliament) must only care the relationships between the Holy See and the governments. This would open to the appointment of lay people as permanent observers of the Holy See.

Could this be the beginning of a weakening of the Vatican diplomacy? In the book C’era una volta un Vaticano (Once upon a time a Vatican), Massimo Franco, underlines this lack of international appeal of the Holy See. Too appeased on Italy and on its relations with Italy – Massimo Franco writes .- the Holy See lost sight of its wide global horizon that made of it the most long-lived and solid institution in the world. Canon right is the first really global and globalized law of the history, and it still consists in a solidity that no friendly diplomatic relations would touch.

This same problem spoiled the path to the Vatican financial transparency. Holy See borders are not anymore with Italy, but with the whole Europe. Yet, the members of the Authority for Financial Information are all Italian, coming from the Bank of Italy milieau – even if the Bank of Italy proved a certain hostility toward the Holy See (the investigation of the Roman prosecutors undermined the Holy See sovereignty, since prosecutors asked for information to the Financial Intelligence Unit of the Bank of Italy – which should be independent – instead of investigating with the Guardia di Finanza).

The “old” law n. 127 would have probably solved the “judicial” problems with Italy, but certainly it would also set back – if not avoided – the Holy See path to the white list. The Plenary Assembly of MONEYVAL will meet the next July, and on that occasion the report about Holy See will be issued. It will not be at that moment that the Council of Europe will decide about the enlistment – or the not enlistment – of the Holy See among the virtuous States. But probably, the possibility to be part of the white list would have been more difficult without the improvement of the law n. 127, that the MONEYVAL advisors auspicated.

The two news are not directly linked, but they are both meaningful. And they show what is the direction the Holy See is heading to, thanks to the Benedict XVI’s «quiet revolution». And card. Bertone, Secretary of State, albeit in the midst of the storm, is bringing on Benedict XVI’s wills. Now it is the time for a more in depth analysis of the two «Vatican financial» news of the week.

The new regulation of the Prefecture for Economic Affairs

On March, the 9^th had come into effect the new regulation of the Prefecture for the Economic Affairs of the Holy See. The regulation had been published on February, the 22^nd and has been signed by the cardinal Tarcisio Bertone, Vatican Secretary of State. The regulation is – more than a little revolution – a way to keep pace with times and with the responsabilities of the Roman Curia, that is – it is written in the letter of presentation fo the new regulation by the prefect Giuseppe Versaldi – «one of the main instruments that the Holy Father has at his disposal» to act as a Pope.

Established by Paul VI in the 1967, the Prefecture for the Economic Affairs is entrusted with overseeing all the offices of the Holy See that manage finances, regardless of their degree of autonomy. It does not manage finances itself, but instead audits the balance sheets and budgets of the offices that do. It then prepares and publishes annually a general financial report. It must be consulted on all projects of major importance undertaken by the offices in question

It means that the Prefecture oversees all the dicasteries of the Roman Curia and of all the consolidate administrations, and the Vatican Radio, the Vatican Typography-L’Osservatore Romano publishing house, the Vatican Publishing House and the Vatican Tv Center. The Prefecture also oversees the balance sheets of Vatican City State.

In 34 articles, the text outlines the amplification of the competences of the Prefecture, that is the body «responsible for the economic address and program, as well as it is responsible to the vigilance and the control of the administrations of the Holy See». The change is considerable. Just take a look to the previous regulation – delivered November, 20^th 1999, where only «surveillance and control» were mentioned. So, the Prefecture can be now roughly compared to a Ministry of the Economy. The Prefecture – art. 2 of the new regulation – «prepares the document of economic planning in which are outlined all targets» that the administrations of the Holy See must jointly achieve. More: the document «periodically proposes the main macro-economical parameters» the administrations should refer to for their financial forecasting.

Which are the functions of the Prefecture for Economical Affairs? It prepares the annual reports, it carries out extraordinary administration acts and obviously it controls the annual statements. In the article 5 of the new regulation it is also mentioned the promotion of the «cooperation among the dicasteries, even through meetings, to jointly study, examine and evaluate relevant facts of administrative and financial management». This article of the new regulation recall, in some ways, what card. Bertone, Vatican secretary of State, underlined during the last meeting with heads of Vatican departments (Prefectures and Pontifical Councils). Bertone asked more coordination among the several branches of the Vatican curia, and also pointed at the encroach of the «passion for the little news of ecclesiastical gossip, that undermine the Holy See prestige and sometimes crab the climate of confidence and trust among the Holy See’s bodies».

The commitment to surveillance also includes the «analysis, in order to assure a precise and critical acquisition and preservation of the document with juridical relevance referred to any board». During the Papal Vacant See, the Prefecture is kept to give the final balanced and consolidated of the current year to the Cardinal Chamberlain.

One more step toward financial transparency

«Within the framework of the active co-operation between the Holy See and MONEYVAL (the Department of the Council of Europe which deals with the evaluation of systems adopted by member States to counter money-laundering), meetings of a technical nature were held in the Vatican between 14 and 16 March 2012». This is the beginning of the official press communiqué delivered at the end of the second on-site visits to the Holy See of the advisors of the Council of Europe. These visits are not inspections.

MONEYVAL advisors got back to the Vatican after their visit of the last 21-26 November. After their first visit, the Vatican law against money laundering – i.e. the Vatican law n. 127 of 2010 – has been improved and essentially re-written. The new text of the law has been promulgated by the President of the Governatorate of the Vatican City State with a Decree on January, the 25^th. The most important news is that the Holy See, by conforming its anti money laundering law to the international standards – «The Vatican is heading in the right direction with the revised norms», Jeffrey Owens,  head of tax issues at the Organization for Economic Cooperation and Development, said – seems to show to strongly tread the path to be enlisted in the group of the «virtuous» countries for what concerns the prevention and countering of money laundering and financing of terrorism.

This path is followed step by step by MONEYVAL advisors. At the end of the first on site visit, they explained in an official communiqué delivered on the web site of the European Body that «at the conclusion of its mission, the MONEYVAL team  shared and discussed its initial findings with representatives of the Holy See, after which initial views were exchanged». These impressions also dealt with the old text of the law n. 127: MONEYVAL advisors had not such positive impressions of the law, since it seemed to concentrate the warranty of the integrity of «Vatican finance » to the only Authority for Financial Information, without showing the will to truly involve all the Authorities concerned. Perhaps it is not a case that one of the main innovations of the new text of the law n. 127 is about the Authorities involved in the struggle against the money laundering and the financing of terrorism –  beyond the Authority for Financial Information, now the text also mentions the Secretary of State, the Pontifical Commission for the Vatican City State, the Vatican Gendarmes Corps.

The trend seems to be in favor of an involvement of the whole Vatican institutional framework, and at the same time in favor of more attention paid to the peculiarities of the Holy See and of the Vatican City State, as MONEYVAL advisors suggested. This effort also merited the appreciation of MONEYVAL advisors. «The meetings – it is written in the press communiqué – had been planned earlier, taking into account both the specific nature of the Holy See and of Vatican City State and the fact that this was the first evaluation of their respective legal systems. The meetings made it possible to continue gathering information on the steps taken thus far in the process of complying with international standards in the area of preventing and countering money-laundering and the financing of terrorism, such as the adoption of the Decree No. CLIX of 25 January 2012, replacing Law No. CXXVII of 30 December 2010, as well as the ratification of and adhesion to certain international Conventions pertinent to the question».

The conventions which the communiqué refers to are the  adhesion and ratification to the International Convention for the Suppression of the financing of terrorism (Onu, New York, 1999) and the United Nations Conventions against the transnational organized crime (Palermo, 2000), and the ratification of the United Nations Convention against illicit traffic in narcotics drugs and psychotropic substances (Wien, 1998) –  this latter Convention already signed by the Holy See when it had been adopted by United Nations. It is highly meaningful that the adhesion and ratification to these Conventions had become official on January, the 25^th, the same day when the Decree of the President of Vatican Governatorate had been promulgated.

The path to the new law

In actuality, Vatican officials were already working to an improvement of the law n. 127, in full knowledge of the fact that the law had been written in hurry and under several pressures (among these pressures, two investigations promoted by the Rome Public Prosecutor: one about a money transfer from a IOR account deposited with a branch of UNICREDIT Bank in via della Conciliazione in Rome in 2009; and the seizure of 23 million euro transferred by the IOR from two accounts it had in Banca del Fucino and Credito Artigiano to another IOR account to a JpMorgan Bank branch in Frankfurt).  The same law n. 127 had to accomplish to the need to put into effect the Monetary Agreement between the Holy See and the European Union, signed in 2009.

It easy so easy to understand why the law n. 127 is important – even if some observers underlined that the law was particularly severe (especially for what concerned the introduction in the Vatican legislation of the auto-money laundering crime, while several legislation – Italian one included – does not contemplate this kind of crime). But there was also the need of a more in-depth reflection to accomplish the Vatican City State peculiarities, since in the Vatican there are no banks and no financial market.

Almost before the MONEYVAL advisors went to the Vatican for the first on site visits, the tops of the Holy See were thinking about how the Vatican could better adhere to the international standards. It was not only a technical problem, it was a problem to let the international standards in a peculiar reality as the Vatican is. This reflection brought to the improvement of the text of the law n. 127.

Who is against financial transparency?

Obviously, this brought to a lively debate within the Holy See officials. As the medias covered, among the opponents to the improvement of the law was the cardinal Nicora, president of the Authority for Financial Information. Nicora – as revealed by the Italian newspaper Il Fatto Quotidiano, that published a note written by card. Nicora – defined the new text of the law . 127 «a step behind» (this sentence had been highlighted several times in the commentaries about the so-called «Vatican finance»). In order to avoid a conflict of interests with the presidency of the Authority for Financial Information, Nicora resigned by the presidency of the APSA – the Administration for the Patrimony of the Apostolic See, a sort of «Central Bank» of the Holy See – but still holds his post within the Vigilance Commission of the Institute for Religious Works (which is under the surveillance of the Authority for Financial Information), within the Council of the Fifteen – a sort of “Little Parliament” made up by 15 cardinals that meet periodically to verify the correctness of “Vatican finance” – and also within the Pontifical Commission for the Vatican City State, that, according to the new text of the law n. 127, will be one of the actors that regulate the Authority for Financial Information.

According to the vaticanista Sandro Magister, even Ettore Gotti Tedeschi, president of the Council of Superintendency of the IOR, was against any intervention on the law n. 127. Gotti Tedeschi even feared the risk of an exam failure of the new text by MONEYVAL. Probably, Gotti Tedeschi – who still seats in the board of the Administration of the Cassa Depositi e prestiti – Loan & Deposit Saving, a public body controlled (with the 70 per cent of stocks) by the Italian Ministery of Economy, and this charge would in theory not tally with his Vatican charge as representative of a body of State – fears that his «image» of solver of the age-old Vatican financial obscurity could be delegitimized.  And this image is so important for him that – with an excess of diligence – he agreed to be questioned by the Italian magistrates, even if these latters did not submit the request internationally. Many commentators considered the Gotti Tedeschi’s one a «questionable decision», if not even damaging for the Holy see’s interests, since it could be read as a renounce to the immunity for the Central bodies of the Holy See.

Among the followers of the «step behind» -doctrine there was also the direction of the Authority of Financial Information. An e-mail of the director Francesco De Pasquale to Ettore Gotti Tedeschi had been leaked to the Italian newspaper Il Fatto Quotidiano. In the e-mail, De Pasquale unveil his adversity to the re-writing of the law n. 127. This e-mail also unveil an almost questionable relationship between the controller (De Pasquale) and the controlled (Gotti Tedeschi), also considering that the warranty of the integrity of «Vatican finance» had been depicted to reside in the Authority for Financial Information.

Waiting for July

MONEYVAL conclusions on the Holy See and  Vatican City State financial reliability will be delivered the next July at the plenary assembly of the body. This agenda has been agreed long time ago, and it never changed, as the official communiqué well let understand (one can there read that the meetings had been «planned earlier» and that the report «as scheduled» will be examined by the Plenary Assembly of MONEYVAL next July). There will be no eventual change of schedule for the drafting of the final report. One should not even be surprised by the comeback of the MONEYVAL advisors: all the European Countries had at least two, and sometimes even three rounds of evaluation, and this evaluations are about a long-time commitment of adherence to the international standards, and are not an exam about the financial transparency/not transparency to bring into an end within a few months.

Italian vision vs. European (and international) vision

The day after the MONEYVAL on site visit to the Vatican, the Italian newspaper Il Sole 24 Ore spread the news that a IOR account deposited with a branch of JpMorgan Bank in Milan had been closed because the IOR could not satisfy the requests of transparency. The article – very detailed, indeed – can be seen as a counterattack of the followers of the «Italian party». While the Holy See worked in order to accomplish the international standards of transparency, the propaganda on «Vatican obscure finance» rose up especially thanks to the investigations promoted by the Public Prosecutor of Rome and requested by the Unit for Financianl Information of the Bank of Italy. Is Italian State working to consider the Vatican something less than an enclave in the Italian territory? And did this interest toward the Vatican finance rise especially in Italy? And is the Authority for Financial Information itself a player that is playing is game in the field of Italy, and not in the field of the Holy See, that is working to strengthen its international appreciation and acknowledge?

Just take a look to the board of the Authority for Financial Service. Excepted Nicora, Dalla Torre and an internationalist jurist come from other charges within the Holy See, many members of the Authority for Financial Information – e.g. Francesco De Pasquale, Marcello Condemi – come from Italian banks and from the Bank of Italy, where they were not appointed in important charges. The composition of the board is not seen – by some insiders – coherent with the universality of the Holy See (whose employees are traditionally chose internationally) since the imbalance to Italy is considered a sign of weakness and source of risks, more than of opportunity, since the troubles of the Holy See came from a request of the Bank of Italy then headed by Mario Draghi (now president of the European Central Bank).

So, while Europe shows appreciation for the steps forward of the Holy See, on the Italian side the war of the «financial» leaks just began. The news of the closing of a IOR account is probably just a first signal.