The announcement of the publication of the balance sheet is the first important decision taken by Ernst von Freyberg, the new president of the IOR Council of Superintendence. Von Freyberg took over on February 18, after a nine-month search for a successor to Ettore Gotti Tedeschi as president of the IOR’s Council, a.k.a. «board of laymen». Von Freyberg has worked with the IOR employees on putting together a balance sheet during these first three months of his presidency. In this period, there has been a change in Popes. However, the Vatican’s agenda on financial issues is still that inaugurated under Benedict XVI’s pontificate. It is a «transparency program» which addresses all Vatican finances, which have been – rightly or wrongly – pervaded by a myth of opacity and lack of international cooperation.

In the Vatican corridors, this myth is called «a misperception». Vatican officials also state that little credit is given to the Vatican for its actions to bring up to international standards the Vatican’s financial system.

Part of this path toward financial transparency was publicly explained by Paolo Cipriani, the IOR’s general manager. In June of last year, featuring an «open doors policy», he met at the Torrione Nicolò V (the IOR headquarters) with ambassadors accredited to the Holy See and a group of journalists. The aim was to correct any possible misperception regarding the Institute’s work.

The meeting took place at a difficult time, on the heels of the IOR’s board of layman adopting a no confidence motion on its president, Ettore Gotti Tedeschi.  Several weeks after, the plenary assembly of MONEYVAL (the Council of Europe committee that evaluates the financial transparency of its member States) was scheduled to evaluate the Holy See’s adherence to anti money laundering international standards.

The debate was particularly polarized around the Vatican anti-money laundering law, which the Holy See substantially and vigorously amended following the first on site visit of MONEYVAL evaluators.  The Vatican adopted a new law on January 25, 2012.

Notwithstanding that the revision of the law had been controversial within the Vatican itself, the MONEYVAL report issued on July, 2012 praised the revision. MONEYVAL noted that the new law «introduced a significant number of necessary and welcome changes.» The same report emphasized that «further important issues still need addressing in order to demonstrate that a fully effective regime has been instituted in practice. » Overall, MONEYVAL evaluators gave high marks to several IOR procedures. Browsing the Report’s Executive Summary, one finds out that the IOR security standards surpass those required by Vatican law (Executive Summary, 39); and that the Vatican legislation on secrecy is considered overall compliant with international standards (paragraph 50). The report also praised the high level of Vatican engagement in international cooperation.

The report also left several issues open. For the past twelve months, the Holy See has been working on a general reform of its financial management and control procedures. The reform is also broader than required by international standards. This is evident in a preview of a Holy See report to MONEYVAL, which volunteers a lot of information about the Vatican’s progress on the implementation of a wide range of anti money laundering recommendations. The Holy See/Vatican City State progress report will be presented in December. By then, a general reform of Vatican finances should have come into effect. Probably, this reform will start in June.

The IOR’ publishing of its balance sheet is thus a part of the Holy See’s long term commitment to transparency. Already, since 1990, an international and independent auditing company (Deloitte in recent years) certifies the Institute’s balance sheet. It is then approved by the Council of Superintendence. The board of laymen must present the balance sheet to the IOR Oversight Cardinals’ Commission by April 30. The cardinals present the balance sheet to the Pope, who then decides, within thirty days, how to allocate the dividend to religious works.

Some data: the IOR has more than 6  billion euro in assets, 33 thousand individual accounts and 25 thousand group-accounts (that is, aggregates of all the accounts of a single religious congregation); 60-65 percent of the IOR’s financial activities are in euros and the rest in dollars; and 5 per cent of the funds are invested in highly-rated investments, which are very secure but do not yield high profits.

In the mean time, the Vatican Authority for Financial Information (AIF) continues to follow a path towards full adherence to international standards. On May 7, it signed a Memorandum of Understanding with its U.S. counterpart, FinCEN (Financial Crimes Enforcement Network). It is the fourth Memorandum of Understanding (MOU) signed by the AIF with fellow Financial Information Units (FIUs). The other MOUs are with the FIUs of Belgium, Spain, and Slovenia.

The news of the memorandum signed with FinCEN is particularly important, considering that in March of 2012, the U.S. Department of State had ranked the Vatican as a “not reliable” State regarding financial transparency.

Next step will be the presentation of the Annual Report of the Authority for Financial Information. René Bruelhart, AIF director, will perhaps do so within this week (on Wednesday).

The news of the law modifications have not been officially announced by the Vatican. This is not unusual, though. The changes are ultimately not going to make substantial modifications to Vatican City State law — they are merely adjustments that improve the law and make it more compliant with international standards. All countries make these sorts of adjustments periodically.

On the other hand, the news that the Bank of Italy (Italy’s central bank) has blocked all electronic payments through cash machines and by credit cards in Vatican City State has provoked a small media storm. The blocking – according to Father Federico Lombardi, director of the Holy See Press Office – was due to a “technical problem”: the supplier, i.e. Deutsche Bank Italia, did not ask for the «required authorization» to operate. Deutsche Bank Italia manages since 1997 the electronic payments circuit in Vatican City State. Back in 1997, Italian regulations against money laundering were different (based on law 197, promulgated in 1991, and updated through the decree 153/1997) and Deutsche Bank Italia likely thought that it had to guide itself by Vatican legislation, not Italian.

The inspection that lead to the blocking took place in 2010 – right when the Holy See path to gain full financial transparency began. The Bank of Italy wanted to make it clear that Deutsche Bank Italia is under Italian jurisdiction, and thus under Bank of Italy oversight. When Deutsche Bank Italia applied for the required authorization, it was denied. The reason: Italy considers Vatican City State a «not equivalent extra-communitarian country» with regards to financial and anti-money laundering oversight – as underlined by several «anonymous» and «financial circles» sources that have spoken to journalists about this issue recently.

There is still no information about when this «technical problem» will be resolved. Some sources say that everything should be ok within a week, while others maintain that more time is needed because Vatican City State is not in the Italian white list.  Italy may want to wait for the MONEYVAL fifth-round evaluation report – that will take place within the next four years – before including Vatican City State in its white list.

Anyway, all of this would hardly amount to a new Vatican financial controversy. On the contrary, the most recent changes to the anti-money laundering law (contained in the law n. CLXXXV of 2012) are another Holy See step toward full financial transparency, in view of the inclusion of the Vatican Authority for Financial Information (AIF) to the Egmont Group, the global network of Financial Intelligence Units (FIU). That the Vatican initiated the membership procedure to join the Egmont Groups is significant: it places the Holy See among reputable countries on financial transparency.

The network of FIUs is named after the «Egmont Hotel» in Brussels, where Units from all over the world gathered in 1995. The aim of the group is to have a common framework  to cooperate in combatting money laundering and the financing of terrorism, and to improve each country’s program. The AIF initiated long time ago the process to join the Egmont Group, and communicated this decision to MONEYVAL evaluators (MONEYVAL is the body of the Council of Europe that assesses if its member states are meeting international standards against money laundering and the financing of terrorism) while the MONEYVAL peer evaluation on Holy See/Vatican City State was taking place. Already in the MONEYVAL report released in July, it is clearly stated that the Holy See was considering to join the Egmont Group. «The FIA – it is written in point 30 of the report – is seriously considering joining the Egmont Group and has already taken steps to initiate the membership procedure which would enable it to cooperate directly with other FIUs in the Egmont Group in accordance with Egmont principles.»

MONEYVAL evaluators rendered a positive assessment of the Holy See’s economic/financial structure, but they also identified some areas for improvement. One such area noted that the Authority for Financial Information only had limited powers to exchange information and sign Memorandums of Understanding with other Financial Intelligence Units.

Everything changed with the law modification that the Pontifical Commission for Vatican City State – i.e. the Vatican legislator – approved on December, 14. Small changes, with a big impact. Clause 7 of article 2 of the Vatican anti-money laundering law (Vatican law n. 127) previously stated that «the Authority for Financial Information, if the State Secretariat will grant the nihil obstat, can enter into Memorandums of Understanding with comparable authorities of other countries in order to exchange information about financial transfers suspected of money laundering or of financing terrorism.» The law modification eliminated the need for a Secretariat of State’s nihil obstat. The Secretariat of State is already the body in charge of the foreign policy and the coordination of internal policy, including anti-money laundering policies.

Article 41 of the law n. 127 also changes. In its new version, it widens the range of the international exchange of information, no longer limiting it to suspect transactions only.  Instead, it is now generally oriented towards preventing and combating money laundering and the financing of terrorism.

These two changes can be considered in the end another step of the Holy See toward the building of an economical/financial structure projected for the long term. As such, it should be welcome both by MONEYVAL and by individual States – for example, Italy – that pay a lot of attention to the Vatican path to financial transparency.