Vatican reforms announced last July 9 seem to be more about a need for a spending review than moved by the real need for reform. It is thus understandable why, until now, only structural reforms have been discussed, while theological matters have been put aside, even fundamental issues like the Holy See Sovereignty.

In fact, it is not the time, yet, to discuss choices of profound meaning in order to redesign a more up to date Curia updating the Pastor Bonus, the 1989 apostolic constitution which regulates the functions of Vatican offices. There is rather the need of rationalizing, of – if possible – generating revenues, of projecting the Vatican administration and finances toward a future when the Holy See will be able to guarantee a pension even to the employees who will be working in the Vatican three generations from now. In order to achieve these goals, there is a need for experts, not theologians. Only history will tell how much the Holy See has sacrificed in evangelical influence and self understanding of its own mission by choosing the path of technical reform, with seemingly no larger vision behind it.

The real face of the reform

Between July 8 and 9, in only two days, Pope Francis’ reform showed its real face. On the 8th of July, the balance sheet of the Institute for Religious Works (namely the IOR, the so-called Vatican bank), as well as those of the Holy See and of the Governorate, were released. The IOR balance sheet was a break with the past and a milestone for the beginning of a new era.In a note released together with the balance sheet, the IOR declared phase 1 of its reform concluded, and affirmed that about 3000 accounts had been closed following an accurate screening (which was already ongoing before, as the MONEYVAL report certified). It also mentions a decision of the Council of Superintendence to restrict the categories of entities and people that can open an account, in effect since July 2013;  and highlighted that, out of the 3000 accounts mentioned above, 2600 were mostly dormant accounts while 396 were accounts that did not meet requirements. The note underscored that 359 accounts would be closed.

A clean up and rationalization plan put in action at an institute that – in the words of outgoing president Ernst von Freyberg’s words – «hid no unpleasant surprises, held no suspicious accounts.» In fact von Freyberg was stressing no more than what the Council of Europe’s MONEYVAL experts had already stated in their report, clarifying that the IOR in particular (and the Vatican in general) were not the places of illicit transactions and opacity described by the media. There was a need to project a new image of the Institute, one going beyond the antagonism that always takes place in a situation of reform and transition (von Freyberg took over his post in the difficult days following Benedict XVI’s resignation, while the – also news media – war for the Papal succession was already in the offing).

Von Freyberg chose to delegate the screening to the external consultants of the Promontory Financial Group, a firm universally deemed authoritative, even if criticized for its links with the U.S. financial-political world that, some said, madethe group a sort of shadow regulator of the market.Even the staff that took the place of the IOR previous general management, who resigned following a Vatican scandal which involved the institute, came from the Promontory Financial Group.

This decision also showed the other side of the coin. The new management did not follow the investment philosophy of the former management. Probably,the former investment portfolio had not been managed in the strict way required by markets, and usually in these cases the portfolio is  not diverse enough and suffers from an over-simplistic management. The IOR stressed that management «has identified a number of legacy investments which required extraordinary and precautionary write-downs in 2013,» and that part of the losses were an outcome of those write-downs. The fact is that the 2013 profit is of only 2,9 million euros, while the 2012 profit amounted to 86 million euros.  

The IOR has nevertheless made an effort, and given the Pope 54 million euros. Out of these 54 million, 50 covered the deficit of the combined balance sheets of the Holy See and theGovernorate (this latter being in the black, thanks to the Vatican Museums), and 4 million were assigned to religious works, i.e. for the Pope to give to charity.

The big reform of the Vatican economic structure

In the mean time, everything was ready for the big reform of the Vatican economy. Cardinal Pell has pushed strongly for it.  He defended the reform in the Council of Cardinals, more or less clashing with Cardinal Giuseppe Bertello, President of the Vatican City State governorate, and less intensely but anyway clearly with Cardinal Pietro Parolin, Secretary of State. The latter is always losing more influence and power, although the Pope told him that he is fully a member of the Council of Cardinals. Both Bertello and Parolin called for prudence in carrying the reform forward, and for greater appreciation of the Vatican’s special realm. Personal interests influenced them, as well. Bertello was supposed to be chosen to be the moderator curiae, but now he seems ever more sidelined. Parolin is the exponent of the gang of diplomats, the same people who have strongly resisted the Holy See international option, seeking to keep a privileged relation with the Italian State. This tension –between the international option and the Italian habitual rapport – was at the heart of many of the polemics and leaks of documents around Vatican finances.

And this tension was also at the heart of the leaks about the so-called “Maltese gang” that isfollowing the “German gang” in the management of Vatican finances. The Maltese gang is said to be headed by Joseph F.X. Zahra, number 2 of the Council for the Economy and former president of the Pontifical Commission of reference on the Vatican Administrative-Economic Structure, namely the COSEA. A banker who had worked as director of the Central Bank of Malta, Zahra knows Vermiglio, an Italian and fellow member of the Council, very well.  But Zahra is certainly not close to Jean-Baptiste Franssu, the French guru in the “mergers and acquisitions” and asset management branch.

De Franssu’s appointment was backed by Pell, together with a brand new board composed by six people (including the president). At the moment, the appointees to the new board are Mary Ann Glendon, former US ambassador to the Holy See and member of the Pontifical Commission of Reference on the IOR; Clemens Boersing, from Germany; and Sir Michael Hitze, from the UK. Two pending appointments will be filled in the coming months.

Msgr. Battista Ricca has been confirmed as IOR prelate, i.e. the link between the Cardinals Oversight Commission and the Board of Directors. The real news is that Msgr. Alfred Xuereb, general secretary of the Secretariat for the Economy, has been appointed secretary with no right to vote in the IOR board of directors. Formerly Benedict XVI’s second secretary and Pope Francis’ first secretary, Xuereb was appointed by Pope Francis pontifical delegate in the two pontifical commissions of reference, and later appointed Secretary of the Secretariat for the Economy. His entrance in the IOR Board probably means two things: that Pope Francis wants to keep an eye on these issues, and that the Secretariat for the Economy is now taking a leading role.

With the mission of the IOR reconfirmed, it is now time to re-shape the Institute. The IOR will keep itsservice function, the holding of accounts of Vatican employees and former employees, monsignors, prelates and cardinals and even ambassador to the Holy See and Vatican foundations. The management of the assets will be transferred to a new body, the Vatican Asset Management,yet to be established. The Vatican Asset Management should be also entrusted with the patrimonies of the  Congregation for the Evangelization of People and of the extraordinary section of the Administration for the Patrimony of the Apostolic See (APSA), the financial branch,which manages moveable assets derived from settlements linked to the Lateran Treaty.

The APSA extraordinary section will be responsible of maintaining relationships with all the main central banks, in order to – a July 9 Holy See Press Office bulletin reads – «keep on guaranteeing the Holy See’s liquidity and financial stability.»

The APSA was a public authority that acted as a central bank, and now it is going to be turned into a real central bank, with the functions of a treasury department for all the sovereign institutes which will open accounts with the APSA. The reform of the APSA statutes, which took place some months ago and which gave to consultors the function of a supervisory board, should be read in the light of this APSA turning into a treasury department.On that occasion, Vatican also established “due diligence” procedures that were technically unnecessary (considering that APSA provided very few regular banking services and was going to close this banking activity, as the Holy See delegation explained to MONEYVAL) unless APSA was going to become something more than what it was. 

The Secretariat for Economy strengthens its role

The APSA ordinary section, i.e. the management of real estate (in the end, trivial accounting) will be taken by the Secretariat for the Economy, which strengthens its position among the dicasteries of the Roman Curia and acts as a sort of branch of the ministry for finances, i.e. the Council for the Economy. This is how the check and balances of the reform work, explained Cardinal Pell, who is the strongman behind the managerial changes in the Curia.

The transfer of the APSA ordinary section to the Secretariat for the Economy will be managed by a Project Management Office headed by Danny Casey. A skilled manager, Casey was Pell’s right hand running the archdiocese of Sydney and successfully orchestrated the 2008 Sydney World Youth Day. Casey has already moved to Rome, together with his wife Annie, and  he is working on the management side of the issue.

A management side that is mostly built on COSEA suggestions. The first of the COSEA’s ten priorities was that of reforming the pension funds. Everybody is assuring that the retirement pensions for the current and next generation of Vatican employees are safe (Pell said so in a press conference, Zahra reiterated it), but there is a need for a new approach, just as «many western countries have had to face challenges» regarding their pensions system. A technical committee to draft a reform has been appointed. Msgr. Brian Ferme, prelate-secretary of the Council for the Economy, will lead the committee, composed by four lay experts: Bernhard Kotanko (Austria), Andrea Lesca (Italy), Antoine de Salins (France), Nino Savelli (Italy). The committee will meet with representatives of the Council for the Economy, theSecretariat of State, and of the Pensions Funds.

The committee for the reform of Vatican media

The committee appointed to propose a reform of Vatican media, on the other hand, will be composed by external members (senior experts) and Vatican members. The committee – as the same Cardinal Pell admitted – was born under the Secretariat for the Economy by chance, because  «the Council of Cardinals was pushing to do something» regarding Vatican media and so the Secretariat did, since it is the only recently established body that is already somewhat shaped and publishes an internal bulletin «so that all the employees are informed about developments.»

A rationalization of Vatican media has been discussed for more than 30 years. At the present time, the idea is that of integrating and consolidating everything, to streamline procedures and make everything quicker in adapting to the present times. New technologies – as the Pope’s App and the Holy Father’s twitter account – will be developed; digital channels are to be reinforced; a less complicatedcontrol system, freer from the Secretariat of State,is under study to meet the needs of the present times. A major revenue stream from the use of the Pope’s images and sound bites will be studied, perhaps even changing the statutes of the Vatican television, that – it is rumored – has already increased prices charged for the use of Papal footage.

The Committee is chaired by Lord Christopher Patten, Chancellor of Oxford University and until 2014 president of the BBC’s governing board, an authoritative and well known personality. Other members of the committee are Our Sunday Visitor’s president Greg Erlandson (USA); the executive director of the Catholic Media Council Daniela Frank (Germany); Father Eric Salobir, a Dominican, general promoter of the Order of Preachers for Social Communications and founder of the think tank OPTIC (Order of Preachers for Technology, Information and Communication); Leticia Soberon (Mexico), psychologist and founder of the website www.dontknow.net and a former official of the Pontifical Council for Social Communications; and George Yeo, former Foreign Affairs Minister of Singapore who already served in the Vatican as member of the COSEA, as Zahra and de Franssu. The inclusion of these COSEA members in the Vatican ranks showsthat their work has been appreciated by the Holy See.

The “Vatican side” of the committee is comprised by: Paul Tighe, Secretary of the Pontifical Council for Social Communications, who will also be the secretary and “engine” of the committee; the chief of the Office of Information of the Secretariat of State, Msgr. Carlo Maria Polvani, nephew of archbishop Carlo Maria Viganò, now Papal nuncio to Washington; Lucio Adrian Ruiz, of the Vatican Internet Service; Giacomo Ghisani of Vatican Radio; and Gian Maria Vian,the editor-in-chief of the Vatican news daily “L’Osservatore Romano”.

Two absences are noteworthy: that of Dario Edoardo Viganò, who was called to head the CTV in order to implementthe “economic turnabout” which will probably lead the CTV to produce more documentaries to be sold at commercial rates, as well as the exclusive for the Pope’s images; and that of Father Giuseppe Costa, director of the Vatican publishing house, one of the few Vatican communications bodies “in the black” that invests a huge effort to promote and spread the Pope’s words.

A glance to the future

Of course, it will take years before the reforms will be carried out. De Franssu has saidthat at least 24 months are needed to reshape the IOR.  The committee for communications will remain standing at least for 12 months (starting its work with a review of the McKinsey report, one of the many external consultants hired by the Vatican under Pope Francis).  Even drafting a pension funds reform will take not less than one year.

The model is that of an «specialized clerical-lay cooperation. » How this cooperation will be carried out at the IOR is still to be determined. The relations of the IOR with the “central bank,” still not active, are to be determined as well. And so it is to be determined how this reform will influence the redesign of the Vatican dicasteries.

There is ultimately a need torationalize expenses, diminish the number of employees (and this is the reason why the Vatican has frozen new hiring some months ago) and find a new balance in the elephantine Vatican structure. The path to reform has just started, and it bears no resemblance with the idealistic times when committees of theologians and Canon law experts adjusted the Curia’s structures and discussed the Holy See sovereignty and the inner theological meaning of every decision or move. Now, instead, it is a time for spending reviews.

Pope Francis’ words were not enough. The Council of Cardinals met July 1-4. The Secretary of State, Cardinal Pietro Parolin, joined this group of 8 appointed by Pope Francis. The Pope – according to Father Federico Lombardi, director of the Holy See Press Office – told Cardinal Parolin that he is a full member of the Council. However, no document has been issued yet to certify the Secretary of State’s membership in the group. In the meantime, Cardinal Parolin is trying to keep his position via his being present.

Parolin’s activism is a reaction to the push to have reform engulf, it seems, the very Secretariat of State, that could be destined to be divided into two Secretariats: the Secretariat of State proper, i.e. for diplomacy, and the Secretariat for the Life of the Church, i.e. the general affairs. There would also be a General Secretariat of the Synod of Bishops; and there is already the Secretariat for the Economy, led by its proactive prefect, George Pell.

This ‘four secretariats’ structure is just a hypothesis, since the fifth meeting of cardinals have not produced a draft for Curia reform. Widely discussed is the streamlining of the Curia (bringing the Pontifical Council for Laity and Family together; Justice and Peace with Cor Unum and Migrants; and the Congregation for the Divine Worship with that for the Cause of Saints). Also in this case, we are dealing with hypotheses. Pope Francis went back in part to the old draft for a Curia reform written by Cardinal Attilio Nicora shortly before John Paul II’s death. The draft proposed the establishment of a Council of Cardinals, and a brutal amalgamation of dicasteries. The Council of Cardinals was intended to consolidate positions that had crystallized under the administration of the Secretary of State, Cardinal Angelo Sodano, who had his (mostly Italian) interests to maintain. Nicora’s draft was in fact a way to protect this power.

Pope Francis went beyond Nicora’s draft. Angelo Sodano had managed the pre-conclave meetings in a way that led cardinals to speak of management, more than of the substantial issues. The search for a missionary Pope, able to speak to the people, seemed to be a natural consequence. The Pope acts as a front man, while the Roman Curia manages its re-organization, dismantling piece by piece the reform of collegiality carried on by Benedict XVI. Pope Francis noted there was a wish for discussion, the same kind of discussion he was accustomed to, from the Jesuits’ General Congregations. In the end, the Superior General there makes the decision. But during the Congregations, everybody can voice concerns.

This is the spirit that Pope Francis has brought into his pontificate. The notion of a permanent Council, of ongoing talks, can however bring about some surprises. So, the Curia of the old days, after many of his main characters took important posts, had to face some surprises. Especially on the economic side.

For what concerns the economy, Pope Francis has continued, with no rush, Benedict  XVI’s work. The Vatican’s Financial Intelligence Authority strengthened its international profile and issued new statutes. The Vatican first amanded its first anti-money laundering law, and then – under Pope Francis – changed it with a brand new one, which positioned the Holy See among the most advanced countries in the world in this regard. This could not have happened without the enormous effort carried out by Vatican officials.

The Vatican hired several external consultants, thus projecting the idea of a reality moving toward reforms. But consultants are usually people coming from the outside, and this led to pros and cons. On “pro” is that external consultants are professionals (even if also Vatican officials are). A “con” is that consultants can never know in depth the full scope of the realms they are providing advice to and about.

In the media, this is portrayed as a “gang fight”. In fact, what the in the media has become a petty war among gangs, is a fight between two opposite visions. And every mean is licit, in the midst of this war. Also passing to journalists rumors and gossips, sometimes even mischaracterizing reality to prove a thesis.

For what concerns the Institute for Religious Works, the internal line has prevailed. The institute is a resource for the Catholic Church and her mission, and it cannot be abolished. There will not be revolutionary changes. Just an updating, to better insert the institute (whose chirograph and statutes stretch back to 1990) in the international arena.

This issue brings about a debate. The Curia of the old days is tied hand in glove to Italy. And Italy more than once has used the IOR as a scapegoat.  Italy views the Vatican as a subdivision that should manage every international relationship on the basis of its trusted relations with Italy.

This vision contrasts with the international vision, people aiming for the Holy See to be present in the world and able to send money to missions through her own international sovereign channels provided by the IOR.

Among those who support this second vision, there are some who are supporting a more speculative IOR, in order to generate more profits, and to have the IOR fully join the international banking system. On the other hand, there are people who wish the IOR to keep its characteristics of a sovereign institute, with funds at the Pope’s disposal.

Hence, the story of the territorial factions. They are referred to as “The Americans,” “The Germans,” “The Maltese,” and a power struggle ensues. Reality is far more nuanced. The Council of Superintendency of the Institute backed and supported the international turnaround and upholding sovereignty. It also favored the process of reform within the Institute, and making the IOR in some small ways a bank, even (perhaps) giving it the possibility of lending money. An approach that, it seems, was taken at the request of the Pontifical Commission for the IOR, chaired by Cardinal Raffaele Farina.

The process of reform has almost come to an end. The members of the board will probably tender their resignations, in order to support and facilitate a generational change. The Secretariat for Economy should take the lead of the management of the assets, to be entrusted to another body, the Vatican Asset Management. Surely, the president will change: Ernst von Freyberg has accomplished his tasks.  He operated as a full-time president although he was not one under the statutes.  Now that the statutes foresee having one, the job will not go to him.

Who might be von Freyberg’s successor? Two names are often mentioned: that of Jean Baptiste de Franssu, and that of Francis X. Zahra. They are both members of the Council for the Economy, they were both part of the (now dissolved) Pontifical Commission of Reference on the Economic-Administrative Structure of the Holy See, and they both were – according to unconfirmed rumors – in the set of three names that the Spencer&Stuart head-hunting agency had given to the Secretariat of State when the latter was searching for someone to replace Gotti Tedeschi as president of the council of the IOR, who got a no confidence vote by his own council.

These names would represent a line of renewal within continuity, but at the same time they would not act as the hawks, the latter aiming of making the IOR a speculative reality, as they would like to do with many other realities. For example, the widely gossiped commission for communications  would also be tasked with reviewing the Vatican Television Centre statutes, to make it a more commercial and profitable activity.

Paradoxically, it is the leftist-leaning world of pro-internal democracy that is pushing the Vatican towards a capitalistic pivot.  The democrats are very much to the left and very sympathetic to the Pope, so much so that they stand behind the Papal shield when necessary. They praise Pope Francis’ words on poverty, but they also ask the Church to revise her moral teaching.

These contrasting tendencies will came out, for example, in the next discussion on the Non Proliferation Treaty, the first important test for the new Holy See Permanent Observer to the United Nations Bernardito Auza. Archbishop Auza will have to act as a mediator between the prudent position of those who are against nuclear weapons, but do want to ban nuclear energy, because “it has civil implications to be considered”; and those who, even within the Vatican, back the extremist line, that of a total ban on anything nuclear, a choice that would place the Holy See on one side of the negotiations process instead of as a facilitator.

The sovereignty of the Holy See is always at stake. It was so when the Administration for the Patrimony of the Apostolic See (APSA) issued its new statutes, which made its consultants into members of the advisory board, de facto showing that APSA was acting as a bank even when it was referred to as a Central Body of the Vatican City State. This reform could be swept away if the Secretariat for the Economy’s intentions to dissolve APSA become a reality: the tasks of the ordinary section would be taken by the Secretariat for the Economy; while APSA’s extraordinary section would instead be under the responsibility and control of the Council for the Economy.

All of these issues are portrayed by the media as a gang war. Perhaps, there is just a major issue. What seems to be missing is a central vision, which is never made concrete, with processes becoming, instead, ideas on urgent reforms that are not translated into action. In the meantime, Vatican officials are passionately working, trying to keep the Holy See a modern State, yet preserving its peculiarities.

While cardinals are counseled by many voices (some of them are lobbyists), Pope Francis is still speaking about missionarity.

And the Legionaries of Christ never pushed missionarity aside. Stricken by the scandal of their founder, they have initiated, with great sacrifice, a path to renewal that led them to the election of a new government and the drafting of new constitutions. These constitutions have been examined by an ad-hoc commission. The pontifical advisor, Father Gianfranco Ghirlanda, has taken part in the process of renewal since the very beginning.

Today, the Legionaries have many vocations, notwithstanding the “abnormal and wasted” life, as Benedict XVI described it, of the founder of the Legionaries of Christ, Father Maciel.  While the Legionaries of Christ was renovating its internal structure and organization, the missionary ideal did not falter at all.  Despite any controversies, the Legionaries of Christ example should be followed.  

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.

In just a few months, this is the second time Pope Francis decrees a canonization independently from the collegial opinion of the Congregation for the Causes of Saints. The first time was when he decided “for certain” the canonization of John XXIII. But there are some differences with Faber’s case. In the case of John XXIII, there had been deliberations within the Congregation for the Causes of Saints about a miracle attributed to the late Pope’s intercession. In the end, there was no unanimity of views regarding whether it was a miracle for sure, and Pope Francis settled the question with his «for certain.»

For Faber, Pope Francis decided independently, without any group deliberations. He wanted Peter Faber, who put forth the notion of spiritual reform, to be a model for the whole universal Church. And this is why Francis took this decision to decree an equipollent canonization.

This is just but one of the instances showing that Pope Francis’ way of governing can be everything but collegial. At the moment, the Roman Curia seems to be completely deprived of authority. The Council of Eight Cardinals named by Francis to look at a possible general revision of the Pastor Bonus constitution (which regulates the functions of the dicasteries of the Curia) has not reached out to the Vatican dicasteries’ to seek their views. Instead, Council members reached out individually to people they trusted within the dicasteries, and asked them for an opinion. Then, Cardinal Giuseppe Bertello, President of the Vatican City State Governorate, was tasked with collecting the different opinions. In fact, there has not been an ordered procedure yet to evaluate how to carry the reform forward. It is only known that this will be a “profound” reform.

There had been several comprehensive reforms in the past few years. The most important, and clearly the most discussed, was the reform of the Holy See’s financial system. In just a couple of years, the Holy See adopted a specific financial system that has been internationally accepted as valid. This system, as could be expected, can still be improved (as is true for the systems of other states), but it has nevertheless received the Council of Europe’s unanimous praise. This was an achievement that, after the first visit of the Council of Europe MONEYVAL evaluators in November of 2011,  seemed reachable only in the long term.

Following the visit, the MONEYVAL evaluators had asked for substantial changes to the then Vatican anti-money laundering law. The law to be modified had been drafted by external consultants. Subsequently, Vatican officials worked to improve the draft, rewriting and aligning the law with international standards. Further adjustments followed, after an overall positive MONEYVAL report issued in July of 2012. These Vatican officials were in a position to understand the legal peculiarities of the Holy See, and thus were able to explain these peculiarities in international forums.

The whole world of the Vatican has changed as a result of work carried out by its in-house professionals. The Vatican penal code reform, the reform of the Prefecture for Economic Affairs enacted in March 2012 (as a result of which, the Prefecture can now be considered a modern ministry of finance), and the reform of Caritas Internationalis statutes and that of the jurisdiction of Catholic charitable associations, have all been carried out by Vatican officials themselves, without an extensive need for external consultants.

However, the use of external consultants and commissions has increased significantly under Pope Francis. Just in the last thirty days, the Vatican has hired the international consultants Ernst & Young, KPMG and McKinsey to render advice on communication, rationalization of expenses, and auditing. Every time the Vatican announced the hiring of an external company, the release specified that “the hiring came after a procedure of selection.” None of these procedures have been made public, nor is it known how much the external consultants will cost. It is rumored that the Vatican is spending millions of euros in consultants, just for having them look at the Holy See as if it were merely a company on which to apply some general international rules for communication, auditing and so on.

This Christmas season, in the Vatican corridors, officials can sense a strong current towards special commissions.  Only those that go with the current get any media attention, riding on the waves of fresh air brought about by Pope Francis.

For example, much has been written about the commitment to transparency of the Institute for Religious Works (IOR). The Institute, headed by Ernst von Freyberg and often referred to (misleadingly) as “the Vatican bank”, is now hosting the men of the Promontory Financial Group.  The Promontory has been criticized in the United State for being a sort of shadow regulator of the market. The Promontory’s men have seized top positions at the Vatican financial institution (Rolando Marranci, the new IOR general director, spent his earlier career with the group) and are screening its accounts. Just a few remember that, in fact, a first screening of the IOR accounts had already been made, as documented in the July 2012 MONEYVAL report and the December 2013 MONEYVAL progress report on the Holy See/Vatican City State.

In the meantime, Promontory was charged with looking into “customer due diligence” at the Administration of the Patrimony of the Apostolic See (APSA), thus creating somewhat of a precedent in the reformed APSA because it treats it as a private company. “Due diligence” is the evaluation of risks in investments and loans with regards, in particular, to the clients of a bank. However, APSA is not a bank. The Holy See explained this clearly to the MONEYVAL evaluators, noting that while APSA holds some accounts, such banking-type activity is minimal and will be phased out.

There are several internal short-circuits that can occur as a result of the extensive use of external consultants.

Pope Francis seems to be managing everything in a very personalistic manner. Rather than entrusting a “proven” structure like the Roman Curia, possibly inserting in its ranks people he trusts, Pope Francis prefers to confirm in their positions the heads of the Vatican dicasteries and at the same time change its members (as it happened with the Congregation for Catholic Education and the Congregation for Bishops) and make decisions on the basis of his personal knowledge.

Not by accident, his second secretary, Monsignor Fabian Pedacchio Leaniz, has not been inserted in the ranks of the Secretariat of State, as is customary, and keeps going to work every morning at the Congregation for Bishops, where Cardinal Jorge Mario Bergoglio sent him in 2007 with the task – according to the Spanish web portal Intereconomía – of letting him know anything going there.

There is always the impression that the Pope is acting as if he were still under the dictatorship in Argentina, thinking that the Curia – with its workings and machinations – must be bypassed, even at the risk of taking on board the advice of friends of his who are leading him to treat the Church as a company or a non-governmental organization.  Yet, this is precisely what Pope Francis has always maintained should not happen: «We are not a charity NGO,» Pope Francis has often stated.

Comparing the Church to a private company is something that Francesca Immacolata Chaouqui has done several times (even if later saying she was not doing so). Chaouqui is a member of the Pontifical Commission for Reference established by Pope Francis to oversee the simplification and rationalization of the institutions of the Holy See and to monitor Curia-related expenses.

The external advisors had all been hired by recommendation of this commission, and the fact that a “procedure of selection” had taken place does not dispel the notion of a conflict of interests, since Francesca Immacolata Chaouqui is also employed by Ernst & Young.  Chaouqui is believed to have the Pope’s ear, and might have spoken with him at the Domus Sanctae Marthae some Sundays.

What will be the impact of the external consultants over the Vatican? To what extent will they be faithful to the Holy See? How much will their work be just marketing and not mission? These are all open questions, together with those regarding the costs of hiring them. In the Church “poor (and) for the poor”, taking away responsibilities from the Curia is costing an unknown amount of money. It is rumored that this money will be recovered by marketing the Pope’s image, with the Vatican Television no longer making available its image feed for a token fee to Catholic networks and instead selling it to the highest bidder.

It is conceivable that Pope Francis does not trust the men of the Curia. His is mostly a reform in attitudes, as he noted in the interview he granted to the Jesuit-run Italian magazine La Civiltà Cattolica. It is also true that many intelligent people who are part of the Holy See and love the Church are mortified by this behavior. Moreover, their talents are unused, even if they are readily available to work ad majorem Dei gloriam (for the greater glory of God).

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).

All too often, the mere mentioning of Vatican finances immediately prompts the depiction of mysterious scenarios and obscure arrangements. Recently, an article in the English newspaper The Guardian emphasized that it was funds that the Italian dictator Benito Mussolini’s gave the Vatican that allowed it to build a financial empire that now includes luxury shops in the heart of London. In reality, it is not quite so. History can help us to better understand Vatican finances reason for being. Basically, the Vatican’s financial structure was born with the establishment of Vatican City State, «that piece of land that permits us to fulfill our mission», in Pius XI’s words.

Vatican City State was born as the reparation for a wrongdoing. In 1870, the Bersaglieri soldiers of the Italian King Vittorio Emanuele opened a breach in Rome’s city walls, a dozen metres to the west of the Roman gate – known as Porta Pia – and  marched down Via Pia, defeating Pope Pius IX’s troops. The Pope went into exile to Castel Gandolfo, and most of the Holy See’s patrimony was confiscated. It is in that period that Saint Peter’s Pence collection began. It was a spontaneous collection of offers from the faithful, and this allowed the Holy See to cover its bills. The Kingdom of Italy proposal for reparations, the legge delle guarentigie (Law of Guarantees) was a unilateral offer that did not compensate the Holy See for the loss of goods and lands. In addition, many lands belonging to monasteries and parishes were also confiscated, to give the economy of the Kingdom of Italy a respite. Relations between the Holy See and Italy were very tense. With time, this tension subsided. Catholics re-organized, overcame the Papal ban over political participation in the institutions of the Italian Kingdom, and gave birth to a political thought of their own, along the lines of the “new-born” social doctrine, inspired by Pope Leo XIII –who is considered by many one of the greatest philosophers of the last two centuries. Then, the First World War broke out. Pope Benedict XV was committed to peace, and frustrated by how difficult it was for the Holy See to conduct diplomatic relations. At the time, States entertained diplomatic relations with the Holy See through their embassies to Italy. Countries in war with Italy recalled their ambassadors, and so relations between the Holy See and these States in particular became very difficult. Benedict XV was keenly aware of this: a territory and a sovereign State was needed to carry a mission of peace.

When the First World War ended, Giovanni Giolitti was the Italian premier. Benedict XV considered the possibility of a «Conciliation» between the Church and the Italian State. Giolitti was against any such conciliation because he opposed (like some still do today)  recognizing the Holy See’s sovereignty. «If the Vatican – Giolitti said – would ask me to for a fully sovereign territory the size of a postage stamp (and certainly it would ask for something much bigger), I wouldn’t give it to it. » Giolitti’s words are reported in the Conciliation Memoirs of Cardinal Pietro Gasparri, still unpublished, and also mentioned by Benny Lay – the dean of the vaticanologists – in his book Finanze Vaticane (Vatican Finances). Giollitti’s attitude moved the Vatican to turn its attention to Benito Mussolini, who – when he was just a member in the Chamber of Deputies – took the position that fascism should not preach or practice anti-clericalism. It was 1921. The following year, Mussolini rose to power.

Conciliation negotiations were long and difficult. One of the challenges was agreeing on financial compensation. Pius XI worked personally on this issue. The Pope aimed to obtain an indemnity of 2 billion liras –which the Italian State could pay in instalments. For the Pope, this amount corresponded (with the addition of interests) to what the Italian State had unilaterally committed to pay after the occupation of Rome, per the Leggi delle Guarentigie. Pius XI settled, in the end, with 1 billion and 750 million liras, part in cash, part in bearer bonds.

What to do with this money? Two months after signing the Lateran Pacts and almost thirty days before their ratification, the Pope reached out to Bernardino Nogare (born in 1870, deceased in 1958). Pius XI asked Nogara to manage the funds from the Financial Convention of the Lateran Pacts. This is the «Mussolini money» The Guardian wrote about. This money came, in fact, from the Italian State as compensation for the occupation, and helped the Holy See to carry on its mission.

The Guardian, however, maintains that Mussolini was rewarding the Vatican with a huge amount of money in exchange for support and official recognition of the regime. This money would have been invested in prestigious real estate in London. The real estate belonged to Grolux Investments, a society controlled by the Swiss Profima. The latter could be traced back to the Vatican. In fact Bernardino Nogara was a member of Profima’s board.

Why would any of this be considered breaking news? Bernardino Nogara introduced the Vatican to the holding of stocks. Charged with the Special Section of the Administration of the Apostolic See Patrimony (the so-called Speciale), Nogara bought stocks, making conspicuous and smart investments. Through them, Nogara became a member of the boards of administration of several Italian companies, which enhanced his international prestige. During the Great Depression of ’29, Nogara founded Grolux Investments and the Swiss society Profima, to diversify Holy See investments, particularly by investing in gold and real estate.

The story of the establishment of Grolux is in John Pollard’s book Money and the Rise of the Modern Papacy: Financing the Vatican, 1850-1950. In that book, Pollard follows a money trail over three continents. Pollard’s is said to be a book about Popes and their administration of money. But truly, most of the Popes –with Pius XI one of the exceptions– have not paid any attention to administrative matters.  The latter were delegated to a highly select group of ecclesiastics and lay people with financial expertise. They are fascinating protagonists of this story. Just think about Giacomo Antonelli, Cardinal and Pius IX’s Secretary of State, who oversaw the Papal treasury from 1850 to 1876. Antonelli was one of the architects of the first massive reorganization of the budget for the Papal States. The success of his efforts to balance the budget depended on a loan requested and obtained from the Rothschild Banking House. Some could be surprised: did the Church really ask for a loan to a Jewish bank? In fact, this should not come as a surprise, considering that the Church’s relations with the Jewish community are closer than one may think. So close that Federico Cammeo, a Jewish jurist, drafted the Fundamental Law of the new-born Vatican City State after the Conciliation Bernardino Nogara, furthermore, was a top manager of the Banca Commerciale Italiana, managed by the Jewish banker Giuseppe Toepliz (and because of this, for many years the Vatican did not buy stocks in Italian banks other than the Banca Commerciale Italiana).

Nogara could count on the benefits of a renewed diplomatic activity of the Church.  Benedict XV had left the Vatican coffers empty, because the First World War prevented bishops from coming to Rome for ad limina visits and contribute to Peter’s Pence. From 1930 on, Nogara invested in a web of projects extended throughout Europe and financial centres in the United States and South America. He was the first non-roman to be in charge of the Vatican finances. He came from a family so Catholic that it weep because of the breach of Porta Pia. With a degree in industrial and electro-technical engineering from the University of Milan, he left for England as soon as he married and went to work in a mine in Wales. From there he was sent to a mine in Greece. In 1908, he was living in Constantinople and managing mines in Asia Minor. There, he founded the Eastern Commercial Society, a branch of the Banca Commerciale Italiana. Well-versed in the political and economic realities of the Ottoman Empire, he became the Italian government’s trusted advisor for Easter affairs.  In this role, he was involved in the Ouchy Treaty, which ended the war in Libya between Italy and Turkey. In 1914, Nogara was the Italian delegate to the Board of Administration for the Ottoman Public Debt.  At the end of the First World War, he was part of the economic and financial commission of the Conferences created to draft peace treaties with Austria, Hungary, Bulgaria, and Turkey.

Overall, Nogara was comfortable dealing with multiple relations in diverse context – the diplomatic-political context as well as the banking one. He was the right man to manage a estate with such a clear international make-up that Speciale’s staff were required to be fluent in French and English.

In the meantime, the Opere di Religione (Religious Works) administration increased in importance within the Sacred Walls. Italy’s alliance with Hitler’s Germany in the war, in 1940, makes increasing the operational capacity of the Opere di Religione all the more important and urgent. This branch of the Vatican financial system, since the very beginning of the war, was able to exchange Italian liras for hard currencies, which facilitated the Pope’s aid to the victims of the conflict. How to enhance this work? From 1940 on, the administration of Opere di Religione was placed under a Cardinals’ Commission. Through this mechanism, the Pope’s assistance reached occupied Poland, the Balkans, and wherever the Pope and the Secretariat of State needed it to reach.  As the Ossservatore Romano (the Vatican daily newspaper) recently noted in an article heading, «Pius XII fought Nazism even with (money from the Vatican’s) investments.»

Were these operations legal? Carlo Pacelli – Pope Pius XII’s nephew and general advisor of Vatican City State – raised this issue with some Italian jurists, among them Vittorio Emanuele Orlando – a prominent Italian politician, who had been Prime Minister and was also part of the Italian delegation in the negotiations of the Peace Treaty of Versailles, which ended the First World War. The question was: given that the Opere di Religione operated from the Vatican, were its transactions linked to Vatican City State or could they be considered legally independent? The jurists concluded they could be considered independent. And so, on June 27, 1942, Pius XII promulgated the establishment of the Institute for Religious Works (Istituto per le Opere di Religione, I.O.R.), an entity with its own corporate identity. This permitted the Holy See to deliver the Pope’s aid all over the world, even to Hiroshima and Nagasaki – also thanks to Vatican bank accounts opened in the United States, a request made by Vatican official to the U.S. Chargé d’Affaires Harold Tittman and approved by President Roosevelt.

This is how the Holy See’s estate and financial wealth was born and its management evolved. It is a sovereign wealth fund, managed through a sort of Central Bank (APSA; the Administration of the Apostolic See Patrimony) and an entity (the IOR) which assets are at the sovereign’s disposal, while the Prefecture for Economic Affairs oversees over the dicasteries balances and have now power to address Holy See’s financial and economic policy and everything is under the Authority for Financial Information oversight. These financial arrangements have been enhanced and modernized through the years with new agencies and also new ways to report balances. The Holy See is now committed to a qualitative enhancement toward full financial transparency.  Perhaps this development is most worrisome to those who have been reckless in their interactions with Vatican financial institutions, taking advantages of the latter’s peculiarities and of Vatican sovereignty. Ultimately, the Holy See financial scandals were always about Italian bankers (from Michele Sindona, to Roberto Calvi, to Ettore Gotti Tedeschi, the former IOR president who was recently involved in an Italian bank investigation regarding his role as Italian representative of the Spanish bank Grupo Santander), and in fact relations between Italy and the Holy See have been very tense, seemingly proving a certain level of Italian hostility toward the Holy See’s path to financial transparency. The Holy See has overcome this hostility, embarking on an international standards path, which is the only way to go in a globalized world. This path will eventually make Vatican City State a modern State, with multilateral relations and an internationally recognized financial capacity. This is the only path to make the Holy See independent from any external influence. The question is: who is not comfortable with the Holy See sovereignty?

As the patriarch was unaware, on that day Pope Benedict’s Motu Proprio had become effective. The Motu Proprio, which regulates Vatican finances, has become the law no. 127 of the Vatican State.It regulates the competences of the Authority for Financial Information, wanted by Pope Benedict to fight money laundering. From now on, nobody can enter the Torrione Niccolò V with more than 10,000 euros cash. If they do, they need to pass very strict checks, justifying the money transfer. All information will be stored in the archives of the Authority for Financial Information, which will also work to guarantee that all operations be conducted at their best and according to European regulations.

But the question of who controls the controllers was, since the start, a thorny issue. All members of the Authority are, in fact, ‘internal’. Their president is Card. Attilio Nicora, who is also head of the Apsa, the “central bank” of the Vatican. Moreover, Giuseppe Dalla Torre, president of the Vatican Court, and Marcello Condemi former appeals attorney for the Bank of Italy and former member of the Gafi (the Financial Action Task Force against money laundering) figure among the members of the board, while the director apppears to be Francesco Di Pasquale, current appeals attorney, and anti-money-laundering expert.

The authority had to be formed according to the agreement between the EU and the Holy See, which allowed the latter to adopt the Euro as a currency while binding it to agree to European norms regarding financial instruments and currency circulation. If the Holy See had not agreed in an year’s time, they would have not been allowed to issue currency or stamps. On December 30, 2010, the Authority for Financial Information was instituted with Pope Benedict’s Motu Proprio.

In this span of time, Ettore Gotti Tedeschi’s “black Tuesday” had taken place. On the 21^st of September, in fact, the president of the IOR was being investigated from judicial authorities under suspicion of omitting anti-money-laundering procedures. This emerged in operations regarding one of the IOR funds in an Italian bank, for a total of 23m euros.

The IOR, in fact, is not a bank in the strict sense of the term. In order to operate financially, it needs other banks’ accounts. There are IOR accounts held, for example, in Deutsche Bank, Credito Artigiano or Unicredit branches. In 2009, an investigation had been launched starting from one of these accounts. However, the investigation led nowhere. Many thought that this transparency move was due to the investigation on Gotti Tedeschi, but that was not the case. Others noticed instead the IOR’s president’s choice to spontaneously testify in front of Italian judges with the general manager Roberto Cipriani. In the 91-page report -much of which is, predictably, kept secret- they explained the mechanisms of the Vatican Bank. But that did not satisfy the jury, and the 23 millions remained confiscated.

It is paradoxical that Gotti Tedeschi, the man designed to bring to a close the ‘transparency move’, had been investigated for money laundering. The IOR president is now the last representative of a so-called ‘finanza bianca’, a Catholic-inspired kind of finance. He can boast a sound educational track record, a powerful bank, and the ability to open his way through the Catholic world through his well-known laissez-faire and books such as ‘Denaro e Paradiso’ (Money and Heaven) , for some an enlightened book;  for some others, heresy.

However, Gotti Tedeschi is not the only heretic in the Vatican. As head of the IOR he is, in fact, a second choice. A quality second choice, of course. Backed by Mr. Gian Maria Vian, director of Osservatore Romano – the daily news of the Holy See – and therefore card. Tarcisio Bertone, Vatican Secretary of State (who would have backed as well Giovanni Bazoli, president of Gruppo Intesa San Paolo, the other big Italian bank), Gotti Tedeschi got the better of Giovanni De Censi, president of Credito Valtellinese, which also controls the Credito Artigiano. And it was Credito Artigiano the one involved in the 23m confiscation affair. It might have been a simple bank transfer, an operation that could be solved with a simple phone call between De Censi and Gotti Tedeschi. That phone call never happened, and De Censi has recently left the board of the Vatican Bank -officially for medical reasons. He was replaced by Antonio Maria Marocco, a solicitor from the Unicredit group.

In the meantime, the IOR money is still under confiscation, while the financial scenario around has changed. On the Financial Times, the news regarding the investigation on Gotti Tedeschi obscured the one regarding the Ceo Alessandro Profumo’s farewell to the former bank of Cesare Geronzi. After moving to the insurance company Generali, Geronzi was forced to resign confronted by the board’s lack of trust. A certain part of the Vatican world trembled in front of the ‘fall’ of one of their gods.

The other god is Mr. Tremonti. The Italian Minister of Economy has Ettore Gotti Tedeschi as financial advisor and paved his way in the Catholic world a long time ago. Mr. Tremonti‘s participation to a periodic Ior meeting with its account holders was meaningful.  Somebody claims it was him to lure behind Geronzi’s fall and he’s aiming at a ‘winner-takes-all’ situation as next prime minister and controller of Italian finances.

His ‘rival’ is Mario Draghi, the Bankitalia governor. He is the one who had been handed a draft of the Caritas in Veritate, Pope Benedict’s social encyclical. Draghi had (in the first months of 2010) a meeting in the Vatican Social Sciences Academy with Hans Tietmeyer (former president of the BundesBank), Ettore Gotti Tedeschi and the president of the Bank of Greece Lukas D. Papademos, in order to solve the Greek financial crisis. Some press even claims there was Draghi behind some advice during the make-up of the Authority of Financial Information.

The bond between Italy and the Vatican is therefore tighter than ever. This is not seen as favourable throughout the whole of the Holy See, and some would like to pursue a different line. Thus it happened that Gotti Tedeschi went to speak about the Caritas in Veritate to the Pontifical Council for the Laity, with spectators such as the vice-president of UniCredit Luigi Gilli and the president of the Banca Monte Paschi di Siena, Giuseppe Mussari -as well with other entrepreneurs, priests and intellectuals. They were all engaged in a discussion on the ethical basis of finance. The Osservatore Romano highlighted Gotti Tedeschi’s speech. However, nobody told of a small diplomatic accident between the Pontifical Council for the Laity and the Pontifical Council for Justice and Peace. The two councils are, in fact, based one a few yards from the other, and while it had been the latter to be involved in the edition of Pope benedict’s last social encyclical, only the former took part in the initiative.