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the Financial Information Authority and issued the first anti-money laundering law, subsequently improved and superseded under Pope Francis in order to make a financial system that would meet international standards and at the same time was cognizant of Vatican sovereignty and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.

The book by Cardinal Bertone could be readily seen as a selection of speeches on reason. In the many speeches delivered during trips, honoris causa academic ceremonies or in meetings with the diplomatic corps and with civil society, Cardinal Bertone was transmitting Benedict XVI’s thought. The book contains observations about the «duty of humanitarian intervention» and the call for new, strong and active international governance.  These represent a development of the traditional Holy See diplomatic battles to achieve to common good.

The reading of the book also makes it clear that the non-negotiable values are not just a political machination by Benedict XVI to influence the world and appease the neo-cons. The non-negotiable values do not deal only with life and abortion issues, but the whole Gospel. The non-negotiable values come together under the principle of religious freedom, which Benedict XVI has described as «the right of all rights.» The non negotiable values are the pivotal principle, based on human dignity as the measure of all things. The dignity of the human being which is at the heart of the Holy See diplomatic action.  An action of the Church that benefits all of humanity.

Under Benedict XVI, while Cardinal Bertone was Secretary of State, the Holy See became ever more international. For centuries the Holy See has had an international impact. It was part of peace processes all over the world, from the negotiations over the Caroline Islands to those concerning the Beagle Channel. The member states of the United Nation has asked many times the Holy See to raise its status from permanent observer (yet with enhanced privileges) to member state. The Holy See’s moral authority was so highly regarded that the international community asked that it be among the founding states of the International Atomic Energy Agency, in order to provide the agency with a moral voice.

Despite its international activity, the Holy See had been considered for years a sort a small enclave of Italy. Italy and the Holy See have always enjoyed good neighborly relations, and Italian Popes have paid particular attention to events in Italy.

But the special relation between Italy and the Holy See has also brought some trouble. For example, every recent financial scandal (from the IOR-Ambrosiano scandal to the path toward financial transparency started under Benedict XVI) involved Italians, men of compromise whose specialty is the Vatican-Italian dichotomy and border, and able to nurture that all-important good relation. 

By bringing these questions to the fore, Benedict XVI also set forth a more ambitious projection for the international profile of the Holy See. The Holy See could no longer be considered a sort of Italian annex, even if the Holy See and Italy still have good neighborly relations. The Holy See is a sovereign State that supports and engages in multilateral policymaking among States, and implements it. It does not live in Italy’s shadow.

From the other side of the border, Italians kept on showing interest and consideration toward the Holy See, while also paying attention to shielding themselves from ethical considerations that could run counter to their political stances.  They could not attack Benedict XVI directly, since he spoke loud and clear, and no one dared to appear as opposing him. When there are important issues to discuss, it is difficult to escape one’s own responsibilities. For this reason, attacks against the Church’s stances took the form of guerrilla warfare.

Leaks about the Holy See’s internal debate concerning the path to financial transparency came from Italy. Also Vatileaks was a genuinely Italian scandal, full of personal attacks against Cardinal Bertone. The attacks were in fact meant to reach Benedict XVI. But how could anyone attack an undisputed moral authority who put together speeches as grandiose as cathedrals, with bricks of reason?

This was the background when Benedict XVI went to the Palace of Quirinale to visit the President of the Italian Republic Giorgio Napolitano, on October 4, 2008. In that occasion, Napolitano underscored that «the laity of the state stands side by side with the recognition of the public dimension of religion,» and also noted that, in times of crisis, Italy could count on the Pope’s words and on the committed work of the «Catholic lay movements inspired by the Pope’s message.»

Catholic lay movements were not even mentioned in the speech Napolitano delivered on November 14, 2013, when Pope Francis went to visit him. In the speech, Napolitano asserted that the Church must carry forward a joint effort with Italy, in which Catholic institutions contribute with the their work on the fields of education and solidarity. 

Reading between the lines, Napolitano words seemingly aim to reduce the role of the Church in society to that of a simple NGO, as many campaigns claim that the Church should be regarded.

These campaigns fail to realize that the Holy See’s sovereignty permits the Church to be free, not to be submitted to any other state, and thus to promote the right of all the faithful to live their own religion.

In Italy, the Church’s global role to protect religions and minorities have been often reduced to a mere debate about spheres of influence.

This is probably the reason why an ambassador to the Holy See exulted in an informal chat with journalists that «non-negotiable values are not the center of this Pope’s preaching,» while Napolitano praised the Pope’s «non-dogmatism.»

Ultimately, these are minor pronouncements. Pope Francis has shown that he knows about non-negotiable values, and how to defend them, even when underlying that he does not want to make them the center of his pontificate.

Perhaps, the Church did lose a little bit of traction in rising to the challenges of the world.

Meanwhile, Italy remains too embroiled in small and narrow-minded relations with the Holy See. So much so, that it risks to be treated by the Holy See just as any other state, losing the privileged connection Italy always had. But Italy cannot accept this. And so, some in Italy focus on the lay love for the Pope to break free for old linkages, even by underlying the simplified protocol used for Francis’ visit to the Quirinale. 

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?

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.