For the first time, the Vatican Authority for financial oversight and information has published its annual report. The data covers the period that goes from the second half of 2011 to the end 2012, i.e. the first year and a half of activity of the authority. During this time, «many steps forward have been taken – Bruelhart said in a press conference – which does not mean that our financial system is perfect: there is still much to be done.»

Certainly, the annual report proves that many things have changed within the Vatican walls. Compiling the data, one can have an idea of how much money comes in and out of Vatican City State.  Obviously, it is data that only covers declared transactions. At any rate, it is a modest amount of money. Bruelhart explained that Vatican movements of funds are «usually donations for charities.»

Let’s glance the data: There was just one report of suspicious transactions in 2011, and six reports in 2012. There was one case in 2011 calling for an internal request for assistance (i.e. assistance among the authorities that are co-responsible for oversight, from the Secretariat of State to the Vatican Gendarmes Corps) are two such cases in 2012. There were two reports submitted to the  Promoter of Justice (i.e. the Vatican public prosecutor). The Vatican requested information from foreign authorities once in 2011 and once 2012. The Vatican has been asked for information by foreign authorities seven times in 2011 and three times in 2012.

Regarding this data, Bruelhart wanted to point out that «we are talking about information dealing with intelligence, they are not juridical-legal requests.» Which means that those requests for information are different from the kind of solicitations for information that a public prosecutor may issue as part of an investigation. The latter would fall out of the scope of the AIF.

The report also includes data concerning declarations of cross-border transportation of cash or bearer securities. Anyone entering – or exiting – the Vatican with 10,000 euros or more in cash or checks to be deposit (or to be withdrawn) has to declare it on a form. In 2011, there were 658 forms declaring incoming money, and 598 in 2012. Forms declaring outward transportation of money were 1894 in 2011 and 1782 in 2012. The report underlines that the «data relating to declarations shows a tendency to an intensification in 2011, leveling in 2012.»

What accounts for the leveling? And why is there more outgoing than incoming funds? The answer to the first question – Vatican sources explain – is that «finally the system is starting to work,» since «people are starting to show a preference for electronic and traceable financial transactions than cash.» Regarding the second question, it is «easy to understand» that «in times of economic crisis, money is more often withdrawn than deposited.»

The magnitude of Vatican City State financial activity is in any case modest. The report also explains why transactions do not involve large sums of money. «In the (Vatican City) State – the report notes – there is not a free market currently at work. There are no private financial institutions and operators. There are organizations which, within their institutional activities, carry out some financial activities that are relevant to the concerns addressed in anti-money laundering norms, and as such, to applicable legislation and the supervision of the AIF.»

All financial operations are ultimately linked to institutional activities, i.e. the way the Holy See uses its money to fulfill its mission. René Bruelhart explains in the introduction to the report that in recent years the Holy See and Vatican City State «have strengthened their efforts for the prevention and countering of money laundering and the financing of terrorism.» Bruelhart continues: «This has primarily resulted from an act of coherence with a mission at the moral level, so that the integrity and stability of the economy and finance are not just goals in themselves, but means to serve the human person and peoples.»

The challenge for the Holy See now is to build a financial oversight system that meets international standards and at the same time preserves the specificity and internal coherence of the financial-economic framework of Vatican City State. This has lead to the Holy See decision to have the Secretariat of State put together a list of designated subjects, that the report defines as subjects who could be the target of «the immediate freezing of assets and economic resources.» The Holy See does not automatically adopt the United Nations list of designated subjects – an aspect of the Holy See procedures contemplated in the revised Vatican anti-money laundering law. This is the case because the UN list is adopted pursuant to chapter seven of the UN Charter, which is applicable to threats to peace and acts of aggression. Since the Holy See is traditionally neutral and a strong advocate of peace, the Secretariat of State issues the Vatican’s own lists, even if they are based on the relevant resolutions of the UN Security Council.

The Secretariat of State adopted a list of designated subjects on April 3, 2012. That very same day, the AIF, through Ordinance n. 1, ordered the immediate freezing of assets and economic resources that may be traced to the subjects in the list.

The Vatican Authority for Financial Information also enhanced its international cooperation. The report underlines that in 2012 the Authority signed two Memorandums of Understanding: with the Belgian Cellule de Traitement d’Information Financiéres (on June 9, 2012); with the Spanish Servicio Ejecutivo de la Comisión de Prevención del Blanqueo de Capitales e Infracciones Monetarias (on December 17, 2012). In 2013 (this is not part of the report, which covers only to 2012) the AIF signed a Memorandum of Understanding with the Slovenian Office for the Prevention of Money Laundering.  On May 7, 2013 the Vatican signed an MoU with its U.S. counterpart, the  FinCEN.

Beyond gathering financial information, the AIF also «supervised, including through on-site inspections, the implementation by the supervised subjects of the requirements established by the anti-money laundering norms; and the appropriateness and effectiveness of policies, organizational structures, measures and procedures adopted for the prevention and countering of money laundering and the financing of terrorism.» For this purpose, AIF issued six regulations and five instructions.

What we heard  during the very short trial that took place in Vatican City State last week showed how dangerous and careless it was to hire Paolo Gabriele for such a sensitive position. Recommended by Stanislao Dziwisz – now cardinal and archbishop of Cracow, previously John Paul II’s secretary – and by msgr. James Harvey – once assessor in the Vatican Secretariat of State and now prefect of the Pontifical House – Paolo Gabriele perfected over the years his knack for copying and stealing documents.  His version of events – that he began to gather documents in 2010, when the «Viganò’s affair» became public – contradicts the investigation’s findings. Georg Gaesnwein, Benedict XVI’s personal secretary, examined the papers. He noted that there were documents from 2006, 2007, 2008 and 2009. In their testimonies, the Vatican Gendarmes who searched Paolo Gabriele’s house confirmed that there were several documents taken before 2010. The Pope’s butler also maintained that he only took copies of documents. Facts denied it: there were several original documents in his house –everyone testifying  coincided on this.

Paolo Gabriele is not a scapegoat. He is certainly someone easy to take advantage of. It is so stated in both psychiatric examinations (the one requested by Paolo Gabriele’s lawyer and the one requested by the Vatican Promoter of Justice during the preliminary investigation) undertaken to analyze whether Paolo Gabriele was insano de mente or not. The butler knows and weighs the consequences of his actions. Yet in the psychiatric examination, Paolo Gabriele’s profile is that of an insecure person with a constant urge to meet with the approval of people he considered of a certain importance. During his testimony, Paolo Gabriele told how he used to take the car to go to work everyday, a mere 3-4 minutes commute on foot. Otherwise, he said, everybody could stop him to ask for favors, and he – being a good Christian – could not help but to listen and try to help everyone. Perhaps he took the car only to better hide the documents he stole.

When questioned, Paolo Gabriele almost brags. He says that he copied documents in front of everyone in his office – he had a desk in the room of the two Papal personal secretaries – because nobody would suspect him, since his intentions «were not evil». He explains that he «opened his heart» to Msgr. Gaenswein about his fears regarding the Vatican Gendarmes Corps. In fact, he has a sort of obsession with the Vatican Gendarmes. Somebody noted that it is the fixation of a person who could not become a Gendarme. Paolo Gabriele asks Gendarmes for copies of their regulations, he researches information about the Vatican Gendarme Corps, he reaches out to a certain Luca Catano – whom he though to be a magistrate – thinking he could get more information through him.

But the game Paolo Gabriele played during the trial is very odd. When he was held in custody, his lawyers declared that he was well and psychologically healthy. During the trial, he played the «torture card». Paolo Gabriele maintains that he was imprisoned for 20 days in a tiny cell, so narrow that he could not stretch his arms. He maintains that the light of his cell was kept on 24 hours a day. Giuseppe Della Torre, president of the Vatican Tribunal, opens an investigation about this «tortures». Members of the Vatican Gendarmes Corps are shocked. They treated Paolo Gabriele with kid gloves, and the butler had even thanked them. They deliver a press communiqué, responding point by point to each of Gabriele’s accusations. They counter the possibility of facing further accusations. The day after Paolo Gabriele’s interrogation, Vice Commissioner Cintia was called to testify, and asked that the court record note that «Paolo Gabriele thanked me». To which Paolo Gabriele reacts with a wide smile.

Paolo Gabriele’s defensive line is also questionable. It intends to show that the Pope’s butler was framed. His lawyer Arru insistently raised questions: about the use or not use of gloves during the search in his house (although for «paper searches there is no need for gloves»), about the search in Gabriele’s house in Castel Gandolfo, in Italian territory (although this search is not part of the trial); about the fact that the boxes where all of Paolo Gabriele’s things were placed were perhaps too large, insinuating there were originally more documents than those later considered necessary.  All this calling into question is to support the scapegoat thesis, where Paolo is the victim to a conspiracy. He is the hero framed, who takes the blame calmly.

Paolo Gabriele is not a hero. He is just one of many Vatican employees. Many of them handle documents. Not all of them steal documents. Many of them can have questions about situations, even be shocked. But they try to be loyal to the institution they have been sworn into. It is also true that others would do what Paolo Gabriele did, maybe to earn some extra-money, or for other reasons. There is, in fact, a «gang of malcontents», a sort of group made up of Vatican clerks and prelates. They do not hide their discontent, and they often speak about how to «help the Pope», which means to stir trouble for the Pope.

The existence of this gang of malcontents proves that the Vatican old boys’ club system has failed. Over the years, clerks, officials and even priests poorly selected were hired in the Vatican, and then have been able to advance in their careers, step by step. Mediocre people were able to reach very senior posts, and then co-opted people similar to them. There are almost three such generations. The Vatican must really overhaul its hiring practices.

Gabriele has even mentioned an enabling environment. Who swayed Paolo Gabriele? He talks about cardinals Sardi and Comastri; about Joseph Ratzinger’s long-term collaborator Ingrid Stampa; about Msgr. Cavina, bishop of Carpi, who served for a long time as an official in the Vatican Secretariat of State. The first three – together with Joseph Clemens, whom Paolo Gabriele oddly did not mention – were said to be the Vatileaks inspirers in an article in Die Welt which influenced public opinion (this article was excerpted from the trial, on Paolo Gabriele’s lawyer request). This article – whose contents were officially denied by the Vatican Secretariat of State – was excluded from the process on request by Paolo Gabriele’s lawyer. The butler drops these names, and then distance himself from the consequences. The day after giving testimony, Cristiana Arru maintains that the butler is «bothered» by the fact that the media has referred to these people as his accomplices.

Perhaps, one should look for Paolo Gabriele’s enabling environments elsewhere. Much higher, and also in everyday meeting places. Perhaps in some of the bars around the Vatican where the gang of malcontents gather to complain, and where a cardinal could casually pat someone on the shoulder and let him know that he can be a hero, that he can play a role to save the Pope from his obtuse collaborators. Who seduced Paolo Gabriele? Who had reasons to do so? Many are those who may have a grudge against this Pontificate, and against Bertone, Secretary of State. After almost 30 years, the machine of privileges was dismantled by the Pope and Bertone. They re-built the structures, and gave power to other people.

Once, these internal struggles took place inside the Vatican, invisible outside the Sacred Walls. The loyalty to the institution came above all. There was great consciousness about the importance of the Church in the world. That is no longer the case.

Vatileaks shed light on how prelates often put their personal interests before the Church’s interests. The sense of being Church has been lost. Careerism has grown – and it is not a case that the Pope held several speeches and homily blaming careerism. Much could be learned from the report of the cardinals’ commission appointed by the Pope to investigate how the documents were leaked. The three cardinals –Herranz, Tomko and De Giorgi—looked into the «enabling environment». They reached some conclusions, which they shared personally with the Pope. The issue is not whether someone would like to see Pope Benedict XVI killed or marginalized. The real problem is indifference toward the Church. The scant understanding of its mission, reducing it to a mere power structure. This is why Vatileaks is not over.  It may never be.

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

The new regulation of the Prefecture for Economic Affairs

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

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

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

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

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

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

One more step toward financial transparency

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

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

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

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

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

The path to the new law

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

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

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

Who is against financial transparency?

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

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

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

Waiting for July

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

Italian vision vs. European (and international) vision

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

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

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