Call to account: FT probe of Vatican Bank


By Rachel Sanderson in Milan

The sweeping clampdown, the first in the Vatican bank’s 71-year history, follows months of increased regulatory pressure on banks over their relationships with the Holy See. An FT investigation has uncovered the key role played by Deutsche Bank, JPMorgan and UniCredit in the reform of the bank, by refusing to provide financial services over the past two years.

The pressure forced the Vatican to shake up the bank to rout out potential money launderers and tax cheats. This process has been accelerated by Pope Francis since his election in March.

Executives at other banks, including Peter Sutherland, non-executive chairman of Goldman Sachs International meanwhile acted as unpaid consultants to the Vatican’s treasury and advised the world’s smallest city state to change its traditionally secretive ways.

The banks were responding to fears they could be penalised by regulators because of their relationships with an organisation that had failed to meet international standards on anti-money laundering and terrorist financing. As part of the crackdown on tax cheats in offshore havens around the world, financial watchdogs were planning to target the Vatican through its partner banks.

“There was a no-nonsense approach from the correspondent banks,” one adviser to the Holy See told the FT. Their attitude was “we are not here to cover the ass of the Vatican”, the adviser said.

The timing of the clean-up is crucial. This Monday, the 47-nation Council of Europe’s committee of experts on money laundering is due to meet in Strasbourg. They will consider whether the Vatican has made enough progress to be included on the so-called “white list” of nations taking a stand against money launderers and terrorist financing.

In July 2012 the Moneyval committee published a report that painted a damning picture of lax customer due diligence and weak supervision of the Vatican bank. The city state passed in only nine of 16 core standards.

The report was the first independent review of the secretive bank, formally known as the Institute for Religious Works, and unleashed a wave of change under Pope Benedict XVI. He appointed new management to the bank and its supervisor. However, it was the decision of Deutsche Bank in January of this year to withdraw ATM services from the Holy See during the peak holiday period that sent a profound shock through Vatican City. The Bank of Italy had suggested Deutsche could be breaking the law by servicing the ATMs.

Under Pope Francis, change has accelerated. A Vatican law passed on October 8 strengthened the supervisory powers of the Holy See’s anti-money laundering regulator and created a prudential supervisor for the first time.

Outside experts have been brought in to scour the bank’s existing 33,000 accounts and these will be closed if a client is found no longer to have links to the Holy See. Where accounts are missing basic information, monitoring of that account is handed over to the Holy See’s new anti-money laundering regulator. That regulator is expected to close many dozens of accounts because of concerns about suspicious activity, say people close to the process.

The Vatican’s push to repair its reputation for probity comes as it faces embarrassment on the other side of the Tiber. Last week, the trial began of an former Vatican accountant and cleric, Monsignor Nunzio Scarano, who was arrested in June and accused of trying to smuggle €20m by private jet from Switzerland aided by two other men.

Giuseppe Di Taranto, a political economist at LUISS University in Rome, says that the changes at the Vatican bank reflect wider institutional and ideological shifts within the church under Pope Francis.

“This a part of a broader move in the church outlook away from riches and towards poverty. This is a message that is very current when poverty, economic crisis, and the damage done by banks are a global political issue,” Mr Di Taranto says.

The Financial Times

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