3 days ago | International | Posted by Sonya Sandage
- December 8, 2013
Many do not realize that the Vatican manages a banking empire with approximately $7 Billion in assets.
On June 28th, a Vatican cleric, along with a former Secret Service agent, and a financial broker were all arrested by Italian police and charged with fraud and corruption. The three were suspected of smuggling $24 Million by private plane across the border from Switzerland.
Prosecutors allege that the the Vatican cleric who is a former banker, was using the Institute of Religious Works (The formal name for the Vatican Bank) to transport money for Naples businessmen. In Italy, Naples is considered the base for organized crime. The arrested Vatican cleric was also the head of accounting at the Treasury of the Vatican (Administration of the Patrimony of the Holy See.)
This is another shock to Italy following upheaval of Pope Benedict XVI’s resignation in February, the first time in 700 years a pope has resigned. The scandal gave the Bank of Italy under Mario Draghi as well as BIS in Brussels the impetus it needed to start investigations and potential regulatory changes at the Vatican Bank.
In July, Peter Sutherland, a non-executive chair at Goldman Sachs International, and the former Attorney General of Ireland, flew to the Vatican. He is a practicing Catholic and unpaid consultant to the Vatican’s Treasury, and was invited by reformers inside the Church to speak to the Council of Cardinals, the most senior advisors to the Pope. He did not give a public statement, but two who were aware of the closed door proceedings indicate he advised the Council, “Transparency is necessary.”
Regulators have already been eager to get into the Vatican before the arrests. “We cannot have any more scandal. It is so shameful,” a senior member of the Vatican’s financial administration said.
Financial Times interviewed two dozen bankers, lawyers, regulators, and Vatican insiders over 11 months to understand how the Vatican Bank has unnerved bankers, regulators, and governments across Europe and the U.S. The reforms inside Vatican Bank now underway are due to pressure from banks like Deutsche Bank, JP Morgan, HSBC, and UniCredit, all who have found themselves as targets of regulators due to their business relationship with the Holy See.
REGULATORY NIGHTMARE, BANKING STANDARDS NOT MET
About 32 of the world’s largest financial institutions were “correspondent” banks for the Vatican. They moved about $3 Billion per year from the Vatican Bank to other banks around the globe, allowing the Church to conduct international business. The banks became so fearful of being tarnished by the Vatican that some have even closed down their accounts for the Embassies of the Vatican. HSBC did cease doing business with the Embassy of the Vatican, and other large banks are considering the same. Regulations and oversight around diplomatic bank accounts and PEP’s (politically exposed persons) has become crushing to the banks, and they no longer seek out these customers. Banks have tremendous surveillance around account owned by those who work high up in any government, especially embassy accounts. It is a large cost and risk to the banks, and they loathe doing business with these customers.
In March 2012, JP Morgan closed the bank accounts it held for the Vatican because the documentation provided was not thorough. Vatican was asking JPM to move money all around the world for it via wire transfers but the basic Know Your Customer data could not be obtained. When JPM would say, “we need to answer to the regulators on these wire transactions” the Vatican Bank would push back and say, “We answer to God,” according to a bank manager at a large European bank.
MONEY FUNNELED TO EFFECT POLITICAL CHANGES, EVADE TAXES
Many bankers, lawyers, and those in business with the Vatican Bank would not speak on record but they did say the Vatican Bank operates unlike any other bank they’ve dealt with. The staff of only 12 were not versed in Due Diligence or KYC (Know Your Customer) standards. There was very little documentation on their cash flows and balances of approximately 19,000 clients. There are 33,000 accounts held at the Vatican Bank. 50% of clients come from religious orders, 15% are from Holy See institutions, 13% are Cardinals, Bishops, and clergy, 9% are from dioceses around the world. The rest have some affiliation with the Catholic Church. The Vatican Bank doesn’t have many loans, the books contain mostly deposits, wire transfers, and investments.
Many of the deposits are donations and cash tithe. 25% of the bank’s business is done in cash. Laura Pedio, a Milan ani-Mafia prosecutor who specializes in white collar crime, was willing to speak on the record to Financial Times. In her previous cases she found a complex system of proxies, with transaction authorization given to the third parties on behalf of unidentified account holders. The proxy holders had no details recorded at the bank. Some of the proxies could only be verbally recognized by a few people at the Vatican Bank. She said there was no way to get answers on who these people were, or who was the final beneficiary of the account.
One advisor to the Vatican says the new clampdown by regulators has caused the correspondent banks to toss aside the Vatican and stop doing business with them. “There is a no nonsense approach from the correspondent banks,” the advisor said in an interview. “We are not here to cover the ass of the Vatican.”
The most infamous story so far around the Vatican Bank was their relationship withe a large Italian bank that collapsed. The Vatican Bank was the single largest shareholder in Banco Ambrosiano. After that bank collapsed, it’s chairman was found hanged under London’s Blackfriar’s Bridge. Prosecutors in Rome conclude the bank chairman was killed by the Sicilian Mafia but no charges were brought up against an individual. There have been rumors that the Vatican is a large shareholder of Bank of America but this has not been substantiated.
Mafia victim & bank chairman: Roberto Calvi
Another question is how the Vatican may funnel money into political actions. Pope John Paul II is said to have used the Vatican Bank to channel money to Poland’s Solidarity Movement. Questions arise as to is and how the Vatican may be swaying elections or effecting political change worldwide. Regulators have been cracking down on tax cheats in offshore havens like Switzerland.
FIRST POPE IN 700 YEARS RESIGNED IN FEBRUARY, NEW POPE WITH MAMMOTH PROBLEMS TO FIX
As of March 2013 their new Pope, who is a Jesuit evoking poverty and humility, set a new tone on financial correctness. The new Pope spoke out against the idolatry of money, “all-compassing corruption,” and “Tax evasion that had reached global dimensions.” The new Pope moved his personal residence away from the Apostolic Palace and the Vatican Bank.
The new Pope has issued papal decrees to help speed inspections and make changes to produce real reform in the legal and institutional framework of their banking system
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