Suspected money laundering at the Vatican Bank and its president and director placed under investigation — it was a story guaranteed to make sensational headlines this week.
In the end, however, it was the scandal that never was, leading to questions over how and why it ever came to be news in the first place.
The story broke after it emerged that Italian prosecutors had seized $30 million of the Vatican Bank’s assets and placed the president of the Vatican Bank, Ettore Gotti Tedeschi, and its director, Paolo Cipriani, under investigation for suspected money-laundering.
The Vatican was quick to rally to the institution, saying it had “complete confidence” in the bank’s managers and that the Italian authorities acted on a misunderstanding.
It said the transfer of the $30 million from the Vatican Bank to a local Rome bank — the transaction which initially set off alarm bells for the Italian authorities — was its own money to be invested in German bonds. Italian police stressed the investigation did not mean either of the officials involved had been charged with a crime, and a judicial ruling would be necessary to continue the investigation.
A communications failure to disclose to the Italian authorities the origins of the money, a violation of Italian law, appears to be at fault. Over the past decade, new anti-money-laundering rules have been implemented in Italy and the European Union, requiring all banks to provide detailed information about the origins of the funds they transfer.
However, the Vatican expressed its “perplexity and astonishment” at the investigation because it said all “necessary information is already available at the competent office of the Bank of Italy, and that similar operations regularly take place with other Italian credit institutions.”
Father Federico Lombardi, chief spokesman for the Holy See, also wrote a letter to the Financial Times Sept. 23, saying the news of the investigation comes at a time when Gotti Tedeschi has been working “with great commitment” to ensure the “absolute transparency” of the bank’s activities. “The nature and aims of the transactions under investigation could have been clarified with great simplicity,” Lombardi said.
Tedeschi, who’s only been in the position for a year, was brought in by Benedict XVI precisely to make the institution more transparent. He has been trying to help it enter the White List of anti-money-laundering financial institutions — a process he’s been hoping to accomplish by December.
A 65 year-old devout Roman Catholic who teaches financial ethics at a Catholic university in Milan, he was also a contributor to the Pope’s social encyclical “Caritas in Veritate,” which called for greater ethical responsibility in matters of finance.
Benedict XVI has also created a monitoring office within the institution headed by Cardinal Attilio Nicora, a respected administrator at the Vatican, to ensure the private equity institution, responsible for the funds of religious and charitable institutions, is admitted onto the White List. The moves follow a concerted effort in recent years to clean up the offshore bank which was rocked by a financial scandal in 1982.
So is someone now purposely trying to dirty the bank’s reputation? The Vatican hasn’t publicly made that assumption, though Tedeschi said he felt a procedural error is being “used as an excuse to attack the Institute, its president and, more generally, the Vatican.”
But if that’s true, why the attack?
Some observers think enemies of the Church want to damage the Pope after his successful visit to Britain. Others blame members of the Berlusconi government, angry that the Catholic hierarchy in Italy has criticized the way he has recently handled politics and his personal life.
The story could be a shot across the bow from secular authorities aimed at ensuring reforms at the Vatican Bank continue.
Vatican analyst John Allen speculates that some at the Holy See are wary of greater collaboration with the EU and the Italian authorities, not because they favor financial corruption, but because they are concerned about too much interference by secular regulatory bodies which could compromise the church’s independence. “It will be fascinating to see what effect these events have — accelerating the process of reform, or stiffening the resolve of those in the Vatican dubious about its long-term consequences,” Allen writes.
In the end, it probably will speed up moves towards greater transparency and collaboration. The Pope and senior Vatican officials know too well the damage caused to the church’s moral authority when its actions fall far short of its teaching, as the sexual abuse scandal has shown.
In this regard, at a time when the church is arguing for greater ethics in global finance, the Vatican Bank will want to do all it can to lead by example and enact necessary reforms.
How far it can and will go without compromising its sovereignty remains to be seen.
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