By Stacy Meichtry
Wall Street Journal
March 30, 2011
http://online.wsj.com/article/SB10001424052748704062604576105872515838508.html?mod=googlenews_wsj
 |
| Pope Benedict XVI arrives for his weekly audience in Rome Wednesday. |
VATICAN CITY—The Vatican is scrambling ahead of a Friday deadline to finalize new rules for how the Holy See will monitor the movement of funds in and out of Vatican walls and punish money launderers.
Pope Benedict XVI late last year bowed to the demands of the international financial community and announced the Vatican would create a watchdog to police its bank's opaque finances and bring to justice anyone who commits financial misdeeds on Vatican territory. As the watchdog formally comes into power on Friday, regulators and banks in Italy and abroad will be watching closely to see if the new measures have teeth.
Among them, officials have drafted a measure that would require all Vatican departments to inform the watchdog when they transfer funds inside the Vatican or abroad, disclosing the sender, recipient and nature of the transaction, according to a person familiar with the matter. It isn't clear if that will be introduced along with other rules on Friday, as it is still being reviewed, the person said.
Under a rule that will be unveiled Friday, people entering Vatican City will for the first time be required by gendarmes to declare whether they are carrying large sums of cash or other liquid assets, the person said.
Until now, the Vatican's financial system has functioned with few of the strict regulations that govern many of the world's banks. At the heart of the Holy See's crackdown is the Vatican bank, formally known as the Institute of Religious Works.
The bank was a discreet channel for getting money to Catholics living under oppressive Soviet regimes during the Cold War. In the 1980s, the bank became embroiled in a fraud scandal involving Italian bank Banco Ambrosiano—a case that grabbed headlines when the Italian bank's chief was found hanging from Blackfriars Bridge in London, an incident that remains a mystery. The Vatican refused to allow its top bankers to be questioned by Italian prosecutors.
In late 2009, however, the pope hired an economist, 66-year-old Ettore Gotti-Tedeschi, to run the Vatican bank, with a mandate to shake up its secretive practices.
The modern Vatican has little experience in bringing criminals to justice. In 1929, Italy and the Vatican signed a pact in which Rome recognized the Holy See's sovereignty but also allowed popes to shield Vatican officials from investigations and prosecutions by foreign governments by invoking diplomatic immunity. There is no prison inside the world's smallest state. Under the new rules, the Vatican will send people convicted by Vatican courts to prisons in Italy, said the person familiar with the matter.
Without a full-fledged criminal-justice system in place, the Vatican's financial overhaul faces an uphill struggle, some analysts say. "The adequacy of these [new Vatican] laws has not yet been assessed," says Rick McDonell, executive secretary of the Paris-based Financial Action Task Force, or FATF, which sets international anti-money-laundering standards and which encouraged the Vatican to overhaul its financial system. "The challenge will be the effective implementation and enforcement of the laws."
Cardinal Attilio Nicora, the Vatican watchdog's new chairman, has scoured the financial industry for auditors and other experts, but the prospect of working at the Vatican on an exclusive basis—for a fraction of the pay—makes it hard to lure them away, Vatican officials said.
Soon after Mr. Gotti-Tedeschi's appointment, the Bank of Italy started looking into the Vatican bank's ties with Italian banks, reporting suspicious transactions to Italian prosecutors. The Vatican bank doesn't have branches outside Vatican walls, and for decades Italian banks processed transactions on its behalf without demanding any information about Vatican bank clients. This allowed those clients—ranging from Swiss Guards to Vatican cardinals—to funnel funds in and out of Italy's banking system under a cloak of anonymity.
In 2010, the Bank of Italy warned that commercial banks shouldn't carry out Vatican bank transactions unless it disclosed information about the identity of its clients. According to court documents, Italian lenders such as Intesa Sanpaolo SpA, UniCredit SpA and Credito Artigiano SpA threatened to stop—a move that would have effectively paralyzed Vatican business, from investments in sovereign bonds to charity funding in Africa and Vatican employees' salary payments. The banks declined to comment.
"The water was already up to our throats," Mr. Gotti-Tedeschi later told prosecutors, according to a court transcript.
To resolve the issue, Mr. Gotti-Tedeschi needed the Vatican bank to comply with international financial standards defined by the Financial Action Task Force and the Organization for Economic Cooperation and Development. When he flew to Paris for meetings with both organizations, however, officials warned him that the Vatican bank was skirting international money-laundering rules and needed a major regulatory overhaul to get up to speed, according to people present.
Pressure rose in September when Italian prosecutors put Mr. Gotti-Tedeschi under investigation, saying the bank allegedly violated Italy's anti-money-laundering laws by not disclosing the nature of a ˆ23 million ($32 million) transfer of Vatican funds from Credito Artigiano to Vatican accounts at two other banks. Prosecutors ordered the funds frozen.
The Vatican and Mr. Gotti-Tedeschi said there was nothing untoward about the transfer. But in a major break with custom, the pope agreed to let Mr. Gotti-Tedeschi be questioned by Italian prosecutors. The investigation is continuing.
In November, the pope summoned Vatican cardinals to the papal palace and announced he was creating a watchdog to oversee their finances. "The pope moved with immediacy on this, because there was a serious risk for the image of the Church," said Cardinal Gianfranco Ravasi, who was at the meeting.
—Nathania Zevi contributed to this article.
Write to Stacy Meichtry at stacy.meichtry@wsj.com
Any original material on these pages is copyright © BishopAccountability.org 2004. Reproduce freely with attribution.