The Vatican bank will automatically report information about American holders of its accounts to US tax authorities under an agreement signed on Wednesday that the American ambassador to the Holy See said was a “very significant step” to combating tax evasion.

The agreement – the first inter-governmental deal between the Vatican and the US – was hailed as a “type of stamp of approval” of the Vatican bank’s efforts to be more transparent, said the US ambassador, Kenneth Hackett.

The bank, which is formally known as the Institute for Works of Religion, has been dogged for years by accusations that it has helped launder money for rich Italians, among others, who were seeking to evade taxes and carry out other illicit activity. It began a clean-up process at the end of Pope Benedict’s tenure, following intense pressure by the Bank of Italy, which essentially sought to cut the bank off from working with other banks in Italy if it did not change its ways and adopt internationally recognised anti-money laundering regulations.

Pope Francis has also put financial reform at the top of his agenda, and the bank has spent millions of euros on consultants, including US advisory firm Promontory Financial Group, in its effort to implement a modern compliance programme and weed out problematic accounts.

Under the terms of Wednesday’s agreement, the Vatican will be party to the Foreign Account Tax Compliance Act in the US, which was passed in 2010 to target non-compliance with US tax obligations. Under US law, American citizens who live abroad or have foreign bank accounts are required to report those accounts to the Internal Revenue Service.

In a signing ceremony at the Vatican, Archbishop Paul Richard Gallagher, secretary for relations at the Holy See, emphasised the importance of paying taxes as a matter of charity and justice. “As Pope Francis frequently reminds us, evading just taxes is stealing both from the state and from the poor,” he said.

Signing the agreement was a step in the Vatican’s long-term strategy to “ensure and promote legality, transparency and ethical behaviour in the economic and financial fields” he added.

US holders of Vatican bank accounts will not be caught off guard by the new arrangement. Marji Christian, an official at the US embassy to the Holy See, said the negotiations that led to the agreement had been continuing for two years, but declined to comment on areas of contention between the parties.

The US embassy would not comment on the number of Americans who hold accounts with the Vatican bank, but the figure is believed to be in the hundreds, not thousands. A spokesman for the IOR did not immediately return a request for comment.

Similar agreements have been arranged between the Vatican and other countries, including Italy, though none includes automatic notification requirements. Under the Italian agreement, the Vatican must simply comply with requests for information.

As part of its clean-up effort, the board of superintendence that has oversight of the Vatican bank determined in 2013 that it would restrict the kinds of clients it would accept to certain categories. Those that are acceptable include Catholic institutions, clerics, employees or former employees of the Vatican with salary and pension accounts, and embassies and diplomats accredited to the Holy See. At the end of last year, the IOR had 15,181 clients.

Since 2013, it has closed nearly 5,000 accounts that were either dormant or did not comply with the new standards.