Nogara knew, however, that protecting the church’s money required far more than shuffling its hard assets to safe havens. He had learned through his BCI work during World War I that governments fought wars beyond the military battlefield, waging a broad economic battle to defeat the enemy. The Axis powers and the Allies imposed a series of draconian decrees restricting many international business deals, banning trading with the enemy, prohibiting the sale of critical natural resources, and freezing the bank accounts and assets of enemy nationals. A month before Nogara had sent the first shipment of the church’s gold to the Federal Reserve, Franklin Roosevelt issued Executive Order 8389—dubbed the freezing order or block list—forbidding any financial transactions relating to any nationals or property of two early victims of Nazi aggression, Norway and Denmark.10 Roosevelt wanted to be certain that the Third Reich could not get any of the money belonging to the countries it conquered. Only the Secretary of the Treasury had the authority to issue limited hardship and humanitarian exemptions.11
Roosevelt’s block list was amended repeatedly to eventually encompass almost all of Europe.12 On June 14, 1941, FDR’s list was modified with an Economic Defense amendment. It expanded the power of the United States to prohibit trade with any country, company, or person when the Treasury Department considered the action “necessary in the interest of national defense and security.”13 Sixteen new countries were listed, not only obvious belligerents such as Germany and Italy, but neutral nations such as Switzerland, and the tiny principalities of Monaco, San Marino, Liechtenstein, and Andorra.14
Only the Vatican and Turkey were left off. Turkey was still then aligned with the Allies because of a 1939 agreement it had signed with Britain and France. The Vatican was the only European country that proclaimed neutrality not placed on the block list.15 Instead, Treasury issued a general trading and business license to “the Roman Curia of the Vatican City State.”16 Nogara was relieved. Despite the Vatican’s declaration of neutrality, he had worried the United States might list the church-state. He knew if that happened it would close off his critical pipeline of dollars for lines of credit, currency exchange, investments, and bill payment. There was good reason for his concern. Some American officials wanted to place the Vatican on the block list since they contended that its neutrality was a fiction. The Vatican was, after all, only a small parcel of land in the capital of an enemy nation. It was indebted to Mussolini for its sovereignty granted just a decade earlier under the Lateran Pacts. The fascists could squeeze the Vatican at any time since it depended on Italy for all its energy, food, water, and communications, and also relied on a stable Italian lira as its currency. But the strongest argument in favor of putting the Vatican on the block list was the likelihood that those who ran the church could not put aside their own nationalism. Popes had been Italian since Hadrian VI died in 1523. The Curia was 90 percent Italian, men who were bound together through a network of lay friends with whom they had grown up, attended school, and still socialized. The families of those clerics were just on the other side of the church’s territorial boundaries. In many cases, they had brothers in the military or relatives whose livelihoods depended on the war effort. The most important cardinals heralded from patrician lineage, and counted relatives who were titans of Italian industry. The nephew of the former Pope, Pius XI, was a decorated military officer who ran a Milanese bank at the same time he served as the civil chief of Vatican City.17 Pius XII’s cousin had been president of the Bank of Rome.
By the start of the war, American intelligence relied on “workable contacts” to compile a dossier on forty-eight cardinals who wielded influence both with Pius and inside the Vatican. The conclusion: the most powerful cardinals were either fascist or pro-Nazi.18 Failing to freeze the Vatican, some argued, would create a major loophole by which Italians could bypass Allied regulations.19
Working in the church’s favor was that the hard-line opinion about the church was confined to a small group in Treasury. In contrast, the White House had little stomach for a confrontation with America’s large and politically powerful Catholic community. The Pope had earned FDR’s enduring loyalty by breaking precedent and backing Roosevelt’s 1936 reelection bid (an endorsement engineered by Cardinal Spellman).20 A strong Catholic vote helped put Roosevelt back into office in 1940. Moreover, the State Department encouraged FDR not to do anything that might alienate the Pontiff. The President wanted Pius as an ally, hoping he might assist the United States through silent diplomacy.21 Those sympathetic to the church argued that the Vatican could always be added to the list later.
Five days after the Economic Defense amendment, Pius XII summoned the American chargé d’affaires, Harold Tittmann, to a “strictly confidential” meeting in the Pontiff’s private residence on the top floor of the ocher-tinted Vatican Palace.22 It was the only time in six years of service there that Tittmann walked up the long staircase, past the relics of the Medici and Borgia Popes, and entered the apartment that the Pope reserved only for his closest friends and family. The private gathering turned out to be about money, which surprised Tittmann as much as the invitation had. Pius had never shown any public interest in finances. The Pope thanked Tittmann for the American decision to leave the Vatican off the block list.23 There was, however, another concern. The Pontiff gave the details about several private bank accounts in New York. Pius claimed that although they were Vatican property, they were listed under different, unrelated names. And he confided that he maintained his own personal account at a New York bank (according to an FBI report issued later that year, it had a balance of $60,999, the 2014 equivalent of $1,009,577). The Pope asked for Tittmann’s help in safeguarding all those accounts from any American wartime regulations. The chargé d’affaires sent a cable to Myron Taylor. As a result of their intervention, the Treasury protected those accounts without asking any further questions about why the Vatican had claimed ownership in the names of different people and companies.24
Less than a month after that meeting, in July 1941, FDR created the Proclaimed List of Certain Blocked Nationals, referred to as the “blacklist.” It required a lower threshold of proof and allowed Treasury, the State Department, and the attorney general to list all foreign businesses and nationals merely suspected of being pro-Axis. Fifteen thousand businesses and persons, many in neutral countries, were eventually blacklisted.25 And anyone who did business with a banned company or firm was himself subject to blacklisting.26
Just as U.S. officials responsible for economic warfare argued whether the Vatican should be blocked or blacklisted, a similar debate played out in Great Britain. The Trading with the Enemy Branch of the Foreign Office (TEB), like its American counterpart at Treasury, thought some Vatican money movements were suspicious.27 Early in the war, TEB intercepts revealed the accounts at Nogara’s British Grolux had been pledged by the Italian government as collateral for lira credit lines at different banks. It raised the specter that Italy was partially funding its war machine by using Vatican assets to circumvent Allied restrictions. When questioned, church representatives claimed they had violated no wartime rules since no money had ever left church-controlled accounts or gone to Italy.28 When Nogara caught wind of the TEB queries, he transferred the shares in British Grolux to the Morgan Bank.29 The TEB investigators had to stand down.30
The Ministry of Economic Warfare, another British enforcement division, believed that Nogara was “up to some dirty” schemes to help the Axis powers exchange reichsmarks and lire for hard unblocked currency.31 Since 1925 Nogara had been a director of BCI, Italy’s largest bank.32 The Allies had targeted BCI as an enemy financial institution and closed its U.S. operations.33 He was also a director of a Swiss-based BCI subsidiary, Banca della Svizzera Italiana, a firm the British had blacklisted for doing business with Nazi allies in Romania and Bulgaria.34 And one of Nogara’s Swiss holding companies, Profima, had a troubling stake in a BCI South American subsidiary, Banque Française et Italienne pours l’Amérique du Sud (Sudameris).35 The Br
itish and Americans had both blacklisted Sudameris as a “willing [Nazi] collaborator.”36 The Americans pressured South American governments to close the bank’s operations. Nogara and his good friend, Giovanni Malagodi, another BCI director, tried an end run around the efforts by transferring most of the bank’s assets to Profima.37 They gambled that no Catholic-dominated South American country would move against the company if the Vatican claimed ownership.38 That worked in Argentina with neo-fascist strongman Juan Perón. Brazil, however, shuttered Sudameris’s branches and seized its assets.39
Both the Americans and British were furious that Nogara so brazenly chased profits through a bank whose management was pro-fascist. But instead of freezing Vatican assets and accounts, the governments merely complained through their envoys to the Vatican’s Secretary of State.40 Cardinal Maglione—who was not a financial insider—assured the envoys that if he had known all the details beforehand, he would have opposed the Sudameris investment. The Vatican was neutral, he reminded them. Nogara’s brief was to focus only on investments, not politics.41,II
It was not just Nogara’s shuffling and masking of holding companies in multiple banking jurisdictions throughout Europe and South America that Washington and London considered suspicious. Treasury investigators were uneasy over stock and bond securities that had been registered in blocked countries before Nogara forwarded them to the church’s correspondent bank accounts at J. P. Morgan and City Bank in New York.43 Trading in those securities would have been banned since they originated from blocked nations.44 No interest or dividends could be earned. But Nogara sought a Treasury exemption citing humanitarian and religious needs.45 A few American officials suspected the Vatican might be laundering the securities, claiming they belonged to the church when the real owner was a blocked person or company. The Vatican could earn a generous fee for taking the risk of bringing them to the United States under the cover of church property. But without conclusive evidence, no Treasury investigator dared brand the church representations a lie. The Treasury Department—possibly concerned about political fallout—did not even ask the Vatican to supply “evidence of beneficial ownership [that] is clear beyond a doubt,” a routine request in such cases.46 Treasury granted the Vatican a special license to trade in and profit from the securities.47 That meant Nogara was uniquely positioned. When the war turned against the Axis powers, he could run much of the Vatican’s business from safe dollar accounts in the United States.
Nogara’s good fortune continued in April 1942, when Secretary of the Treasury Henry Morgenthau granted the church yet another dispensation. The Vatican wanted to spend money inside Italy and also in Nazi-occupied countries without running afoul of U.S. regulations. The Pope said it was the only way the church could maintain its many missions in those nations. Morgenthau approved the exemption, making the Vatican the only country permitted to operate in both Allied and Axis zones without fear of retribution from either side.48
Nogara knew that the Allies tracked all the church’s financial dealings since the Vatican used Western banks. Every transaction left a paper trail. The ability to conduct more of its business in secret would give him the latitude to be more aggressive and creative with the church’s money. He had a trump card to play. The June 27, 1942, formation of the Istituto per le Opere di Religione (IOR)—the Vatican Bank—was heaven-sent.49 Nogara drafted a chirografo (a handwritten declaration), a six-point charter for the bank, and Pius signed it.50 Since its only branch was inside Vatican City—which was not on any block or blacklist—the IOR was free of any wartime regulations. The Vatican Bank could operate anywhere worldwide, did not pay taxes, have to show a profit, produce annual reports, disclose balance sheets, or account to any shareholders.51 Located in a former dungeon in the Torrione di Nicoló V (Tower of Nicholas V), it certainly did not look like any other bank.III
The Vatican Bank, created as an autonomous institution, with no corporate or ecclesiastical ties to any other church division or lay agency, had only one shareholder: the Pope. Nogara ran it subject only to Pius’s veto.53 Its charter said it was “to take charge of, and to administer, capital assets destined for religious agencies.”54 Nogara interpreted that liberally to mean the IOR could accept deposits of cash, real estate, or stock shares (that expanded later during the war to include patent royalty and reinsurance policy payments).
Many nervous Europeans wanted a safe haven for their money. Italians in particular were anxious to get cash out of the country. Mussolini had decreed the death penalty for anyone exporting lire from Italian banks.55 Of the six countries that bordered Italy, the Vatican was the only sovereign not subject to Italy’s border checks.56 Now that it had its own bank, Italians needed only a willing cleric to deposit their suitcases of cash without leaving any trail. And unlike other sovereign banks, the IOR was free of all independent audit requirements. It was required—supposedly to streamline recordkeeping—to destroy all its files every decade (a practice it followed until 2000).57 The IOR left virtually nothing by which postwar investigators could determine if it was a conduit for shuffling wartime plunder or held accounts or money that should be repatriated to victims.
Nogara tapped Monsignor Alberto di Jorio to be the IOR’s senior cleric (by 1944 he held the title president).58 The fifty-eight-year-old di Jorio had worked for the IOR’s predecessor—the Pontifical Commission for Works of Religion—since 1920. During the 1930s, he adapted well to Nogara’s more aggressive financial style and showed a talent for investing. It was not long before the IOR became a way station for capital fleeing Italy and other European countries. The bank’s instant popularity surprised even Nogara.
The mid-war creation of the Vatican Bank served another important purpose: it made it much more difficult for the Allies to track Nogara’s movement of church money. The FBI and the Office of Strategic Services (OSS—the predecessor to the CIA) tried hard, but the IOR complicated their efforts. Allied investigators struggled to keep up with Nogara’s aggressive back-and-forth transfers of Swiss francs, lira, dollars, sterling, and even gold bullion, through a slew of holding companies in a dozen countries on several continents.59
In its June 1941 amendment to the block list, the U.S. had included tiny countries that had well-deserved reputations as offshore havens, such as Monaco, San Marino, Liechtenstein, and Andorra.60 One of the chief reasons the Vatican had been left off was because it was the only sovereign European country that did not have its own banking system. The creation of the Vatican Bank changed that. But it did not, for reasons still unclear, prompt Treasury to revive discussions about whether the church-state should be blocked.
Mussolini was also worried that the IOR would help the church hide its financial moves. Il Duce asked Pius XII to allow Domenico Pellegrini Giampietro, an academic and economist who worked for the Minister of Finance, to visit the Vatican to stay informed about the IOR’s work. The Pope agreed.61
The best evidence of how little the Allies knew about the IOR’s activities is the dearth of information about the Vatican Bank in U.S. and British government files. It took the OSS nearly two years after the IOR’s formation before it stumbled across intelligence that Hitler’s Reichsbank was transferring money to the Vatican and disguising its origin by using a Swiss bank as an intermediary.62 But by then the OSS had far more pressing wartime matters than running down the details of whatever scheme the Reichsbank and Vatican had concocted. That information ended up in a confidential file but there was no apparent follow-up. Just before Germany’s 1945 surrender, U.S. intelligence uncovered Vatican Bank instructions to Switzerland’s Union Bank to pay 100,000 Swiss francs to the Bank Swiss Italienne of Lugano, which had been on the Allied blacklist since June 1940.63 Another closing war intercept found the IOR directing a Portuguese bank to “forward 2500 large dollar notes in a sealed packet to the Vatican through the medium of the Papal nuncio in Lisbon.”64 In other instances, such as the Vatican’s five cash accounts at Third Reich banks, FBI agents would not discover their existence unti
l after the war.65
Throughout the war, the IOR operated in what the FBI called black, off the radar for Western investigators.
* * *
I. Without the Kirchensteuer, Nogara would have been far more pressed to juggle the church’s finances. The Nazis collected and paid the Kirchensteuer to the Vatican throughout the war. In 1943, the tax revenue hit a then record, just over $100 million (a 2014 equivalent of $1.7 billion). Files still sealed in the Secret Archives might answer whether Pius XII’s muted response to the Nazi atrocities was in part prompted by the fear that any condemnation might cause Hitler to refuse to collect the tax, or instead to collect it and keep it for the Third Reich. The Vatican’s dependence on this income might also explain its steadfast opposition to Allied and Russian demands later in the war for Germany’s unconditional surrender. There was no guarantee that the Kirchensteuer would survive in a Germany occupied by foreign powers (it did).2
II. Nogara battled in vain to get the British and United States to reverse their Sudameris blacklisting. His offer to appoint two Rome-based receivers to run the company failed. Tom Lamont, a J. P. Morgan director, lobbied Roosevelt administration officials with whom he was friendly. When Lamont made no headway, Nogara turned to Myron Taylor and offered to sell half of Profima’s holding in return for a removal from the blacklist. That effort was also rebuffed. It was not until four months after the end of the European war that Nogara could transfer half of Profima’s shares to J. P. Morgan in New York. When Sudameris was removed from the blacklist in November 1945, Nogara wrote an effusive letter of gratitude to Myron Taylor.42
God's Bankers: A History of Money and Power at the Vatican Page 16
