Despite the efforts of the Moro government, the push to apply the tax to the Vatican lost steam. A series of investigative stories in 1967 by the leftist L’Espresso revived the dispute and even amplified it with rhetoric that dubbed the Vatican as “the biggest tax evader in postwar Italy.”111 Published guesstimates of what the Vatican owed on just the dividend tax ranged as high as $720 million annually (the equivalent of $4.8 billion in 2014).112 The ruling coalition pledged to apply the tax to the church.113 The Vatican had, by coincidence, only recently established a press office.114 The tax issue was addressed first by its spokesman, Monsignor Fausto Vallainc (New York Times reporter Paul Hoffman said about Vallainc that “in addition to being uninformed, he was a bungler”).115 Besides reiterating that the church was exempt because of the Lateran Pacts, he put forth a novel argument: since the Vatican was a world-renowned attraction, it should be given a credit for some of the money tourists spent in Italy.116 Vallainc’s plea was not successful. The government stripped the church of its exemption for the special dividend tax (although remarkably the leftist coalition did not end the hundreds of millions given annually to the church in direct subsidies, another practice begun by Mussolini and not terminated until 1990).117
Sindona told the Pope and his colleagues in the IOR and the Special Administration that although Italy was on weak legal ground when it came to the dividend tax, the Vatican could not prevail. The issue had become entangled in politics. The concern now was whether it might become a precedent prompting the revenue-hungry government to pass even more taxes. And since the state collected the tax at its source—the companies paid what was owed to the government before distributing the rest to the shareholder—it did not matter if the Vatican continued protesting. Merely allowing its collection would damage the credibility of the church’s claim of independent sovereignty.
Sindona urged the creation of a separate division inside the Curia to focus primarily on real estate. That department, he said, should also be responsible for fully funding the Curia. Sindona contended that such a move would allow the church to benefit from its tax-free status on all income from its enormous property holdings, while freeing the IOR to concentrate on other investments.
On August 15, 1967, Pope Paul established the Administration of the Patrimony of the Holy See (Amministrazione del Patrimonio della Sede Apostolica, APSA), and appointed his Secretary of State, Cardinal Amleto Cicognani, as its first chief.118 It had, as Sindona urged, responsibility for the church’s real estate as well as raising money for the Curia’s budget and paying the Vatican payroll.119 The Special Administration, which had been established in 1929 to deal with the money given to the Vatican by Mussolini as part of the Lateran Pacts, was dissolved and folded into APSA.120
Paul VI also created the Prefettura degli Affari Economici della Santa Sede (the Prefecture for the Economic Affairs of the Holy See), responsible for the oversight of all Vatican finances, with the notable exception of the IOR, which was left independent and self-regulating.121 As part of its duties, the Prefecture produced an annual report of all budgets (except the IOR).122 Any construction project in Vatican City now had to be run past the Prefecture. The Pope had considered putting the Vatican Bank under the new Prefecture, but Mennini argued successfully that because of Pius XII’s intent, if the bank was put under the control of another entity, it would sacrifice its essential independence that made it both unique and so useful.123
Paul VI hoped that a central administrator might illuminate the obscure thicket of church finances.124 And Sindona may have been right that creating APSA as a tax strategy was a good idea. But invariably it overlapped with the Vatican Bank as well as the asset-rich Congregation for the Evangelization of Peoples (Propaganda Fide).125 There was trouble integrating the new bureaucracies.126 Compounding the problems, Cicognani and the other clerics in charge of APSA had little background in finance. Most of them had difficulty even reading a balance sheet.127 The same was true at the Prefecture. Paul VI appointed Cardinal Egidio Vagnozzi, who had been the Apostolic Delegate to the United States and whose career specialized in diplomacy.128 Vagnozzi’s claim to any business sense was that his family ran the largest confectionary in Rome.129 His two assistants were seventy-nine-year-old Cardinal Joseph Beran and seventy-year-old Cardinal Cesare Zerba. Beran had returned to the Vatican after sixteen years in prison in Czechoslovakia, and Zerba was a theologian who ran the Congregation of the Sacraments.130 They had no financial expertise or realistic expectation about what awaited them in the splintered world of Vatican finances.131 Vagnozzi was not long in his new post before he told a colleague that it would take a “combined effort of the CIA, KGB, Interpol, and the Holy Spirit” to make sense of the Vatican’s financial ledgers.132
APSA and Prefecture for the Economic Affairs of the Holy See ultimately added to the confusion and lack of transparency over Vatican finances.133 But at the time of their creation, they were a testament to the influence of Sindona in the Papacy of Paul VI.
Sindona knew, however, that creating APSA was only one part of a comprehensive response to the government’s imposition of the dividend tax. He urged the Vatican Bank to sell many of its Italian stock and corporate holdings. Those sales would not only spare the Vatican from paying any tax under the new law, but would constitute a public rebuke to the secular government. Without a significant stake in Italy’s private sector, the church would not be affected if future governments levied new taxes on dividends, capital gains, or even so-called intangibles taxes (a fixed levy on the total value of an investor’s portfolio). Sindona assured IOR director Mennini that if the church freed up the money it had tied up in Italian companies, he would help invest the funds abroad. But there was considerable resistance inside the IOR to unraveling the portfolio that Nogara had so meticulously compiled, especially given that its components were performing so well.
The tipping point in favor of Sindona’s argument came in early 1968. Italian reporters uncovered evidence that the Vatican had invested in Istituto Farmacologico Serono, a pharmaceutical company that made birth control pills, as well as Udine, a military weapons manufacturer (there were also unconfirmed newspaper reports of church money in gunmaker Beretta, a Monte Carlo casino, and a printing firm that published pornographic magazines).134 Nogara’s son Giovanni was on Udine’s board. Serono’s chairman was none other than Pius XII’s nephew Prince Giulio Pacelli.135 Former IOR chief Massimo Spada ran a wholly owned Serono pharmaceutical subsidiary, Salifera Siciliana.136 The embarrassment over the Serono holding was intense. It was the same year Paul VI issued Humanae Vitae (Human Life), his most controversial encyclical, in which he banned all artificial birth control.137
That spring, in the rococo Apostolic Palace, four men assembled late at night in the Pontiff’s private third-floor study to discuss what to do about the church’s finances.138 The Pope was joined by Sindona, and Cardinals Cicognani and Vagnozzi. Sindona had once had dinner with the Pope and his private secretary, Macchi, but this evening was not a social visit. No official entry was made in the Pope’s diary about the meeting.139 Sindona made his case for why the Vatican should divest itself of all holdings in Italian companies. He explained that so long as the church owned stocks in Italian firms, the government would continue to roll out more taxes.
Sindona argued that the Vatican’s ownership in so many firms was as much a political and social liability as it was an economic asset. Nineteen sixty-eight was a year in which social unrest in Italy was peaking between student sit-ins and massive street demonstrations. Public opinion polls showed a remarkable two thirds of the country thought the nation’s future was bleaker than its present.140 Mixed into this cauldron of pessimism was increasing criticism directed at the church for its corporate holdings. Every time one of its companies took a hard line during negotiations with trade unions or cut back on the number of workers at an unproductive plant, leftist politicians and newspapers slammed the church for not protecting working-class Catholics. Sindona reminded th
em that when Italy had created the Olympic Highway in 1960, critics had charged that SGI had gouged the Roman government. The previous year, leftist newspapers accused the Vatican of manipulating local zoning regulations to help Hilton build a new hotel.141 And just a few months before the late night meeting, workers had occupied the church-owned flour mill, Pantanella, after the Vatican had slashed the mill’s book value to stay solvent.142
Those headaches were problems the church did not need, contended Sindona. They would only grow over time, especially as the press became increasingly alarmist and intrusive.143 Moreover, by maintaining majority positions in companies, the church was on the line for business failures, putting it at risk for having to use its own money to shore up firms that hit hard times due to bad management or an uncontrollable turn in the economy or marketplace.144 Finally, he assured them, he would reinvest the money from the stock sales into new and better investments abroad, ones that would free the church from worrying about taxation or social criticisms. It would also provide a layer of confidentiality difficult to maintain with Italian stocks.
The Pope liked the idea that Sindona might be able to increase the church’s return on its money. It needed more income. Paul VI was overseeing an institution with 600 million followers, five million lay employees, twenty million children in parochial schools, a million nuns, 250,000 priests, and a charity that was the world’s largest (thirteen million people were receiving some type of assistance).145 Although religious orders and all dioceses were responsible for their own finances, since the Second Vatican Council the Vatican had assumed broad new responsibilities that had increased its employment by a third.
Paul VI, as was his style, had agonized for months over what to do. But he had reached the conclusion that Sindona’s plan was in the best interests of the Vatican. The two cardinals agreed. Paul turned to Sindona. With the cardinals as witnesses, the Pontiff informed Sindona that he had earned the title Mercator Senesis Romanam Curiam sequens, Latin for “the leading banker of the Roman Curia,” or informally, “the Pope’s banker.”146 The personal involvement of a Pope at this intimate level of decision making was unprecedented, as was the notable absence at the meeting of any IOR or APSA official.
The press later dubbed the radical shift as the “Pauline Policy.” Adding to Sindona’s allure, The New York Times reported, “There are rumors in Italy . . . that Mr. Sindona had signed the final agreement with Pope Paul VI” (he had not, but the Pope had conferred on Sindona his elite advisory status).147 When Time confirmed the meeting a year later, it noted it was “almost unheard of for a Pope personally to conduct the church’s business affairs, but this was no ordinary occasion. Sindona and Pope Paul closed a deal that started a shift of profound consequence in the Holy See’s management of its vast temporal wealth.”148
The first sale was the holding in the SGI conglomerate and the resignation of its president, a former Governor of Vatican City, and four Vatican financial advisors on its board.149 APSA was technically responsible for the sale but the IOR—with Spada as the key advisor—set the terms and handled all the money.150 The church had always managed its investments so as not to attract any attention, yet somehow the information was leaked to the media.151 The New York Times noted that the SGI sale was “the beginning of a sweeping plan to sell the Vatican’s Italian stocks and buy investments abroad.”152 Many reports warned that if the Vatican dumped hundreds of millions in its stock holdings it would punish a weak Italian stock market. The SGI sale did cause a temporary swoon in the prices of the Milan indexes. Sindona, meanwhile, received widespread and positive credit for having arranged the sale.153
Mennini, and the IOR’s chief internal accountant, Pellegrino de Strobel (a director of a joint Sindona-IOR–owned Geneva bank), and ex-chief Spada as a consultant, worked to dissolve most of the church’s domestic holdings.154 The IOR would no longer take any controlling interests in Italy’s private sector. Within a year, Cardinal Vagnozzi, the chief of the Prefecture for the Economic Affairs of the Holy See, gave a first-ever, broad-ranging interview to Institutional Investor. He announced that the process was complete: “Today there are no more companies controlled by the Vatican.”155 In addition to disclosing that the Vatican had divested all its majority stock positions, the Pope also tasked Vagnozzi with downplaying the size of the church’s wealth. The cardinal dismissed as “wild” the press reports that the Vatican had nearly $13 billion in liquid investments. It was probably closer to $500 million, he claimed.156 Vagnozzi’s estimate was unrealistically low since he had no information from the IOR.157
The Vatican still owned some stocks in Italian companies.158 But by significantly reducing them, the church had given up much of its private sector control, and the IOR had become a passive investor. It marked a momentous change. And it presaged an unparalleled era for Sindona and other men of confidence.159
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I. Some unsourced published reports cite the CIA as the source of Sindona’s retirement home money. Victor Marchetti, a controversial former CIA officer who has promoted the theory that American intelligence killed John F. Kennedy, speculated it “is possible” the money was from the CIA. Although Marchetti’s unproven conjecture received considerable coverage in the Italian press, the author has found no credible evidence to support it. In the 1970s Marchetti reported that the CIA had sent secret payments to Pope Paul VI to influence his Papacy, something the church dismissed as “completely false.”20
II. Both inside and outside the Curia, an oft-repeated rumor was that Montini was gay. It was not the type of salacious gossip that had spread inside the Curia thirty years earlier about then Cardinal Pacelli, but it was a persistent story. Those who passed it along claimed to know details about dates and places and said that Montini’s longtime lover was an Italian actor, Paolo Carlini. Some clerics even suspected he took the Pontifical name Paul as a secret tribute to Carlini, who was subsequently a frequent visitor to the Papal apartment. In 1976, Montini—then Pope Paul VI—angered both traditionalists and gay rights proponents when he approved a “Declaration on Certain Questions Concerning Sexual Ethics,” in which the church distinguished between “transitory” and “incurable homosexuals.” Bestselling French novelist Roger Peyrefitte, a gay activist, was so angry that he told an Italian magazine that the Pope “had as a boyfriend a movie actor whose name I am not going to mention but whom I recall very well.” Although Peyrefitte did not name Carlini, the public airing of the rumor caused such an uproar that Montini addressed it in his April 18, 1976, Sunday sermon. The Pontiff, in unprecedented direct language, dismissed Peyrefitte’s charge as “horrible and slanderous insinuations.” The Italian police confiscated and destroyed copies of the newsweekly with the Peyrefitte interview, and the Vatican set aside a “day of consolation” for the Pope. There was less public drama the following year when a more expansive charge was leveled against Paul VI in a self-published book, Nichita Roncalli: Controvita di un papa. Franco Bellegrandi, a Chamberlain of the Cape and the Sword of His Holiness (a Papal Chamberlain), disclosed what he claimed were intimate details about Montini’s closeted life. Financier Michele Sindona had heard a charge that Montini’s lover until 1960 was a young protégé, Sergio Pegnedoli (later a cardinal). But he thought there was no truth to the gay rumors. A police commander, General Giorgio Manes, disagreed. Much later Manes told L’Espresso that when Montini was blackmailed over his secret life he had sought the help of Italy’s Prime Minister Aldo Moro. Whatever the veracity of the rumors, the long-standing gossip about Montini’s private life did not pose a barrier to his 1963 election as Pope.46
III. Although the Vatican was concerned about the growing extent of the new government’s interference in private enterprise, the church remained the largest investor in IRI bonds, the debt issued by Italy’s quasi-nationalized banking authority. The IOR also owned a share of the country’s state-run telephone monopoly, STET (Società Finanziaria Telefonica).62
IV. Hambros Bank, founded in 1848, was one o
f a handful of British merchant banks on which Nogara had relied starting in the 1930s. Hambros retained its close ties with the IOR after Nogara’s retirement. Spada had introduced Sindona to Jocelyn Hambro, the bank’s chairman, and the two became friends. Hambros became an indispensable part of many of Sindona’s early deals, as was National City Bank (now Citibank), Chase National Bank (now JPMorgan Chase), N. M. Rothschild & Sons, Lazard Frères, and Credit Suisse.67
V. In 1970, Miceli became the director of all military intelligence (Servizio per le Informazioni e la Sicurezza Militare—SISMI). A U.S. House Select Committee on Intelligence investigation later disclosed that over the objections of the CIA station chief in Rome, the then U.S. ambassador gave Miceli $800,000 in cash in 1972. The payment, which came without any preconditions, had been approved by National Security Advisor Henry Kissinger. The hope was that Miceli would use it for anticommunist propaganda efforts. Instead, the money disappeared and was never accounted for.85
VI. It was during the Second Vatican Council that the church finally renounced the belief that all Jews bore collective historical guilt for the death of Jesus. In Nostra Aetate (In Our Time), the church declared that “Jews should not be presented as rejected or accursed by God.” It also renounced its centuries-old policy that it was a duty of Catholics to convert Jews.96
VII. A few Curialists later came to believe that a handful of right-wing cardinals engineered a coup against Pope Paul because they could no longer tolerate his leftist politics. He was replaced with an almost identical impostor, according to the conspiracy theorists, who later published photos they claimed illustrated the distinctive differences over time for his ears and eyes, proving the “two-Pope theory.” In 1983, five years after Pope Paul VI’s death, a British Catholic paper (The Universe) reported that only the impostor had died and the real Paul was living in a Rome suburb.103
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