God's Bankers: A History of Money and Power at the Vatican

by Gerald Posner

  V. Much later, when the IOR faced embarrassing questions over the extent of the church’s relationship with Calvi and his complex business network, Marcinkus tried downplaying his Cisalpine role. He told the BBC’s Panorama television program that he seldom saw Calvi and that when it came to Cisalpine, “I am not even present [at board meetings] because of commitments elsewhere.” In fact, records reveal that over eleven years, Marcinkus only missed one of twenty-two board meetings, traveling to attend them in Paris, London, New York, Geneva, Zurich, and Nassau.116

  16

  Operation Fraulein

  Only months after helping Calvi incorporate Cisalpine in the Bahamas, Sindona embarked on a period of aggressive expansion. In Italy, he and Calvi bought La Centrale Finanziaria, a financial holding company that had long been on his wish list.1 And at the behest of Graham Martin, the American ambassador to Italy, Sindona purchased an influential Rome-based English-language newspaper, The Daily American. Martin wanted to keep the paper—in which the CIA had a covert 40 percent share—out of the hands of a socialist publisher.2 At a lavish reception at Rome’s Grand Hotel to celebrate the acquisition, Martin joined the city’s mayor, several cabinet ministers, and Marcinkus in toasting Sindona.3 An article two days later in The Wall Street Journal dubbed Sindona “Italy’s Howard Hughes,” noting, “Bishop Marcinkus’ attendance at the reception was taken as proof of Mr. Sindona’s strong ties with the Roman Catholic Church.”4 The Journal also predicted that it was likely only a matter of time before Sindona would “make a substantial increase in his American investments.”5

  Five months later Sindona proved the Journal right when he made a successful $40 million bid to buy a controlling stake in America’s eighteenth largest bank, the Long Island–based Franklin National.6 The New York Times noted that while Sindona “was a substantial investor in a variety of American enterprises,” the Franklin purchase meant “he [had] moved into the big time in the United States.”7

  Laurence Tisch, a principal in Loews Corporation, sold Sindona his shares in the $3.4 billion bank. Franklin was under earnings pressure for nearly a year. Arthur Roth, its former chairman, had been trying to buy back the bank he had founded. But Sindona, using his Luxembourg holding company, Fasco, outbid Roth by $8.25 a share, a 25 percent premium to the stock’s trading price.8 He raised the cash by selling two successful holding companies to Calvi. Sindona dismissed some critics who thought he overpaid: “I have never lost money on the stock exchange.”9 (Later, when Franklin turned out to have financial problems, he’d complain that he had “trusted the American system . . . I [should] have done an audit myself.”)10

  Roth challenged the Tisch-Sindona sale. He asked New York’s Superintendent of Banks to withhold approval until the state was fully satisfied that Sindona’s character was “above reproach.”11 And as part of a public relations campaign to reverse the sale, Roth released an open letter to Tisch in which he asked: “Do you know enough about Michele Sindona to unconditionally recommend him as a person who will be good for the bank? Will there be a full disclosure of his finances, his backers, and detailed biographies?”12

  Roth, who had been ousted in 1970 in what he called a “palace revolution,” cited a Wall Street Journal investigation the previous year into Sindona’s purchase of two American companies, Interphoto and Oxford Electric. The Journal reported that the deals were marked by a clear “conflict of interest.” The paper concluded that Sindona’s maze of Liechtenstein holding companies was “a tangled web of interlocking ownerships, directorships and debt.”13 But that incident proved of little help to Roth’s effort to discredit Sindona. The SEC cleared those purchases and dismissed any concerns after a two-day hearing.14

  In challenging the Franklin acquisition, Roth also complained to federal officials, asking they bar Sindona from taking a controlling interest since his Liechtenstein-based Fasco had previously purchased shares in other U.S. industrial firms. Federal law then prohibited companies from holding banks at the same time they had stakes in other commercial businesses. Sindona, however, turned out to be exempt as he was buying Franklin as an “individual purchaser.”15

  A month after the successful bid, Franklin appointed Sindona, and one of his top executives, Carlo Bordoni, to its board.16 Sindona encouraged Calvi to join him in the American market. The Ambrosiano bought $16 million of convertible bonds in Cleveland’s Union Commerce Bank.17 The two developed solid business connections, counting ex–Texas Governor John Connally as a friend and advisor. Calvi became a frequent guest at Connally’s sprawling Texas ranch.18 David Kennedy, Nixon’s Secretary of Treasury, was a close Sindona friend and had done business with him when Kennedy had been chairman of Continental Illinois Bank.19

  Sindona retained the Wall Street law firm of Mudge, Rose, Guthrie & Alexander. It was there he had met Richard Nixon, one of the firm’s partners, in April 1965.20 Now, only a few days before Election Day, flush with the success of his Franklin buyout, Sindona called Maurice Stans, the chairman of Nixon’s 1972 reelection campaign. He offered a stunning million-dollar personal contribution ($5.4 million in 2014 dollars). Sindona asked only for anonymity. Stans reluctantly said no. The deadline for disclosing contributions had passed. (When the secret offer became public a couple of years later, it kicked off congressional and IRS investigations to determine whether the mere offer and the failure to disclose it might have broken any laws; it had not.)21

  Although Sindona was focused on opportunities in the United States, he kept making deals in Italy. That summer he sold to Calvi—in a convoluted $119 million deal—most of his stake in La Centrale Finanziaria.22 At the same time, the two used Suprafin S.p.A., a company partly owned by the IOR, plus two offshore companies and accounts at three Swiss banks, to accumulate shares of the Ambrosiano. Neither of them seemed bothered that it was illegal in Italy for a bank to buy its own shares on the open market.23 Their goal was to acquire control of the bank, but to do so in small enough increments that no government regulator or Ambrosiano official would notice.24

  But the matter that most consumed their time was a year-long deal over whether to buy one of the church’s most prestigious holdings, the Banca Cattolica del Veneto. It was Sindona’s idea. He discussed it first with Massimo Spada, before encouraging Calvi to make a formal bid.25 The Cattolica was the Ambrosiano’s sister bank in Venice, one of Italy’s most important Catholic institutions since its 1878 opening, and intertwined historically with the Venetian clergy and Black Nobles.26 Sindona and Spada thought Banca Cattolica was a natural fit with the Ambrosiano’s expanding empire. But they also knew that the two banks were fierce competitors.27

  Calvi thought it unlikely that the church would part with the Cattolica. Albino Luciani, Venice’s Patriarch, whose archdiocese owned a minority share, was almost certain to object. Nevertheless Calvi pitched the idea to Marcinkus in 1971. In a letter, Calvi offered to purchase up to 50 percent of the bank at a hefty premium.28 The offer posed little downside risk. If the Vatican was receptive, Calvi’s prestige at the Ambrosiano would be enhanced. If Marcinkus declined because such a move would cause too much of an uproar inside the Curia, no one at the Ambrosiano would blame Calvi since it was a long shot in the first place.

  Marcinkus, however, liked the idea and raised it with Paul VI. The Pope was hesitant. The bank was one of the church’s crown jewels. As was his style, for months he vacillated between okaying or prohibiting the sale. Marcinkus arranged a private meeting between Calvi and the Pope.29 It was there that Calvi was his most persuasive, arguing that the Ambrosiano would be not only a superb caretaker for the church by maintaining Cattolica’s traditions and integrity, but that the bank’s outdated methods would be modernized, leading to higher profits. Calvi told the Pontiff that he wanted a large enough share so he controlled the bank, and the Vatican would own the rest, thereby benefiting from any surge in earnings.

  A week later Marcinkus met Calvi and shared the news that the deal was approved.

  “Are you sure,�
�� Calvi asked. “Is it available to you? Is the boss [the Pope] in agreement with it?”30

  Marcinkus assured him Paul VI had personally given his consent.

  In March 1972, the IOR announced the transfer to the Ambrosiano of a 37.5 percent interest of Banca Cattolica for $46.5 million.31 The executed contract between the church and Calvi was top secret even by IOR standards. Few officials saw it. Marcinkus did not want anyone outside the Vatican Bank to know he had unilaterally decided to sell Calvi a 50 percent stake, 18,060,000 shares, not the 37.5 percent, or 13,500,000 shares of the announced deal.32 And to address the Pope’s concerns about the integrity of the bank, the contract contained a clause that the new owners must preserve the Cattolica’s “high social, moral and Catholic aims.”33

  The parties followed Sindona’s advice to complete the deal. The Vatican Bank’s shares went to a Sindona-owned Liechtenstein holding company, which held them as a fiduciary for the Ambrosiano. The money was paid in five installments, in a convoluted back-and-forth of offshore transfers that had become a hallmark of Calvi, Sindona, and Marcinkus deals (the IOR put all its proceeds into Calvi’s Bahamian bank, bringing Marcinkus’s deposits in Cisalpine to a dizzying $112.5 million).34

  Not everyone was happy with the sale of a controlling block of Banca Cattolica. Venice’s Luciani complained to Pope Paul and to the influential deputy Secretary of State, Archbishop Giovanni Benelli, that the deal was against the church’s long-term interests. Luciani reminded Benelli that not only was he the chief prelate of the diocese that owned part of the bank, but that the Cattolica was also headquartered in Venice. He felt he should have been more involved in the decision over whether to sell. Luciani was also upset since Calvi canceled the bank’s preferred interest rates to Catholic institutions.35

  Benelli tried palming Luciani off to Marcinkus. During the one time they talked about it, the IOR chief listened to Luciani’s plea that the deal be undone.

  Marcinkus told him it was too late. Luciani persisted.

  “Eminence, don’t you have anything better to do?” Marcinkus asked.36

  The discussion was over. Luciani returned to Venice simmering at the cavalier way in which Marcinkus had dismissed him. All he could do to protest the sale was to move the accounts of the Venetian diocese from Banca Cattolica to the tiny Banco San Marco. The entire affair meant Luciani became yet another in a growing list of ranking prelates now hoping that Marcinkus would trip up.37 And much to the horror of those who detested Marcinkus, that summer some American newspapers speculated not only that Pope Paul might retire when he turned seventy-five in September, but that Marcinkus “was an outside possibility for election to the papacy.”38 While Vaticanologists thought that was laughable and revealed the extent to which the American press did not understand church politics, that Marcinkus could even be mentioned publicly as the next Pontiff infuriated his foes. That October, at a Cisalpine director’s meeting held at London’s tony Claridge’s Hotel, Marcinkus joked with Calvi that he was accumulating enemies faster than the IOR was gaining depositors.39

  In March 1973 some of his opponents thought there might be an opportunity to bring Marcinkus down a couple of notches when the Vatican Bank got embroiled in a spat with the U.S. Securities and Exchange Commission. The SEC obtained an injunction against an unregistered California-based investment advisor who had acquired options to buy 27 percent of an American oil and gas equipment firm, Vetco Offshore Industries. The disclosure statements mandated by the SEC for such a large holding had not been filed.40 After some further investigation, the American Stock Exchange suspended trading in the company because “unusual activity in Vetco stock raised questions as to whether the market in the stock may have been artificially influenced.”41

  The Vatican’s secret role came to light when the SEC discovered that the unlicensed California investment advisor, a former liquor salesman, Irving Eisenberger, was acting on behalf of Liechtenstein-based Fiduciary Investment Services A.G. Its only client turned out to be the IOR.42 Before that disclosure, Vetco was unaware it was the Vatican that had benefited in the $35 million in option trades and some short swing profits.43 The company’s share price had doubled as a result of Eisenberger churning the stock since the previous summer. Under U.S. securities regulations, insiders—defined as anyone controlling 10 percent or more of a company—were banned from excessive trading. Vetco demanded the Vatican return its improperly earned profits.44

  Marcinkus reached out to Sindona for help since he had ten years of investing experience in the United States. Sindona advised Marcinkus to resolve the dispute immediately to keep it off the media’s radar. Marcinkus reached a fast agreement with the Vetco directors. There was not a lot of money involved (the IOR turned over $320,000 it had earned in profits).45 Eisenberger signed a consent decree with the SEC.46 The story got little traction in the Italian press and it did not prove useful to the bishop’s enemies.

  Marcinkus had another close call that same year, one that at first seemed to have the potential to put a stop to his career momentum.47 A few months after the Vetco news, U.S. Justice Department investigators met with Marcinkus in Rome as part of a criminal probe into an international counterfeiting ring involving the Mafia and stolen or counterfeit American securities.48 They had questions about whether the IOR—and possibly even Marcinkus himself—had played a role.

  The Justice Department visit to the Vatican was the culmination of a broad eighteen-month racketeering investigation into the Genovese crime family that had started in the Manhattan District Attorney’s office. In its early stages, the DA’s probe had focused on Vincent Rizzo, a Genovese soldier thought to be a middleman in a South American drug cartel that fed the Northeast (soldiers are the lowest-ranking mobsters in a crime family).49 Rizzo lived on Avenue A, not far from a Little Italy social hall that served as a hangout for a lot of New York mobsters. Joe Coffey, the lead Rackets Bureau detective, obtained court-ordered wiretaps for some of Rizzo’s regular haunts, including the social hall.50 When the police learned that Rizzo was planning a trip to Germany in February 1972, Coffey got permission to follow him. Through Interpol, German police agreed to bug Rizzo’s Munich hotel room.51 Rizzo met two men there: Alfred Barg, an apparently legitimate German director of a Swiss investment firm, and Winfried Ense, a self-described “facilitator” whom Interpol had investigated a year earlier for a possible role in the sale of stolen U.S. Treasury certificates.

  The trip had nothing to do with narcotics. Over a couple of days, Coffey learned that Rizzo had somehow come into a large cache of Triple-A corporate bonds, stock certificates, and some U.S. Treasury bonds. Included among the companies were AT&T, Coca-Cola, Chrysler, and Pan Am.52 It was not clear from what Coffey heard whether the securities were stolen or counterfeit.I Rizzo had come to Barg and Ense because a Philadelphia-based mobster had vouched that the two Germans could move an enormous quantity of black-market securities.54 At one point, Ense said that they knew an Austrian, Leopold Ledl, with contacts in the Vatican. “They [the Vatican] want all they can get,” he told Rizzo.

  Coffey would soon discover that Ledl was a con man and swindler with a thick Interpol dossier.55 He owned a multimillion-dollar estate outside Vienna and ran an Austrian-based construction firm and a Liberian shipping company. He also had two Liechtenstein holding companies. Interpol suspected he had earned his fortune in everything from arms trafficking to stolen securities to narcotics. In legit business circles he used the title “Honorary Consul,” something he falsely claimed Michel Micombero, the President of the African Republic of Burundi, had bestowed on him (investigators later learned Ledl had sold at least three hundred “Honorary Consul” titles, for up to $100,000 each, throughout Europe).56

  As a veteran New York City detective, Coffey liked running his own investigation. He knew that by bringing in federal authorities he would lose control. But he had no choice. He had stumbled across an international conspiracy about fake or stolen securities that included U.S. Treasuries, plus a
possible link to the Vatican.57

  “Coffey came and asked us to work the investigation with them,” recalls William Aronwald, then deputy chief prosecutor for the Justice Department’s Organized Crime and Racketeering Strike Force. “I had been in the Rackets Bureau in the DA’s office so the New York detectives felt comfortable with me. We entered into a joint venture consisting of the District Attorney, their Detective Squad, as well as the FBI.”58 Aronwald dubbed the strike team Operation Fraulein because of the German connection.

  Based on additional wiretaps, the investigators suspected that Rizzo was only a front man for Matteo de Lorenzo, a Genovese captain. And the conspiracy to sell the illegal securities was widespread, including mobsters from Buffalo to Beverly Hills as well as a group of swindlers, and even a few crooked stock and options traders.59

  In May 1972, de Lorenzo joined Rizzo on another trip to Munich. This time, a New York detective, Mario Trapani, accompanied Coffey. The German police again bugged the phones in the mobsters’ suite at the Bayerischer Hof Hotel, and also placed a bug in the bedroom lamp. But the mobsters met with Barg and Ense in the suite’s living room, frustrating the detectives, who were unable to decipher anything on the muffled recordings.60

  Shortly after returning from that trip, the strike team arrested in the U.S. a British con man and swindler, Hyman Grant. In return for leniency on possible drug charges, he provided details about the still evolving scheme.61 Grant tied Ledl to Rome’s Mario Foligni, an extraordinary poseur who claimed to be a count and an owner of half a dozen successful businesses. Although many were skeptical of Foligni’s claims to nobility and his boasts of great wealth, he had sterling contacts inside the Vatican, including passing friendships with ranking prelates like Archbishop Benelli and Bishop Marcinkus.62