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

by Gerald Posner

  IV. When the story of the Justice Department’s meeting with Marcinkus broke nine years later in 1982, the archbishop was much firmer, telling a Wall Street Journal reporter, “I had never heard of any of the names. I never met or talked to them in my life. There is no foundation to this in any way.” Of course, by then he had the benefit of hindsight to know that he had never been charged with a crime and others had gone to prison for the counterfeit conspiracy. He was also embroiled in a new scandal over Calvi’s Ambrosiano, so he had additional incentive to try to quickly quash the counterfeiting story when it became public.106

  V. Ense and Barg came to the United States as part of their immunity deal and testified before the grand jury. “Their testimony was critical,” recalls Aronwald. German prosecutors later asked U.S. authorities for a copy of that sealed testimony. “I took the position we should not betray them,” says Aronwald. The Justice Department, however, complied with the German request, concluding that the grant of immunity covered only American prosecutions. Barg was convicted in Germany of crimes based on his statements before the U.S. grand jury. “That was disgraceful,” says Aronwald. “We had given him our word. That decision is much to the federal government’s everlasting discredit.”109

  17

  Il Crack Sindona

  Marcinkus’s 1973 problems with the Security and Exchange Commission and his close call with the American Justice Department played out against a chaotic backdrop in Italy. Domestic terrorism and financial instability seemed at times to push the country toward the edge of anarchy. Although Italians had gotten accustomed to the musical-chair nature of the country’s politics—seventeen governments since World War II—most were not prepared for the increasing violence that shook the nation’s confidence and destabilized its financial markets. Anti-American sentiment over the U.S. bombing of North Vietnam had fueled a militant left-wing movement. In communist-led Bologna, the city council voted to greet the New Year by burning “Father Napalm,” an oversized Uncle Sam effigy.1 Extremists bombed the Milan offices of the right-wing National Vanguard Movement two weeks later.2 In March, an anarchist group claimed credit for the public execution of a forty-six-year-old Milanese industrialist. In April, rising Middle East tensions spilled over into the country when a Palestinian radical shot dead an employee of the Israeli airline El Al in front of a large crowd at a central department store.3 Neo-fascists followed that up by torching a synagogue in Padua.4 The following month, a bomb in a Milan bank killed two. A few days later an anarchist threw a hand grenade into a crowd of mourners paying respects to an assassinated police officer. Two were killed and forty-five were wounded.5

  Interspersed between the bombings were running street battles in the nation’s largest cities between neo-fascists and communists; a surge in kidnappings of wealthy Italians (the July abduction of John Paul Getty III from the busy Piazza Farnese, in the heart of Rome, added to the growing sentiment that no one was safe); and a spike in Mafia-related violence, including a brazen assassination of a prominent police investigator in front of his Roman home.6

  Adding to the gloomy national mood, the police had made few arrests. Italians judged law enforcement as either incompetent or compromised. After the Milan grenade attack, the government was so flummoxed that it asked for assistance from police in the United States, Britain, France, Switzerland, and Israel.7

  The loss of public confidence forced Prime Minister Giulio Andreotti’s resignation in July.8 The next ruling coalition did little to restore faith in government. To many it seemed the same politicians responsible for the slide had just shuffled positions. Giovanni Leone was back for his third time as President. Mariano Rumor became Premier for the fourth time.9 A right-wing faction called the Mussolini Action Squad greeted the new regime with two bombs at Milan’s Mondadori publishing headquarters.10

  International tensions did not help. That September, Colonel Muammar Gaddafi’s air force attacked an Italian warship that veered too close to the Libyan coast.11 Only a few weeks later, Egypt and Syria launched a surprise attack on Israel, the start of the Yom Kippur War. When Nixon refused the Saudi King’s request not to resupply Israel with American fighter jets in the middle of the conflict, Arab states announced their first-ever oil boycott of the United States, Japan, and most of Western Europe including Italy.12 Oil prices doubled within a week, on their way to what would become a tenfold increase over several years.13

  The oil shortage caused serious problems for all the countries on the boycott list. Italy had to cut private gasoline sales by 10 percent in November causing long lines at gas stations. It also began to ration oil deliveries.14 And the oil shock destabilized the already weak Italian economy. Fears of a deep recession combined with high inflation pummeled Italy’s stock indices.15 Due to the oil shortage, the Italians endured their worst winter since World War II. The New York Times noted, “In Italy they are talking about the end of ‘la dolce vita.’ ”16

  Just before Christmas, a bloody attack on Rome’s airport by the Palestinian Liberation Organization seemed a grim year-end note to the sour state of affairs. Thirty-two were killed in a gun and grenade assault that made security forces look particularly inept.17

  Pope Paul VI’s holiday message was his most sober since assuming the Papacy. He pleaded with Italians to unite in stopping the country’s slide into further violence and disorder, and urged them to reject a “mafia-style mentality.”18

  In the midst of such widespread pessimism, many leading Italian businessmen looked abroad for stability. Sindona and Calvi thought Argentina presented such an opportunity in the spring of 1973. As Italy’s bedlam played out, Juan Perón returned to power in Buenos Aires after an eighteen-year exile. Licio Gelli, who ran the underground Masonic P2 chapter that counted Sindona and most of Italy’s top businessmen and politicians as members, had been helping Perón behind the scenes. The two had met in 1971 while the Argentine was in exile in Spain. The day after his proxies had won the national election, Perón, accompanied by Gelli, flew into Buenos Aires on an Alitalia jet.19 Perón had barely settled back into Casa Rosada, the presidential palace, when Sindona talked to Gelli about establishing a consortium to oversee Argentina’s enormous, but largely underutilized, natural resources.20 Gelli—whom Perón soon named an Honorary Consul General—and Sindona thought they could help Argentina halt the widespread Latin American tilt to the left. Calvi also suggested that the Ambrosiano establish a large Argentine presence in the hope that the Italians might parlay their special status with Perón into enormous profits. Sindona arranged for Calvi and Gelli to meet.21

  “Calvi . . . was ever eager to believe in the occult powers of others,” Sindona later told a journalist, “[and he] was quite swept away by Gelli at their first meeting. He believed that Gelli and P2 could be of inestimable help to him in Italy and abroad.”22 And he liked the “sense of protection” that Gelli and his powerful comrades offered.23 For his part, Gelli judged Calvi as “serious . . . intelligent, complicated.”24 Calvi joined P2.25

  Sindona called Marcinkus to see if the IOR would also commit to the new venture. Marcinkus liked the idea and offered the IOR as a fiduciary bank in support of any of the Ambrosiano’s business in Argentina.26 And Sindona and Marcinkus compiled a list of offshore companies the new endeavor should use to operate free of Italy’s currency exchange restrictions.

  “I told Marcinkus to get in touch with the lawyers in Costa Rica who had organized similar operations for Citicorp of New York or Barclay’s Bank of London,” Sindona later recalled.27

  The plans for the grand expansion hit early headwinds. Perón was frustrated by political infighting that matched or exceeded that in Italy. The back-scenes battle for power meant that Sindona, Calvi, and Marcinkus had to wait for the ailing seventy-seven-year-old Perón to approve their new undertaking.

  Sindona was impatient. He had worked hard on the Argentine venture and the delay was infuriating. He complained to colleagues that his native Italy was beset by instability that made
it difficult for businessmen to make long-term plans. Adding to his bad mood was that he had recently failed in a highly publicized hostile takeover of Bastogi, a storied Italian holding company.28 For nearly a year, Sindona had debated whether to move out of Italy. Switzerland seemed his most likely choice. Not only was it close to Milan, but he already had a fifth-floor apartment in Geneva, in the Rue de la Bourse building that served as the Swiss headquarters for his Finabank. But Nixon’s reelection the previous November pushed him toward America. By early 1973, Sindona had bought a $300,000 apartment at New York’s Pierre Hotel, with a grand view overlooking Central Park.29,I

  When Sindona told Marcinkus about his pending move, the bishop said, “Hey! You operate over there like you operate here in Italy, you will end up in jail. See? Different laws, different standards.”31 Marcinkus’s warning did not give Sindona any second thoughts. He opened business headquarters at 450 Park Avenue.

  America welcomed Sindona as a financial whiz. Harvard Business School, the University of Chicago, and Carnegie Mellon invited him to lecture. In January 1974, the U.S. ambassador to Italy, John Volpe, presented him with the Man of the Year award.32

  What Sindona did not say publicly was something that only he and a handful of his top lieutenants knew: his Italian banking empire was under great pressure. The man that Fortune had pegged the previous year with a $450 million net worth was holding some huge paper losses on foreign currency trades.33 Plummeting stock prices and an international credit squeeze meant he could not raise enough money to cover his bad investments. Without any progress on the Argentine project, Sindona merged Banca Privata Finanziaria—in which Marcinkus and the IOR had a minority stake—and his Banca Unione into a new financial institute, the Banca Privata Italiana. He hoped the merger might keep Italian regulators from discovering the extent to which the banks were in trouble.34 But Guido Carli, the Bank of Italy’s governor, had already authorized a broad review of Sindona’s complex financial empire.35 Despite the pressure on his business, Pope Paul VI and some leading Christian Democrat politicians asked Sindona to contribute to fight a national referendum to block the right to divorce; he gave $2 million. The church and conservative politicians lost the referendum that May, when 60 percent of the electorate sided with the idea that civil divorce should be legal.36,II

  In May 1974, Sindona’s American ventures showed their first cracks. Franklin National reported a foreign exchange trading loss of nearly $39 million.38 The bank’s traders had shorted the lira and bought large dollar positions just before the markets moved in opposite directions.39 Such trading had become much more volatile since central banks no longer supported their national currencies at fixed rates. Few banks had yet developed sufficient safeguards in their trading departments to manage the risk.40

  Sindona seemed furious. When Franklin president Harold Gleason met with him, just after the board had learned about the loss, Sindona “paced[d] back and forth like a caged animal,” yelling profanities and demanding answers.41 But his display of anger was mostly for show. It was Sindona himself who had approved the bank’s bold lira trade against the dollar.42

  Following three consecutive quarters of losses at Franklin, the Federal Reserve’s Board of Governors cited its underperformance and weak internal controls in rejecting the bank’s merger with Talcott National, a large American finance firm in which Sindona had accumulated a 50 percent share. Although the New York Federal Reserve had recommended an approval, the full Fed feared that Franklin would siphon off the assets and reserves from the healthier Talcott.43

  Senior Franklin officials claimed the bank’s problems were a temporary blip caused by a combination of a rogue trader, high interest rates, a weak economy, and exorbitant Manhattan rents.44 But regulators did not buy it. Representatives from the SEC, the Federal Reserve, and the Comptroller of the Currency met with Sindona and the bank’s chief officers over the weekend of May 11 and 12.45 They insisted that Sindona guarantee a $50 million recapitalization to stabilize the bank.46 He agreed, although none of the regulators knew he did not have the money.

  The dire warnings that Franklin’s founder, Arthur Roth, had raised about Sindona’s lack of expertise seemed prescient. That Monday, Franklin’s board dismissed the bank’s president and executive vice chairman and suspended the stock dividend. It was the first time since the Great Depression that an American bank had canceled a quarterly dividend payment.47 The Federal Reserve tried calming markets by announcing it would make advances to Franklin as needed; the bank borrowed $110 million, more than any Fed official had anticipated.48 That same afternoon, the SEC halted trading in the company’s stock until the firm refigured its first quarter losses.49

  Sindona could not catch a break. Rumors that he was in a serious cash crunch prompted some large New York banks to warn against conducting business with any of his companies.50 Earlier that year, San Diego’s U.S. National had become the country’s first billion-dollar bank failure. It had frayed nerves throughout the American financial industry.51

  Sindona’s problems were compounded because he was unable to reassure the markets by injecting some of his own considerable wealth. His $40 million Franklin investment was worth only $8 million since the stock had plummeted 80 percent during his ten months of ownership.52 And many more millions of dollars were tied up in ventures with Calvi and Marcinkus.

  Sindona called Calvi. He had $18 million in a joint venture with the Ambrosiano chief.53 Calvi claimed he could not help because the money was committed to business deals with other firms, including the Vatican.54 Sindona was furious. When he visited Italy that June, Calvi’s secretary ran interference every time Sindona called. Sindona was not surprised that Calvi avoided him. He knew that the Ambrosiano chairman “was frightened by my plight. He was afraid that he, as my partner, might be dragged down as well.”55

  Similar distancing played out between Sindona and Marcinkus. “He, like Calvi, had run scared,” Sindona later recalled, “washing his hands of me. On his visits to New York, he didn’t even telephone to ask after my well-being.”56 Sindona’s Mercedes was no longer listed as one of a handful of cars that the Swiss Guards waved through the front gates of the Vatican without any questions.57 What Sindona did not know was that Marcinkus had no spare money with which to bail him out. By that time, the IOR had committed so much cash to ventures with Calvi that the church had little left for a cushion in case of an investment downturn.58

  That same month, Sindona approached the Banco di Roma and asked to borrow $100 million, acknowledging to the bank’s chairman, Mario Barone, that his Italian banks were in trouble.59 Barone gave him the $100 million credit line, with the restriction that the money could only be used to stabilize Sindona’s Italian operations, not bail out Franklin.60 Sindona had to pledge his Italian bank shares as collateral, as well as 100 million shares of his construction conglomerate, SGI.61 As an additional condition of lending the money, Banco di Roma got the right to appoint its own SGI management team. It forced the resignation of Carlo Bordoni, the chairman, a longtime Sindona confidant.62

  Sindona was back to Barone in just two weeks, asking for another $100 million.63 This time he said there was a run on deposits at his banks. Their failure could infect the entire Italian banking system.64 Sindona’s timing was bad. German regulators had just liquidated one of Cologne’s premier private banks, Bankhaus I. D. Herstatt, because it had racked up $500 million in foreign exchange losses. The Herstatt collapse had made all European banking regulators more vigilant.65 To get the second loan, Italy’s central bank had to give its approval. This time Sindona had to pledge the rest of his controlling stake in SGI.66 And the Banco di Roma joined the Bank of Italy in developing contingency plans to protect depositors and creditors while searching for ways to move Sindona out of SGI.67

  Back in the States, Franklin’s reconfigured quarterly earnings revealed it had lost $63 million in the first five months of 1974, some $25 million more than when the bank had provided guidance just six weeks earlier.6
8 Joseph Barr, a respected former chairman at the FDIC—the Federal Deposit Insurance Corporation, the U.S. government agency tasked with insuring bank deposits—agreed on June 20 to become Franklin’s CEO and chairman. As Barr moved in, Carlo Bordoni stepped down from the board.69 Franklin had used its open window at the Federal Reserve to borrow $1.2 billion in just over a month.70 Barr began working in Washington to find a way to keep Franklin out of receivership. He knew it would not be simple. The SEC had complicated matters by opening a broad investigation into Franklin’s foreign currency transactions. It was trying to determine if the trades were legitimate, or merely represented the shuffling of assets between Franklin and a Sindona-owned Swiss bank, Amincor, all intended to artificially boost the bank’s balance sheet.71 If the SEC concluded the trading was bogus, the losses reported by Franklin would grow significantly.72

  Sindona’s frustration boiled over in an interview with a journalist from Milan’s daily, Corriere della Sera. Declaring that “finance is the passion of my existence,” he lambasted his critics in Italy for having “sought to mount a propaganda campaign that, being unable to formulate specific charges, has given rise to the image of the mystery man, which in the States, certainly is not appreciated.” Sindona had come to realize that the lack of transparency over how he created his great wealth had turned from simple curiosity to more sinister speculation.73

  Sindona was desperate for cash. In July, he sold one of his prized Italian banks, Banca Generale de Credito, at a fire-sale price to Roman and Milanese financiers who had been his competitors.74 He wanted instead to merge the profitable SGI with one of his other financial holding companies, Edilcentro Sviluppo, and then use an initial public offering to raise large funds. People would line up to own a piece of SGI. But to Sindona’s dismay, the left-of-center Treasury Minister, Ugo La Malfa, rejected his application.75 In August, he tried cashing out his 50 percent stake in a small Hamburg-based bank, Bankhaus Wolff. Since it would not have had enough capital to stay in business without Sindona’s investment, West German regulators forced it to close, tying up his money in receivership court.76