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

by Gerald Posner

  The failure of Bankhaus Wolff was the first time during Sindona’s travails that the Vatican came up publicly. The West German press reported that the IOR had suffered “substantial financial losses” in the bank’s collapse. The persistent stories prompted a statement from a Vatican spokesman, Father Paul Hashim. He said the IOR had a “very limited interest” in Sindona’s Banca Unione, which had owned the German bank’s shares.77

  That September, Sindona was so cash-strapped that he sold his Talcott shares for $5.6 million. They cost him $27 million the previous year.78 It had only been five months after the first cracks had appeared in his business empire, but he was undoubtedly now under broad attack. The first of what would soon be a flood of shareholder lawsuits alleging negligence or mismanagement for the bank’s downturn were filed in the United States. In Italy, the central bank announced it was liquidating Banca Privata Italiana.79 Giorgio Ambrosoli, a corporate lawyer with a reputation for scrupulous honesty, was appointed as the liquidator.80 (Some legal observers thought the thirty-six-year-old Ambrosoli was too inexperienced for such a complex case, but his diligence and smarts soon proved them wrong.) Sindona’s 51 percent stake became worthless overnight.

  The liquidation order by the Bank of Italy was also bad news for Marcinkus. He had made substantial IOR investments not only in Banca Privata Italiana but also in the soon-to-be-shut Finabank.81 Marcinkus was a silent partner with Sindona in Liberfinco (Liberian Financial Company), a Finabank subsidiary used almost exclusively for foreign currency trading.82 Both banks had increased their capital in the months leading up to their receivership, allowing Marcinkus to reduce the extent of the church’s exposure by selling some option rights to the new debt.83 Still, Marcinkus knew those failures resulted in the IOR’s biggest ever losses in private company investments. He assigned de Strobel and Mennini to determine the extent of the damage.

  By that time, Italian regulators had uncovered evidence that the losses at Sindona’s banks were not just from bad currency speculation but wrong bets on the price of silver, trades executed mostly through his Bahamian and Cayman holding companies.84 Investigators at first pinpointed upward of $200 million in losses, and later settled it at $386 million.85 Separately, Italy’s equivalent of the Securities and Exchange Commission discovered that Sindona had accumulated another $50 million in bad currency trades at SGI.

  In mid-September a Milanese magistrate sent Sindona a notification that he was under investigation about whether his financial dealings had broken any laws. The magistrate advised Sindona to retain counsel.86 That news caused great consternation at the IOR and the Ambrosiano since both were heavily intertwined with Sindona’s offshore businesses.87

  The flattering press coverage of Sindona’s business acumen had reversed itself. The Banco di Roma’s Barone told reporters, “When you gamble with other people’s money, you have to realize what you were doing.” “I say he’s dead financially,” an anonymous “former associate in Switzerland” told The New York Times. An unidentified “Rome banker” told the same paper, “The empire has collapsed, and there will be business for lawyers over the next 10 years in picking up the pieces.”88

  Sindona resigned as a Franklin director on September 22, saying he instead wanted to “devote my attention to my other personal affairs.”89 He hoped his resignation might relieve some of the pressure from federal regulators.90 But it was too little too late. During October, what was left of his empire imploded. On October 3, the FDIC rejected Barr’s eleventh-hour plan to keep Franklin independent, citing the proposal as too costly a bailout.91 Sindona knew it was the end of Franklin. News on both sides of the Atlantic was grim. Six days later, Milanese prosecutors issued an arrest warrant, charging Sindona with falsifying accounts and fraudulent bankruptcy connected with Banca Unione three years earlier.92 The indictment carried a possible fifteen-year sentence.93

  The following Monday, the Comptroller of the Currency declared Franklin insolvent, making the $2 billion failure the then largest bankruptcy in U.S. banking history.94 (The next month, in unusually blunt comments, Federal Reserve Chairman Arthur Burns told reporters that when it came to Franklin, the United States and foreign countries had been “sitting on a volcano” and “luck more than anything” averted “a real panic, here and abroad.”)95 The Bank of Italy meanwhile had started liquidating Sindona’s remaining assets and seized what personal property it could find.96 A group of Italian construction firms eventually made the highest bid to buy SGI from the Banco di Roma (later they discovered that bad currency and commodity trades had resulted in nearly $100 million in losses at SGI).97

  Within a week, the district attorney’s office in Rome disclosed it was also investigating whether Sindona violated any laws with large contributions to the country’s main political party, the Christian Democrats.98 Sindona told a reporter that “If they tried me, half of Italy, people who matter, would end up in jail.”99

  A week after the criminal indictment, the SEC capped off its own five-month investigation by filing fraud charges against nine former directors and officers of Franklin, including Sindona.100 The SEC laid bare in particular how Sindona used Swiss and Liechtenstein holding companies to “manufacture profits” at Franklin while also diverting money from that bank to some of his offshore shells.101

  Sindona was on the run by the time of the SEC charges. He had flown to Geneva since he thought Switzerland was less likely to extradite him to Italy to stand trial for white-collar crimes.102 Bordoni and his wife fled to Venezuela, where he used some of the stolen money to buy a $3 million home and citizenship.103 P2’s Licio Gelli called Sindona in Geneva to warn him that the Italians were close to striking a deal with Swiss Interpol for his arrest.104 Sindona left his wife and family and flew to Jamaica with his Swedish-born mistress fifteen years his junior. There he gave her an envelope containing information about some of his secret bank accounts. She flew alone to Buenos Aires, where Licio Gelli awaited her.105 Although Perón had died the past July, his wife, Isabelita, had taken control of the government. Gelli maintained his influence in Buenos Aires and Rome. Sindona hoped that the P2 chief might persuade Italian prosecutors to back off.

  Sindona’s next destination was Hong Kong. The British colony did not have an extradition treaty with Italy. The flight from Jamaica to Hong Kong included a stopover in Bangkok. Although Sindona knew the Thais had an extradition treaty with Italy, he expected no problem as his itinerary did not require a change of planes. But his flight landed just before a typhoon shut down Don Mueang International Airport. The grounded passengers had to clear customs, which made Sindona fear arrest. But to his surprise, Interpol and the Italians had not passed along the information. He cleared Thai authorities. He checked into a Hyatt and did not venture outside on the off chance that someone might recognize him from the newspaper coverage, particularly the International Herald Tribune, which had carried his photo. For four days he stayed locked in his room, ordering room service and making a few calls to his family.106 To his great relief, his departure from Bangkok proved as uneventful as his arrival.

  Sindona’s family visited once he was safely in Hong Kong. But after a week in the British colony, he was off again, this time to Taiwan. Sindona was friendly with Chiang Kai-shek, the eighty-seven-year-old nationalist ruler of the island nation. Taiwan granted Sindona temporary political asylum and named him a financial advisor to the president.

  Although he was insulated against extradition to Italy, Sindona knew he was vulnerable to a U.S. indictment and extradition request. While both Chiang Kai-shek and the British in Hong Kong might ignore Italian requests for Sindona’s return, being so cavalier with the United States would be a different matter. His American lawyers had told him that a federal investigation was under way in New York, and that Italian investigators had met with the U.S. Attorney to share information.

  After mulling his options for a month, he told one of his sons, Nino, that he had decided to return to the United States and fight extradition to I
taly from there. That December, U.S. customs agents escorted Sindona through John F. Kennedy Airport. He, and his legal team at Mudge, Rose, Guthrie & Alexander, prepared his defense to Italy’s request. Sindona moved back into the Pierre. He later told The New York Times that he had “not one dollar in assets” and that his friends in Italy had sent him money to pay for his suite at the Pierre, Park Avenue office, and Mudge Rose lawyers.107

  “America will protect me against Italy because I have always protected the American interest in New York,” Sindona told his son. “I have many friends there. I will win in America.”108

  Halfway around the world, Marcinkus was left to handle some of the fallout in Italy from what the Italian press dubbed il crack Sindona (the broken Sindona). It was widely accepted that Sindona and the Vatican did business together, but no one knew fully to what extent. The IOR had a minority interest in most of Sindona’s Swiss and Italian banks, with its largest stake in Banca Unione. Marcinkus had also allowed Sindona to invest several million dollars in foreign currency trades. When the Swiss shuttered Sindona’s Geneva-based Banque de Financement—considered one of the financier’s safest—because of heavy losses in precisely those trades, The New York Times noted that a “sizable block of [the] bank’s stock is reportedly held by the Vatican.”109 The church had a one-third share.

  In the wake of Sindona’s collapse, the Italians indulged in a guessing game of how much money the church had lost. Some put it as high as $750 million ($3.9 billion in 2014 dollars). The Vatican said only that it was hurt to a “limited extent.”110 The Pope established a commission of five cardinals to investigate how much damage had been incurred. The commission was in place only a couple of months when one of Italy’s most prominent newsweeklies, Panorama, reported that the cardinals had recommended that Paul VI replace Marcinkus.111 Citing anonymous sources, the magazine said the Pope had met with Marcinkus that September and told him that he would retain his title without power until he was moved to another position.112 It was not true. Marcinkus believed the story was planted by one of his many enemies. He tried to stem any damage by issuing a brief denial the day after Panorama hit the newsstands: “The magazine article is all imagination and fantasy with no foundation in fact. I do not foresee any transfer for me for a long time.”113 He also dismissed reports that the IOR had lost several hundred million dollars in Sindona’s implosion, contending that there were only some “paper losses.”114

  In January 1975, the Pope vetoed the church’s proposed annual budget, concluding that the IOR losses had created “a grave burden, too grave a burden for the Holy See to bear.”115 The new budget included severe cutbacks.116

  On January 30, Massimo Spada, who had been at the IOR under Nogara and Maillardoz before leaving to work for Sindona, gave an interview to the newsweekly L’Espresso, in which he estimated the Vatican had lost $56 million, or 10 percent of its liquid assets.117 Spada’s guesstimate was given wide credence because he worked with many of his former IOR colleagues on joint ventures for Group Sindona. He added to the public pressure on the Vatican by disclosing that one of the IOR’s top currency experts had developed a fondness for trading the dollar against the lira, and that his new avocation had cost the church about $10 million (Spada did not reveal the name).118 Inside the IOR, even Marcinkus, Mennini, and de Strobel struggled to figure out how much they had lost.119

  Sindona wanted the bishop to know that he would not say anything to make matters worse for the church. So he used the press to send a message to Marcinkus. He told Business Week, “I acted morally, ethically, and in the correct way. I’m fighting for the principle and for my family. I want to show my friends that they were right when they placed their trust in me.”120 And he hired Fred Rosen, a New York publicist, to try and reverse the damage to his savaged reputation. He chose Rosen because the publicist was friendly with A. M. Rosenthal, The New York Times executive editor. Sindona naively thought that by hiring Rosen he might favorably influence the paper’s coverage.121 With Rosen’s help, Sindona started a rehabilitation tour in mid-April, with an address to Wharton graduate students titled “The Phantom Petrodollar.”122 It was his first public appearance since Franklin’s collapse and attracted widespread media coverage. He drew some nervous laughter when he was introduced as a “tax expert,” but used his thirty-five-minute speech to emphasize a new theme: what The New York Times called “a ringing defense of the strength of the American economy.”123 Some thought it ironic that Sindona castigated Chase Manhattan, UBS, and Lloyd’s of London for “cooking their books” and “reckless gambling” when it came to foreign exchange trading.124 Wharton was the first in a series of lectures that spring and summer, including among others Harvard, the University of Chicago, Columbia, and UCLA.125 At New York University in June, he condemned government bailouts as destabilizing the national economy, and said it was a mistake “when a country takes on itself the errors of its entrepreneurs.”126 He managed to keep his talks focused on international economics and took no questions about his legal problems.

  But instead of mollifying Marcinkus, Sindona’s refusal to keep a low profile as he battled extradition caused considerable dismay.127 The fugitive financier stayed in the news. There were rumors that he had fed information to the Milan district attorney in the hope that the head of the Italian central bank—whom Sindona blamed for liquidating his own banks—might himself be indicted.128 And in April, a seventy-six-count federal indictment charging conspiracy to obstruct justice and fraud among eight of his ex-Franklin colleagues, including his right-hand man, Carlo Bordoni, insured that Sindona would not drop off the front pages anytime soon.129

  Many of the stories regurgitated speculation about the extent of the Vatican’s dealings with him as well as raising questions about the size of the church’s business empire. Reports of the city-state’s great wealth caused a drop-off in Peter’s Pence contributions. Paul VI, after reading one newspaper account about the Vatican’s supposed riches, complained that such guesswork was costing the Papacy millions of dollars in donations. Many Catholics thought the church was so well off that it did not need their money.130 Although the Pope, bolstered by Marcinkus, would not broker any suggestion for more transparency of the church’s investments, the Pontiff did dispatch Cardinal Egidio Vagnozzi, the chief of the Prefecture for Economic Affairs, to talk to a small group of hand-selected journalists. Vagnozzi was the spokesman when the Vatican last tried to quell rumors with a 1971 Institutional Investor interview.131

  The cardinal emphasized two related themes: that the church was not nearly as wealthy as most people believed, and that the Pope could not survive without the generosity of the faithful. He dismissed reports that the Pope oversaw a $10 billion investment portfolio ($43 billion in 2014 dollars) as “totally untrue.” The Archdiocese of Chicago, he claimed, took in twice as much annual income—$170 million—as the Holy See. As for the Vatican, Vagnozzi said its income came mostly from Peter’s Pence, trusts, last testament gifts from the faithful, and sales of stamps, gasoline, and religious artifacts. Although he claimed not to know the precise size of its investment portfolio, he said it probably contributed “less than 5%” to the church’s annual income. He not only refused any questions about Sindona, but tried to distance the church from the financier by asserting that when it came to investments, “the Vatican as such does not speculate.”132

  Vagnozzi reminded the reporters that he was addressing only the finances of the city-state itself, and that he was not speaking for all the congregations and dioceses around the world that managed their own budgets. As for the Holy See, he highlighted escalating costs for the upkeep of Vatican City, increased salaries and pension requirements for an ever-expanding lay component of the Curia, as well as funds needed to maintain diplomatic missions in dozens of countries.133 Overall “the Vatican is rather poor . . . [and] it is only the voluntary help which the Pope receives from the faithful year after year that we manage—not without difficulty—to close the constant deficit in the Vat
ican’s relatively small budget.”134

  • • •

  In November 1975, Milan’s public prosecutor and its investigating magistrate visited the U.S. Attorney and the SEC, hoping their American counterparts might expedite Sindona’s extradition.135 They presented evidence they had uncovered no fewer than forty-three Sindona-controlled offshore companies.136 Their visit prompted the financier to launch another round of PR, telling reporters that his “enemies” were Italy’s “leftists” and that his own problems were the result of his vigorous defense of the country’s free enterprise system. “They want to put me in jail and brainwash me,” he said. “They talk to me about suicide as the best thing.”137 Gelli had already assured Sindona that he was marshaling some important public figures in Italy—supporting the theme that the charges against him were a leftist vendetta—to make a personal appeal to the U.S. government to reject the Italian extradition efforts. But Gelli also confided to Sindona that his enemies wanted his head. One of Italy’s most prestigious bankers, Enrico Cuccia, had privately told some colleagues, “Sindona should not only be destroyed, but his ashes scattered to the winds.”138

  As Sindona continued proclaiming his innocence from his Manhattan perch, there were signs that American probes into his activities were accelerating. In December, Peter Shaddick, one of the key defendants in the federal indictment of Franklin executives, struck a deal with prosecutors to plead guilty to participating in a scheme that cost the bank more than $30 million. He also agreed to cooperate with the U.S. Attorney in return for a reduced sentence. That prompted speculation that Shaddick was ready to buy his freedom by implicating Sindona. And the slow U.S. response to the Italian extradition request made sense if the New York prosecutors wanted instead to indict and try him in America.139