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

by Gerald Posner

  II. Resentment built in the United States when it became public that Cardinal Sodano’s nephew, Andrea Sodano, was in business with Raffaello Follieri, a flashy young Italian businessman—known best in America for dating actress Anne Hathaway and living in a $37,000-a-month Fifth Avenue Manhattan penthouse—who boasted he had insider information and Vatican contracts to buy $100 million in the distressed American church properties. Follieri, who was friends with Bill Clinton and bragged of meeting Pope Benedict, pled guilty to fourteen counts of wire fraud in 2008 and was sentenced to fifty-four months in federal prison. Upon his 2012 release he was deported to his native Italy. As for Andrea Sodano, the FBI considered him an unindicted co-conspirator. “It helps to have an uncle in robes,” wrote author Jason Berry.83

  III. Some cases in which the Holy See was named as a defendant—such as a 2005 Houston case—were dismissed based on sovereign immunity. But that defense did not always work. In the Louisville case, for instance, in 2007, U.S. District Judge John G. Heyburn III ruled a suit could proceed; in 2008 the Sixth Circuit Court of Appeals decided that while the Vatican was immune from most litigation, the case could move forward on the narrow question of whether top Curial prelates had engaged in a deliberate cover-up of sex abuse by American priests. In 2009, the Ninth Circuit U.S. Court of Appeals ruled that another lawsuit—Doe v. Holy See—could proceed under an exception to the Sovereign Immunities Act. In 2011, a federal judge allowed a Portland case to advance, ruling that the plaintiff had produced “evidence that tends to show the Holy See knew of [the abusing priest’s] propensities and that in some cases, the Holy See exercised direct control over the conduct, placement, and removal of individual priests accused of similar sexual misconduct.” The Supreme Court refused to hear the appeal of the Portland case. It was not until 2012 that a U.S. District judge put an effective end to the claims against the Pope with a ruling that the Holy See is not the employer of molesting priests.

  32

  “His Inbox Was a Disaster”

  By 2005, John Paul was battling persistent rumors that he was seriously ill. His private doctors had diagnosed him with Parkinson’s disease in 1994, but in keeping with its centuries-old tradition that any public discussion about the Pope’s health was inappropriate, the Vatican swore the physicians to secrecy. A decade earlier, the only manifestation of the degenerative neurological disease was a slight tremor in John Paul’s left arm and hand.1 Parkinson’s would over time prove a tremendous challenge. But John Paul insisted that his struggle stay private, even though performing his duties had become increasingly difficult, especially when it came to his trips abroad and demanding public appearances at the Vatican.2

  Whenever he was not seen in public for a while, rumors swirled that he was gravely ill. The previous year an announcement that the eighty-three-year-old Pontiff had canceled his traditional Ash Wednesday service at the Basilica of St. Sabina to instead preside over a simpler Mass at St. Peter’s prompted two British bookmakers to offer odds on his likely successor. The favorite was Milan’s Cardinal Dionigi Tettamanzi.3 Not until it was clear that John Paul had survived the Easter services did the betting stop.

  Few knew that John Paul considered his affliction the will of God. Since he was convinced that God had guided his fellow cardinals to select him as the Vicar of Christ, he thought himself Pope for life. There was no room in the Catholic Church, he told colleagues, for an honorary Pope.4 And resignation was unthinkable. Most Catholics agreed. “The idea of a pope retiring really has no precedent, and the continuity of the papacy depends upon the election of a new pope on the death of another,” wrote journalist James Murray.5 Sixty-five percent of Italians polled said the Pontiff should never resign, no matter how debilitating any end-of-life illness.6

  Although his deteriorating health had not stopped him from sitting on the throne of St. Peter, it affected what happened inside the Vatican. Parkinson’s, coupled with chronic pain from other ailments, made it difficult for him to spend long hours in meetings or reading reports. U.S. diplomat Michael Hornblow said, “He was very energetic, but not a great administrator. I was told his inbox was a disaster.”7 Even as a bishop in Poland he never had a reputation as a micromanager. His illnesses meant that during the last decade of his Papacy he concentrated only on what mattered most to him. He spent tremendous time on his extraordinary international pilgrimages. After his Parkinson’s diagnosis, each trip out of Italy was more difficult. They required far more logistical planning (by the end of his Papacy, he tallied 104 foreign trips, more than all his predecessors combined). From 1994 until 2005, he made sixty foreign trips, including demanding ones to India, the Middle East, Africa, and two visits to the United States. For weeks before each one, John Paul prepared by studying up on the clerics and influential Catholics whom he would meet.

  One of the things for which he no longer had time was any oversight of the Vatican Bank. Angelo Caloia was left alone to run the bank subject to the loose supervision of the IOR’s commission of cardinals and some advice from its lay directors. Caloia’s own ideas for bank reform were occasionally discussed, but there was no crisis that gave any urgency to convert them from the drawing board to practice. Despite Caloia’s good intentions, during the decade of John Paul’s declining health, the bank had yet to undergo any of the core institutional reforms that would mark the end of its role as an offshore banking haven.

  There were some warning signs that the IOR’s apparent tranquillity was an illusion. In 2000, Italian police arrested twenty-one mobsters who were part of one of the first-ever online banking frauds, an electronic scheme to steal up to $900 million from Sicily’s central bank using pilfered computer files and passwords. Legal wiretaps had caught the mobsters boasting of accomplices inside the Vatican Bank. Police made the arrests before the theft was pulled off since “it would have been impossible for the Italian state to recover [the money]” if it had gotten inside the IOR.8 But as result of acting so fast, prosecutors could not determine who inside the Vatican Bank had been part of the conspiracy.

  That same year, the Institute of Applied Economic and Social Research at the University of Melbourne published the results of an extensive study of international money laundering.9 The authors compared the banking systems of two hundred countries. The Vatican ranked in the top ten money laundering havens, behind Luxembourg, Switzerland, the Cayman Islands, and Liechtenstein, but ahead of Singapore.10 Also, in 2000, the Vatican finished in the top ten “most attractive countries for money launderers” in another report, this time by the United Nations’ Congress on Economic and Social Issues.11 The following year, 2001, a report by the London Telegraph and the Inside Fraud Bulletin rated the Vatican as a top cutout country along with such offshore banking sanctuaries as Nauru, Macao, and Mauritius. A cutout was a nation in which banking secrecy made it all but impossible to trace laundered funds back to their source. The IOR, concluded the report, was the primary conduit for $55 billion annually just in illegal Italian money. And for the third time in a year, the Vatican Bank had the dubious distinction of getting tagged as a top offshore shelter, the eighth most popular bank for money launderers and the fourth-best cutout. The IOR beat out Liechtenstein, Switzerland, and the Bahamas.12

  Despite its high rankings on those unsavory lists, the announcements garnered little more than shrugs from the media, long accustomed to assuming the worst about the Vatican Bank. If the reports concerned Caloia and his associates running the bank, they did not do anything to address the structural shortcomings that allowed the IOR to flourish as a popular destination for illegal cash. (John Walker, the chief investigator on the Melbourne and U.N. reports, told the author in 2014 that the Vatican “remains up there with the best places to launder money.”)13,I

  What did attract press attention, though, were new developments in old scandals. In the United States, insurance commissioners in five states used racketeering statutes (RICO) to file civil lawsuits totaling $600 million, naming the IOR and the Pope as two of the def
endants, to recover money in the 1999 fraud of financier Marty Frankel.15 Each state claimed the Vatican Bank knew and failed to stop Frankel from swindling investors by using Catholic charities as fronts.16 The church managed to ultimately get the litigation dismissed, arguing that the Vatican was exempt from the proceedings since Frankel’s foundation “did not have Vatican juridical character” and had “always acted outside of any Vatican context.”17 But to Rome’s consternation, the cases drew a lot of attention while they were pending. (Frankel, and the two priests who helped him, Fathers Colagiovanni and Jacobs, pled guilty to counts of racketeering, conspiracy, wire fraud, and money laundering. Because of their advanced age, the clerics each got probation; Frankel is still serving a seventeen-year prison sentence.)

  Beyond Frankel, the Ambrosiano and the never-ending investigation into Roberto Calvi’s death returned to the headlines. A film about the case premiered in Italy in 2002, but an Italian judge ordered it removed from theaters after Flavio Carboni, the Sardinian property developer and Calvi associate, filed a defamation suit.18 That year new forensic tests suggested that Calvi had been murdered. By 2003, the headlines asking “Who Killed God’s Banker?” were replaced by new ones announcing that Italian prosecutors were investigating four mobsters as murder suspects.19 The formal declaration that foul play was involved came almost twenty-one years to the day after Calvi’s body had been found swinging from Blackfriars Bridge. It kicked off stories speculating about who might be behind the murder: the Mafia, Masons, or even the Vatican.20 Starting in 2000, more than half of all English language news stories about the Vatican Bank in a five-year period were about Calvi’s murder and included a reprise of at least some aspect of the Ambrosiano scandal.21

  As far as John Paul was concerned, he was likely pleased that the bank was not involved in any new imbroglios. Caloia’s deliberate low profile seemed the perfect antidote to the otherwise salacious Italian tabloid press. In 2005, Caloia was up for yet another five-year term. Most Vaticanologists expected the Pontiff to rubber-stamp the extension. But before John Paul extended his IOR director’s tenure, the eighty-four-year-old Pontiff died on April 2, 2005. Although he had soldiered through years of chronic illnesses, his passing still surprised most Catholics.22 His Papacy had lasted twenty-seven years. A young generation of the faithful had known no other leader.

  * * *

  I. In 2005, a Mexican bishop said that donating money to the church “purified” it. Some Vaticanologists thought that was a not subtle pitch to get narco-traffickers to be more generous with their religious contributions. A Mexican monsignor addressed the matter more directly: “It is immaterial where the donations from drug trafficking originate and it’s not up to us to investigate the source of the money.” Such donations are called narco limosnas (narco-alms) in Mexico. No money laundering laws are violated so long as the Mexican clerics do not kick some of the cash back to the traffickers. But the U.S. Drug Enforcement Administration believes the Mexican church’s willingness not to ask questions about large cash gifts is a significant reason why the Catholic church’s wealth there has multiplied in recent years.14

  33

  The Kingmaker Becomes King

  In the days after his death, the frenzied attention about funeral details and the speculation over who might next assume the throne of St. Peter pushed some news about the Vatican Bank into the back pages of newspapers. Although the public may not have paid much attention, it was on the minds of the arriving cardinals. The same day that Pope John Paul died, an anonymous “church banker” told a U.S. journalist that the Vatican Bank had accumulated a record $5 billion in cash reserves (an earlier estimate by The Financial Times concluded the IOR and APSA separately controlled about a $60 billion real estate and stock portfolio, a figure the Vatican said was inflated).1

  But not all the economic news awaiting the next Pontiff was good. Only days after John Paul’s passing, there were press reports that after a decade of surpluses that had lasted until 2003, the Vatican was expecting its third consecutive year in the red. Cardinal Sergio Sebastiani, the chief of the Holy See’s economic affairs office, blamed it on unexpected currency losses from a near 20 percent surge in the value of the dollar, a tough investment climate, and stagnant European economies. John Paul’s expansion of the church’s diplomatic presence in dozens of countries had resulted in hundreds of new lay employees.2 Cardinal Edmund Szoka, Sebastiani’s predecessor for more than a decade, told reporters that the slide was due to low returns on the church’s investments—since all its money was managed so conservatively. “If it were my own money,” Szoka told The Wall Street Journal, “I would be much more aggressive.”3

  Although no official acknowledged it, there was little doubt that the sex abuse crisis had caused a sharp drop-off in contributions to Rome, particularly from Americans. By the time of John Paul’s death, the U.S. church had paid $840 million in out-of-court settlements to victims, and three dioceses, Tucson, Spokane, and Portland, had declared bankruptcy.4 Professor John Pollard, author of sober histories about early Papal finances, told reporters, “The impact of the priest pedophile scandal of the U.S. could impact anywhere between one-third and 40 percent of Peter’s Pence.”5

  No matter the underlying cause of the turnaround from profit machine to money loser, it suggested the cardinals who had demonstrated they were adept at managing finances might have an advantage at the conclave.6 John Paul’s successor would also confront whether or not to make substantive reform at the Vatican Bank a priority. Some Vatican observers speculated that poor investments at the IOR might be the reason behind the flip from profits to losses. Since all of the Vatican Bank’s business was secret, it was not possible to know whether the Pope’s distanced role had allowed the bank to fall into old habits of excessive speculation.7 Its checkered history meant even the simplest questions caused anxiety. In providing a shortlist of what attributes were required of the next Pope, one commentator suggested: “He’s going to have to avoid Vatican bank scandals.”8

  The 2005 conclave took place in a different world than the one that selected John Paul in 1978. Back then, Jimmy Carter was president and Margaret Thatcher was not yet England’s prime minister. The Cold War and communism’s oppression of tens of millions of Catholics, factors that may have led to selecting a strong anticommunist from an Eastern Bloc country, was now history. And the makeup of the electors in the conclave itself had radically changed. Just three of the 117 eligible cardinals for the upcoming conclave had been at the last one. John Paul appointed all the rest. That led most Vaticanologists to believe that the race was wide open. The only certainty, wrote one commentator, was that it was “highly uncertain.”9

  One cardinal omitted from all the early speculation was Joseph Aloisius Ratzinger, the powerful head of the Dean of the College of Cardinals and Prefect of the Congregation for the Doctrine of the Faith. “His role and his ‘fame’ as John Paul II’s rigorous guardian of doctrinal orthodoxy was said to rule him right out of the contest,” wrote one Vaticanologist.10 No one doubted that Ratzinger was John Paul’s ideological soul mate. But that appeared a weakness in a church seemingly overdue for a fresh direction. Although some respected Italian journalists, with good Curial contacts, wrote only a few months before the Pope’s death that Ratzinger was papabile, most dismissed that as unfounded gossip.11 As the cardinals gathered in Rome, the conventional wisdom remained that Ratzinger’s senior status and intellectual rigor on church doctrine made him the indisputable grande elettore (the kingmaker) but not a candidate. And in any case, at seventy-seven, his day had passed.12 Poland’s Zeon Grocholewski even broke the unwritten rule of not commenting about other cardinals when he told reporters that Ratzinger was intelligent but “too old.”13

  Since it had been twenty-seven years since the last conclave, the media seemed initially a little rusty in its coverage. They had to find a new batch of talking heads for the now omnipresent television coverage. And they covered it like a political election with a verita
ble torrent of speculation about which frontrunner might be the next Pontiff and what it meant for the world’s 1.1 billion Catholics. Since the Pope is also the Bishop of Rome, some Curialists leaked word that it was time again for an Italian. One of the most frequently mentioned was Milan’s seventy-two-year-old Dionigi Tettamanzi, an esteemed theologian and ardent opponent of euthanasia and abortion. Venice’s sixty-three-year-old Cardinal Angelo Scola was high on the popularity meter. And Genoa’s Cardinal Tarcisio Bertone worked hard to ensure he was not left behind. Bertone was the only cardinal to stand in the long line with lay mourners to pay respect to John Paul while his body lay in state inside St. Peter’s. He brought along a camera crew to record his shaking hands and blessing babies during his hours of waiting.14 And Bertone ensured he stayed in the news by renewing a campaign to ban Dan Brown’s bestselling The Da Vinci Code.