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

by Gerald Posner

  Even mundane public relations events often turned into problems. When the Pope attended a Vatican Christmas, the press focused on an embarrassing moment when four male acrobats stripped off their shirts in front of the red-faced Benedict. “Strippers in Vatican” went viral on YouTube and led to another round of finger pointing among his advisors about who should have previewed the act.58 A few weeks later, at a Christmas fest in Cologne, photographers snapped photos of the Pope greeted by the Jungfrau, a traditional blond maiden. Papal aides were seemingly aware that the maiden at the Cologne Carnival was always a man dressed as a woman. Pictures of Benedict cavorting with a drag queen were the last thing the Vatican’s inexperienced public relations team wanted.59

  As this fiasco played out, Curial officials appealed to Bertone as the Secretary of State to take charge of the Pontiff’s public image. Bertone assured his colleagues he would help the Holy See avoid further embarrassments. But the Secretary of State was not up to the job.

  When a Polish weekly published the accusation that Benedict’s top choice to become archbishop of Warsaw had cooperated with Poland’s communist-era secret police, Bertone did not believe it. Then—only a couple of days before Stanislaw Wielgus’s investiture—a historical panel in the Vatican informed Bertone that the charges were true. He underestimated the impact of such a disclosure in the former communist bloc country so he did not advise Benedict to stop the appointment. Instead, the affair played out to the church’s humiliation when Wielgus resigned within hours of becoming the Warsaw archbishop, admitting that a slew of fresh reports about his communist-era collaboration were true.60

  In 2009, Benedict faced a firestorm after he lifted the excommunication of Richard Williamson, a British bishop based in Buenos Aires.61 Bertone, who oversaw Williamson’s vetting, had apparently not even Googled him. If he had, he would have discovered an interview the bishop gave only three days before to Swedish television, in which he said about the Holocaust: “I believe that the historical evidence is hugely against six million Jews having been deliberately gassed in gas chambers as a deliberate policy of Adolf Hitler. I believe there were no gas chambers.”62 The U.S. embassy later sent a confidential cable to the State Department reporting that Bertone had lost even more respect when—during the middle of the scandal over the Holocaust-denying cleric—he “referred to the offending bishop by the wrong name, then denounced the media for ‘inventing’ a problem where there was none.”63

  Bertone’s missteps did not shake the confidence of the most important person at the Vatican, Benedict. The Pope was not even upset with the abysmal performance by his press office. The war with the media was proof that secular powers were intent on waging a campaign of vilification against the church.64 That Catholicism was in a war with secularists was shared by at least one of his closest unofficial advisors, the nun Ingrid Stampa.65 Instead of making Benedict angry with those who had let him down, the public farces made him bitter and turned him away from what he saw as a hostile world.66 It reinforced his suspicious and conspiratorial view that there was no such thing as balanced reporting and that the news served a hidden agenda to somehow shake the faith of loyal Catholics.

  * * *

  I. In 2001, Del Ponte had worked a genocide investigation against four Rwandans, two of them Catholic priests, one living under a false name in Italy and the other hiding under an alias in Switzerland. After appealing to the Vatican for help in persuading the priest in Italy to turn himself in, she later discovered that “church officials sent him into hiding.” “I was,” she wrote in her book, Madame Prosecutor, “to put it mildly, furious.”7

  II. Just before John Paul’s death there were rumors that he was considering banker Roberto Mazzotta, president of Caripio, a Milan-based bank and charitable foundation, as Caloia’s replacement. Mazzotta was a respected member of the white finance movement, of which Caloia had been a founder.

  III. Lombardi is the same press spokesman who ignored more than a dozen requests from the author for comments and interviews inside the Vatican, as late as 2014.

  35

  Chasing the White List

  The bursting of the American housing bubble in 2006, and the collapse of a secondary investment market based on subprime mortgages, kicked off what turned into a devastating two-year global financial recession. The Vatican always moved in tandem with the booms and busts of neighboring countries. Italy, which had one of the weakest European economies going into the crisis, affected the church more than any other nation.1 Unemployment and bankruptcies soared while GDP and industrial production plummeted to levels not seen in forty years.2 The Vatican experienced a drop-off in contributions, including a sharp downturn in Peter’s Pence (it fell by a third in 2006).3

  The straight numbers reveal the impact. The Vatican turned from a budget surplus of $3.1 million in 2006 to a $13.5 million deficit in 2007, its worst performance in years.4 The international financial plunge rekindled inside the church fears over the risks inherent in unrestrained capitalism. “Money vanishes,” Pope Benedict said in a speech during the free fall. “The only solid reality is the word of God.”5

  Even the church’s money men, who knew that Marcinkus was right when he once said, “You can’t run the church on Hail Marys,” were pressured to find ways to cushion the church against the fallout. Two financial experts wrote in the Vatican’s newspaper, L’Osservatore Romano, that Islamic finance might be a model for Western banks. In theory, it was similar to the white finance Angelo Caloia and his Catholic economists advocated.6

  At the nadir of the crash, October 2008, the press-shy Caloia gave a rare interview. After the bankruptcy of New York investment giant Lehman Brothers, and with some enormous French and Spanish banks reportedly battling for survival in the face of enormous losses, some of Caloia’s colleagues urged him to calm jitters at the IOR’s partner banks about the secretive institution’s solvency.

  In keeping his well-known distance from the mainstream media, he gave an exclusive interview to Famiglia Cristiana, a Catholic family magazine. His message was not only reassuring. It was the envy of central bankers everywhere: “Our assets are solid and we don’t have any shortage of liquidity. We’ve always been very prudent, I would dare to say conservative, in managing our resources. We’ve always invested defensively.”

  The IOR’s assets were not at risk, Caloia said, because under his nearly nineteen-year tenure the bank had never participated in stock options, much less derivatives (highly leveraged financial instruments). He did not disclose precise numbers, but indicated a recent press report concluding that the IOR’s unadventurous investment philosophy meant 80 percent of its assets were in low-yield AAA government bonds and the rest in a mixture of gold and dividend-yielding stocks, sounded about right.7

  The Vatican Bank did not issue loans so it was not facing customers unable to make repayments.I Instead, Caloia noted the bank adhered to conservative investments that were “clear, simple and ethically based.” The IOR did not profit, he emphasized, from any dishonorable endeavor such as trading in international armaments.

  Caloia, who believed the crisis was largely the result of greed, also took a swipe at those international banks that were in distress, saying that their “behavior [was] improper to the point of fraud” and that it was little wonder that “today, in world finance, no one trusts anyone else.”9 Privately, and away from earshot of any reporter, Caloia said he thought that some top American clerics were “too enamored with Wall Street.”10

  The philosophy of white finance was the backbone of a major policy paper Benedict issued that December about the meltdown. In direct language, he castigated Western countries for not responding more forcefully and faster to cope with the crisis, especially since the credit crunch disproportionally hammered the world’s poorest.11 In calling for reform, Benedict urged that a “necessary first step” was closing all international tax havens, which he said had “given support to imprudent economic and financial practices and have also played a signi
ficant role in the imbalances of development, allowing a gigantic flight of capital linked to tax evasion. Offshore markets could also be linked to the recycling of profits from illegal activities.”12 The Pontiff’s statement even listed some of the worst offending “offshore centers” such as “the Channel Islands.” It was not clear if Benedict fully realized the extent to which the super rich had used the Vatican Bank as a tax haven since its inception.

  But that December policy statement was only a warm-up for a Papal encyclical released the following July (2009). It was a dense thirty-thousand-word treatise about social injustice that included swipes at the excesses of capitalism, especially the robust American variation. The theme was that “The economy needs ethics in order to function correctly, not any ethics, but an ethics which is people-centered.”13 It reinforced the widespread view that Benedict was better suited as an academic and philosopher than a hands-on administrator.

  That highly promoted encyclical about what was wrong with Western capitalism had the misfortune of getting released at the same time as the publication of Vaticano S.p.A., a book by Italian journalist Gianluigi Nuzzi, that was filled with electrifying disclosures of decades of abuse inside the Vatican Bank. Nuzzi’s tell-all was based on thousands of internal documents stolen over several decades by the IOR insider Monsignor Renato Dardozzi. How Nuzzi got the secret documents was a riveting story in itself. Dardozzi, who had died in 2003 at the age of eighty-one, had never given an interview, and there are only a couple of known photos of him. The reclusive monsignor seemed an unlikely whistleblower. It turned out that Dardozzi had been frustrated and upset by the ongoing abuses at the IOR under De Bonis.14 Over time he became determined that the wrongdoing he witnessed not go forever unreported. In the late 1990s he had begun secreting away copies of confidential files, notes from private meetings, and sensitive correspondence between key IOR and Curial officials. And he had stored the purloined documents with friends—who remain anonymous to this day—in Ticio, Switzerland, just over the Italian border. When Dardozzi died, his executors contacted Nuzzi. Dardozzi’s last will and testament directed: “These documents should be published so that everyone can learn what has happened here.” It took Nuzzi months to scan the paperwork, make CD-ROMs of the notes, and download the larger files. When Nuzzi returned to Italy on his final trip, he carried two large Samsonite suitcases, each crammed with forty pounds of the damning copies.15

  In a preview of Vaticano S.p.A. in the Italian weekly Panorama, Nuzzi wrote that Marcinkus had “simply passed the baton” to De Bonis, ensuring that “a river of money, including cash and government bonds, was conveyed in a kind of parallel IOR, a web of offshore deposits disguised with charities that did not exist.”16

  Vaticano S.p.A. exposed everything from Prime Minister Giulio Andreotti’s political slush fund disguised as the Cardinal Francis Spellman Foundation to revealing how putative charities used the bank to move about millions of dollars beyond the reach of law enforcement and financial regulators. Nuzzi revealed in detail that political bribes were doled out from fake IOR accounts; how money deposited by the faithful for Masses for the dead went missing; the millions that had passed through an account owned by an order of nuns had simply disappeared; even cash that had been sent to genuine charities sometimes got misappropriated by crooked clerics.

  Although most of Nuzzi’s disclosures involved abuses during the early to mid-1990s, the cumulative impact of seeing it spelled out in the bank’s own documents had a tremendous impact. Journalist and author Philip Willan summarized a widespread feeling among both ordinary Catholics and Vaticanologists when he wrote in Britain’s Guardian newspaper that such revelations were disheartening given that the “political and financial scandals” of Marcinkus, Sindona, and Calvi had “brought lasting discredit on the Catholic church three decades ago. . . . We were led to believe that a new broom, wielded by the lay banker Angelo Caloia, had since swept the premises of the IOR. . . . Despite the best efforts of Caloia, a cavalier attitude to financial ethics appears to have continued.”17

  Nuzzi’s book made it abundantly clear that during Caloia’s nineteen-year tenure as the IOR director, veteran clerics had repeatedly outwitted him and his efforts at reform. Worse, Nuzzi concluded that he trusted no one at Vatican Bank: “Despite the full collaboration promised and publicized in the press, they [the IOR] limit themselves to referring only what can no longer be concealed.”18

  The Vatican’s response to the Nuzzi onslaught? Nothing. Although there were evidently more than a dozen attempts to craft a comprehensive defense, none got past the drafting stage. Nuzzi had made his case relying on the Vatican Bank’s own documents, so efforts to explain it away seemed lame and defensive.19 De Bonis had died in 2001. When Andreotti, who in 2006 had failed in a bid for the presidency of the Italian Senate, was confronted about the Cardinal Spellman Foundation and the millions distributed from it to his family and friends, he quipped: “I do not remember this account.”20

  Overnight the public perception of Caloia changed from a well-intentioned advocate of white finance who had burnished the Vatican Bank’s reputation to someone either incapable of controlling what was going on in his own bank or clueless about the breadth of the illicit operation thriving beneath him. Nuzzi’s revelations made clear that Caloia “was suspicious about the parallel bank” just two years after he became the IOR’s director. But despite his efforts, “nothing happened.”21 The press turned on Caloia, picking up a theme that at best his oversight of the bank was lackadaisical.

  Nuzzi’s exposé sparked a desperate power struggle inside the Vatican for control of the bank. Should Caloia and his team of laymen finish the remaining two years of their term or should a new director immediately take control?22 Cardinal Attilio Nicora, chief of APSA, fought for his friend Caloia. Nicora had helped the professorial banker survive less potent threats to his tenure in early years. But Caloia had lost Bertone’s critical support. The Secretary of State told the Pontiff that Nuzzi’s book was not only a terrible embarrassment but that its disclosures showed that the church must concentrate on cleaning its own financial house before lecturing nations about their offshore banking havens and the pitfalls of capitalism. Bertone thought it was time to purge the last remnants of John Paul’s old guard, and the disclosures that Monsignor De Bonis and others had run circles around the hapless Caloia was the perfect pretext.23 As the chairman of the five-cardinal panel that oversaw the IOR, Bertone suggested it was time for Caloia to go.24

  Benedict, of course, could have ended any effort to remove Caloia by stating his support for his long-serving IOR chief. In this case, however, Benedict’s inherent indecisiveness was made worse. He had never developed a personal relationship with Caloia. Even the IOR chief said as much just six months earlier when he admitted he did “not have a functional relationship” with the Holy See.25

  The winner of the Curial tug-of-war was clear September 23 when Cardinal Bertone issued a brief statement announcing Caloia’s resignation. Bertone thanked him for his “generous services” but gave no explanation for the exit.26 Privately, Bertone’s aides leaked their own spin to selected journalists: Caloia’s departure was not a sign of discord but rather a move toward reform. That seemed possible since simultaneously Bertone disclosed that the IOR had its first new director in nearly twenty years, sixty-five-year-old Ettore Gotti Tedeschi, a conservative economist and chief of Italian operations for Spain’s Banco Santander. Gotti Tedeschi had never been inside the IOR but Bertone knew him. Earlier that year the Secretary of State had sought his advice in helping the Pope craft his Caritas in Veritate encyclical about finances and social justice (Gotti Tedeschi was so enthusiastic about that encyclical that he cited it in nominating Benedict for a Nobel Prize in economics).27 Gotti Tedeschi kept his Santander job, believing he could carry out his Vatican Bank obligations part-time.

  Caloia declined any comment, allowing the Vatican for once to control the public narrative. Typical was The Wall Street Journal ’s
front-page coverage calling the changes “a sweeping overhaul.” The paper cited “senior Vatican officials” for the proposition that Bertone “has long sought to shake up the bank’s management in a bid to modernize its operations.” Moreover, the Journal quoted “one Vatican official” as saying that while reforming the IOR would be difficult, “We expect deep change.” Gotti Tedeschi’s arrival meant the Vatican Bank was “moving in the direction of more transparency.”28 The National Catholic Reporter’s John Allen wrote that the change was “a move towards greater transparency and better business practices at the Vatican Bank.”29

  To add to the impression that the moves were part of a coordinated clean sweep, the church also announced that the four other lay directors of the IOR’s supervisory board had resigned along with Caloia. The newcomers who now joined Gotti Tedeschi were Carl Anderson, the American head of the Knights of Columbus; ex–Deutsche Bank chairman Ronaldo Hermann Schmitz; the president of Credito Valtellinese, Giovanni De Censi; and Spanish banker Manuel Soto Serrano.30,II

  What did Gotti Tedeschi’s unexpected appointment augur for the IOR? Besides his Santander role, he boasted an impressive résumé. He taught financial ethics at Milan’s Catholic University, was a director of Cassa Depositi e Prestiti (the Deposits and Loans Fund), the operational wing of Italy’s Treasury Ministry, a board member of Turin’s Banca San Paolo, and a chairman of the government created Infrastructure Fund.32 It was a plus that he was a devout Catholic, daily communicant, and Opus Dei member.