Gotti Tedeschi boasted that he was “a concrete and practical economist” with decades of business experience, “not an academic, a theorist.”33 He shared Caloia’s concern about the need for more ethical behavior in financing and championed the theories of other leading Catholic free-market thinkers.34 But the comparison to his predecessor ended there. Gotti Tedeschi was far more provocative than the soft-pedaling Caloia. In a 2004 book, he had argued that Protestantism was responsible for some of capitalism’s “defects,” including an obsession with turning profits.35 Nine months before becoming the IOR chief, he had proposed in L’Osservatore Romano that wealthy Western countries form a “good bank” from which massive investments could be made into developing nations. Even English Prime Minister Gordon Brown took note, endorsing Gotti Tedeschi’s grand Marshall Plan–styled bank. It had little chance of ever happening, but it was evidence that Gotti Tedeschi did not shy from broad, bold initiatives.36
Besides his economic philosophy, he prided himself as a strict moralist. When he told strangers he had five children, he often added “and all from the same mother.” It was his subtle dig at Italy’s rising divorce rate and out-of-wedlock births.37 Just before the Vatican picked him for the IOR post, he had given a much discussed talk in which he contended that while America’s “debt addiction” was a primary cause of the global financial crisis, a contributing factor was that people did not follow the church’s ban on birth control, which he said led to “the rejection of life and the suppression of childbirth.”38 Between his provocative writings, outspoken lectures, and opinionated involvement in economic proposals for Italy’s politicians, he seemed in many ways the opposite of the reserved Caloia.
Gotti Tedeschi walked into a firestorm at the IOR. In December 2000, the Vatican had signed a Monetary Convention with the European Union so that the church could issue its own euro coins (distinctively stamped with Città del Vaticano) as well as commemorative coins that it marked up significantly to sell to collectors.39 That agreement did not bind the Vatican, or two other non-EU nations that had accepted the euro—Monaco and Andorra—to abide by strict European statutes regarding money laundering, terrorism financing, fraud, and counterfeiting.40
That lack of compliance had become a sticking point for EU officials in Brussels who contended that the city-state reaped the benefits of a one-way relationship that allowed it to use the euro without having to follow the rules that applied to member nations. The EU’s unease went as far back as 1998, when the Vatican had agreed in principle to use the common currency.III That was the same year the Organisation for Economic Co-operation and Development (OECD), a thirty-four-nation economics and trade group that tracks openness in the sharing of tax information between countries, had begun investigating tax havens. Those nations that shared financial data and had in place adequate safeguards against money laundering were put on a so-called white list. Those that had not acted but promised to do so were slotted onto the OECD’s gray list, and those resistant to reforming their banking secrecy laws were relegated to a black list. The OECD could not force the Vatican to cooperate since it was not a member of the European Union. So it held off putting the city-state on any list.41
Meanwhile, at the Vatican, a powerful contingent of senior clerics resisted the principles of transparency preached by the EU and argued that the IOR’s inviolable secrecy was one of its greatest attributes. Just because the modern world had moved in the direction of openness was no reason why the church should follow, they contended. If the EU got its way and the Vatican had to conform to Europe’s money laundering and terrorism financing laws, the IOR would be subject to independent secular oversight. Many veteran clerics shuddered at the prospect of European financial regulators accessing the records and files of the Vatican Bank.
The standoff between European representatives and IOR officials had boiled over at a luncheon at the Vatican shortly before Gotti Tedeschi arrived at the IOR. One of the EU regulators asked if it were possible to get some information about what controls the bank had in place to guard against money laundering?
“How can you ask us such questions?” one of the Vatican Bank officials shouted.42
The European officials returned to Brussels.
As Gotti Tedeschi discovered, the Vatican was in a tough quandary. The Monetary Convention the church signed in 2000 restricted how many coins it could mint annually.43 The Vatican wanted a higher limit. Brussels saw this request as leverage by which to push the clerics in Rome to comply with European money laundering and anti-terrorism statutes.
Gotti Tedeschi threw his weight with the pragmatists who contended that as distasteful as it was to contemplate any European oversight of the IOR, the Vatican’s future was undoubtedly with the euro. Opting out of the euro and creating its own currency seemed an unrealistic dream.
Just three months after Gotti Tedeschi had become the bank’s director, the church and the EU signed a new Monetary Convention. It allowed the city-state to mint €2.3 million annually, up from €1.4 million. In return, the Vatican agreed to start taking all steps necessary to adhere to the tough post-9/11 financing laws that Brussels had promulgated.44 The city-state—which remarkably had no laws against money laundering—was now committed to develop and implement its own finance statutes.45 It was also obligated to create an independent watchdog agency empowered with certifying that all Vatican financial departments complied with any new laws. These were not simply promises the Vatican could make and shelve. The agreement put real obligations on the church to perform, and the EU was set to monitor its progress. The Vatican’s long-term goal was to qualify for the OECD’s white list.46
Almost lost in the final hectic debate over the new Monetary Convention was that on December 29, the Ninth Circuit Court of Appeals in San Francisco delivered some unexpected good news to Gotti Tedeschi and his colleagues at the bank. That court affirmed the IOR’s dismissal from the Nazi gold class action lawsuit filed in 1999. The Vatican’s attorneys had prevailed that the Sovereign Immunities Act, which shields foreign countries from being sued in American courts, was a complete bar to any civil action against the bank.47 The concerns of a decade earlier about whether the Nazi gold claims might result in a settlement as devastating as the Vatican’s $244 million payment to the Ambrosiano now seemed distant. Gotti Tedeschi had no history with any of that. But he was pleased the lawsuit was over. He had a clean slate going forward to build a bank that adapted to the political and financial realities of modern-day Europe.
* * *
I. Caloia thought the name bank was a misnomer for the IOR since it was not in the business of lending money. It did, while he was there, “give grants to a mission in the Amazon, a small church in Kampala, but loans in the classical sense are excluded.” The reason for the “no loans” policy, said Caloia, was that “it would rain down requests from every corner of the planet, and we would not be able to rank the priorities.”8
II. In subsequent media coverage, Caloia’s inability to rein in De Bonis and others in the 1990s turned into something more nefarious. “Monsignor Angelo Caloia had expanded money laundering and keeping secret accounts for favored politicians for which the bank became notorious.” “Under Monsignor Angelo Caloia, Marcinkus’ successor as head of the bank, the Vatican consistently expanded its money-laundering activities.” It appears in those reports journalists confused Monsignor Donato De Bonis and Angelo Caloia. However, Caloia evidently made no effort to correct the record, and for those unfamiliar with the IOR’s past, those press reports made him responsible for behavior that is not supported by any credible evidence.31
III. The Vatican had been forced to adopt the euro because Italy had decided to do so. Italy was one of twelve European nations that made the euro its currency. The much loved lira, in use since 1472, was history. Lost in the widespread coverage of that historic move was that Italy’s decision meant the Vatican—which used the lira—had to follow suit or develop its own currency.
36
; The World Has Changed
The Vatican approached its obligations under the December 2009 Monetary Convention in its typical unhurried manner, in no rush to begin the hard work of qualifying for the white list. The IOR had performed well for decades without outside interference. Few in the church believed that getting the OECD’s formal blessing would make much of a difference in its bottom line. Officials in Brussels, meanwhile, were not accustomed to the slow shuffle. The EU was focused on a promise they had secured during the negotiations: Pope Benedict was to issue a decree by which he acknowledged the church’s willingness to comply with Europe’s money laundering and antiterrorism laws. For several months, EU officials bristled as queries went unanswered or came back with unresponsive information. In the late spring, the IOR and OECD met twice. But according to Jeffrey Owens, the OECD’s director of the Center for Tax Policy and Administration, the discussions were so generic as to be nothing more than a primer about how the church might one day get on the white list. “They know what the standards are,” said Owens. “Do they want to advance the dialogue with the aim of committing to the standards?”1
The EU believed that the Holy See had no incentive to live up to its Monetary Convention obligations, in part since its sweetheart relationship with Italy meant there was little strict enforcement of rules and regulations against IOR accounts held at Italian banks. So in the summer of 2010, Brussels nudged Italy’s central bank to tighten its controls when dealing with the Vatican Bank.
There was soon evidence that the pressure was working. On September 9, the Bank of Italy distributed an internal notice advising Italian banks to more aggressively scrutinize their business with the IOR. The memo emphasized that the Vatican Bank was a non–European Union bank and that it was not on the OECD’s white list.2 Italy had recently ruled that the Vatican itself was a “non-equivalent extracommunitarian country.”3 That meant it was subject to tougher standards.4 It was the clearest sign to date that the incestuous relationship between the Vatican and Italy was ending. Still, the church did not pick up its pace in addressing its duties under its new Monetary Convention. Gotti Tedeschi and his crew did not seem particularly concerned.
They should have been. In mid-September 2010, Italian state television (RAI), citing unnamed “judicial sources,” reported that Gotti Tedeschi and the bank’s director general, Paolo Cipriani, were under investigation in a criminal investigation of possible violations of Italy’s beefed-up 2007 money laundering law.5 Some in the Vatican dismissed the report as baseless. On September 20 Italian prosecutors froze $30 million at an IOR account held at a Rome branch of Credito Artigiano S.p.A. The IOR had wanted to transfer most of that money to J. P. Morgan’s Frankfurt branch, and the rest to the Rome-based Banca del Fucino.6 Credito Artigiano had followed the letter of the law by asking the IOR the identity of the account holder and the reasons for the transfer. The Vatican Bank ignored those requests. That had prompted Credito Artigiano to inform Italy’s central bank that there were “irregularities.”7 The Bank of Italy’s financial intelligence unit in turn tipped off Rome’s prosecutors.I
The day after the $30 million was frozen, all Benedict’s public relations team could muster was to buy some time with a note published in its newspaper, L’Osservatore Romano: “The Holy See, therefore, is perplexed and astonished by the initiative of the Prosecutor of Rome, especially since the information necessary is already available from the relevant offices of the Bank of Italy. . . .” Gotti Tedeschi had been on the job only a year. “The Holy See expresses its maximum confidence in the president and director general of the IOR.”9
Two days later, press spokesman Father Federico Lombardi released a longer statement to the Financial Times. Now he claimed it was all “a misunderstanding” and “could have been clarified with great simplicity.” Lombardi raised eyebrows in Brussels and Rome when he claimed, “The IOR is located within the territory of Vatican City State, beyond the jurisdiction and surveillance of various national banks.” That seemed a throwback to the defense the church employed to avert the service of arrest warrants on Archbishop Marcinkus. But everyone seemed to agree with Lombardi’s conclusion: “The IOR is not a bank in the normal definition of the term.”10
Bank of Italy officials thought the expressions of surprise were feigned. Their pervasive view was that the Vatican had deliberately failed to answer Credito Artigiano’s queries about the $30 million. Maybe, contended some, the IOR wanted to test what would trigger Italy’s enforcement mechanism. “A well-placed Italian official, who asks not to be named,” told the Financial Times, “Perhaps they want to go back to their past special status. But the world is more complicated these days. Perhaps it is just their culture of secrecy. Who knows?”11
The following month Rome prosecutors widened their money laundering probe to include $1.3 million in withdrawals from IOR accounts at two of Italy’s largest banks, UniCredit and Intesa Sanpaolo.12 In a separate case, police arrested six people in Sicily on fraud and money laundering charges. One of them was an Italian priest who helped his father launder $350,000 in European Union grant money for a nonexistent fish farm development through an IOR account. The Vatican Bank distributed the money to a mobster uncle of the cleric.13 It highlighted the fear in Brussels that the IOR accounts held in Italian banks were still easily disguised to hide the flow of illicit cash. “IOR cannot work like this anymore,” an unidentified Italian official told the Financial Times. “People have used the IOR as a screen.”14,II
It had only taken a year for Gotti Tedeschi to find himself in the uncomfortable public spotlight of scandal that had plagued his predecessors. Behind the scenes he worked frenetically to get Italian authorities to release the $30 million. Vatican attorneys had filed emergency motions to free the funds but two judges upheld the seizure, citing the IOR’s failure to adequately explain the money’s provenance.16 Prosecutors provided the judges with additional documentation raising questions about a 2009 IOR transfer under a false name, and a million-dollar withdrawal in 2010 from an Italian bank in which the Vatican refused to provide the cash’s destination.17 The next step for the IOR was to appeal to Italy’s highest court but a decision there might not be quick.
Few knew that Gotti Tedeschi was struggling inside the Vatican Bank. Its records had been in much worse shape than he expected and he was having a tough time getting the Curia to understand what he meant by transparency.18 He decided to use the crisis to push the Vatican into the financial modern age.
Gotti Tedeschi sent a letter to the Paris-based Financial Action Task Force (FATF), the intergovernmental body set up by the G7 to combat terrorist financing and money laundering.19 The FATF was the group whose principles the Vatican had promised in 1996 to emulate in the wake of the Enimont scandal. Gotti Tedeschi now assured the FATF that the IOR was ready to strictly adhere to the group’s standards. That would subject the IOR to peer review by FATF’s European arm, the Committee of Experts on the Evaluation of Anti–Money Laundering Measures and the Financing of Terrorism (Moneyval).20 When Italian prosecutors heard about Gotti Tedeschi’s representations, they thought he was simply trying to burnish the church’s image in the legal battle over the frozen $30 million.21 But European officials were less cynical and sensed that Gotti Tedeschi was sincere. Their only question was whether he was capable of delivering on his promise.
A few weeks later, on October 15, IOR and EU officials met and this time agreed that Pope Benedict would do whatever was necessary to bring the Vatican’s laws in sync with the tough European regulations.22 When an anonymous “senior FATF official familiar with the negotiations” told the Associated Press that Gotti Tedeschi had also personally vouched for the IOR’s willingness to conform to the EU’s strict statutes, it put the Vatican Bank chief into the middle of the church’s long-fought debate about the breadth of its sovereignty.23 Since the restoration of independent statehood through Mussolini’s Lateran Pacts, it was hard to think of a more explosive political issue inside the church. Many clerics had
personal memories of the brutal court battles that had gone to Italy’s highest tribunal over the Marcinkus arrest warrants.
Some top financial clerics—such as Archbishop Carlo Maria Viganò, who had become the General Secretary of the Governorate the previous year—thought the crisis so great that the church should withdraw from the euro and mint its own Vatican lira, which would float in value against other currencies.24 Viganò and several others argued that any downside risks for the Vatican launching its own currency were preferable to allowing EU officials—many of whom were entrenched secularists with outright disdain for the church—to enter Vatican City and have unprecedented access to the IOR.
Although many of Viganò’s colleagues were sympathetic to his rallying cry to preserve the bank’s sovereignty at all costs, few thought it feasible.25 If it wanted to develop its own currency, it should have started years earlier. Such a radical response to intense pressure from Brussels might lead other countries to brand the city-state a rogue outlier when it came to money laundering and antiterrorist financing laws.26 American and European banks might stop doing business with it. That would not boost the value of any currency it rolled out. With some significant undercurrent of dismay, Viganò’s proposal to leave the EU failed to get any traction. A handful of the Pope’s closest aides instead began drafting the Papal declaration that the church had promised Brussels.
The result was a remarkable December 30 decree that gave the Vatican its first ever anti–money laundering law, set to go into effect the following April 1.27 “The Prevention and Countering of Illegal Activities in the Area of Monetary and Financial Dealings” was issued as a motu proprio, a document historically signed personally by the Pope. Benedict took full responsibility for the decision. At 501 words it was short by the standards of apostolic letters and Papal decrees. The Pope deemed money laundering and terrorist financing a “phenomena” and referred to the Vatican’s pledge made with the EU in its Monetary Convention the previous December. Most important, he rolled out the Vatican’s first-ever internal oversight and enforcement authority, the Autorità di Informazione Finanziaria, AIF (literally, Financial Information Authority, but the Vatican translates it as the Financial Intelligence Authority).28
God's Bankers: A History of Money and Power at the Vatican Page 59
