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

by Gerald Posner

  During the coming months, the IOR opened a website (www.ior.va) and published an annual report. The website did not have online banking and the annual report did not list clients. Instead it explained what the Vatican Bank was and what it did. For the IOR, which historically had not even listed its address or telephone number in the Vatican’s annual yearbook, it was a modern way of demonstrating that change was under way.31

  At the end of August, Francis replaced Secretary of State Bertone with Archbishop Pietro Parolin, the Papal Nuncio to Venezuela, the youngest man to hold the post since Eugenio Pacelli in the 1930s.32 Peter Sutherland, Goldman Sachs International’s nonexecutive chairman, briefed the Pope’s most senior advisors: “Transparency is important and necessary.”33 The Pope—who had made it clear he was personally overseeing the IOR reform—continued to set the overall tone. He appointed eight cardinals that October as special advisors in restructuring the Curia. “Heads of the Church have often been narcissists, flattered and thrilled by their courtiers,” Francis told them during their first meeting. “The Court is the leprosy of the Papacy.”34

  And that same month he issued a motu proprio against money laundering and financing terrorism, reinforcing in clear language the importance of every Curial department to adhere to the letter of the law, but also reemphasizing the oversight power of Brülhart’s AIF when it came to the church’s internal finances.35 A month later Francis followed up on suggestions by Brülhart and issued a new motu proprio further strengthening the AIF.36

  In comments made after the spring purge, Freyberg told reporters, “It is clear today that we need new leadership to increase the pace of this transformation process.” It took almost another five months, November 28, before the public got to see what Pope Francis and his Vatican Bank team meant by “new leadership.” Francis appointed his loyal private secretary, fifty-five-year-old Monsignor Alfred Xuereb, to a new supervisory IOR role.37 The Maltese native was the Pope’s eyes and ears when it came to the progress and activities of the two commissions studying the bank. Although Xuereb had no financial experience, his role was not to run the bank. Instead he had the Pope’s absolute trust. With his selection Francis had sent a message that he was watching those who were watching the Vatican Bank.38,II

  One month later in December, the action-packed year ended when Moneyval released its latest report on the Vatican’s progress toward complying with EU money laundering, terrorism financing, and transparency statutes. It commended the city-state on making significant headway and noted that “a very wide range of legislative and other measures have been taken in a short time by the Holy See.” Nonetheless, it concluded more oversight was necessary. There were still inadequate controls at both the IOR and APSA to prevent financial crimes. In a direct reference to Brülhart’s AIF, Moneyval said it was “somewhat surprising” that his intelligence unit had not yet conducted any full inspections of either the bank or APSA. But AIF did get credit for closing several questionable IOR accounts and for flagging some potential money laundering.

  Before the year ended, without any fanfare, Brülhart signed memorandums of understanding to share information about suspicious transactions with Germany, Italy, the United States, Spain, the Netherlands, Belgium, and Slovenia.40 And he was negotiating up to twenty more that he hoped to seal in 2014.41 Meanwhile, more big-name consulting firms had joined Promontory in trying to make the IOR bulletproof. They included EY (formerly Ernst & Young), KPMG, and Deloitte & Touche. Separately, Francis hired American-based McKinsey & Co. and Lord Christopher Patten, the ex-chief of the BBC, to overhaul the Vatican’s media relations.

  For observers of the Vatican Bank, such as Nigel Baker, Britain’s savvy ambassador to the Holy See, the pace of reform under Francis was “unprecedented.” Baker noted that when he was appointed ambassador in 2011, “It was a standing joke that whenever a journalist wrote an article about the IOR, it had to include a mention of Banco Ambrosiano and Roberto Calvi under Blackfriars Bridge. Yet that scandal happened over 30 years ago. There was a sense amongst commentators that the Holy See had in the past only paid lip service to the need to change its financial structures.” The move toward reform, transparency, and modernization, he said, had begun under Benedict but Francis had made it a top priority.42

  Two thousand and fourteen was the year when Francis proved his commitment to changing forever the culture of the Vatican Bank. On January 16, he purged the IOR’s top ranks because he was not satisfied with the pace of its reforms. His target this time was the bank’s traditional oversight committee of cardinals. Before he resigned, Benedict had renewed the terms for each committee member, including Cardinals Bertone, Italy’s Domenico Calcagno, Brazil’s Odilo Scherer, India’s Telesphore Topp, and France’s Jean-Louis Tauran. Less than a year into their five-year terms, Francis replaced all but Tauran. The incoming Secretary of State, Pietro Parolin, took Bertone’s spot as chairman. The new slate of cardinals were known as reformists who had extensive experience in financial affairs in their own dioceses.43

  Vatican Bank observers were again impressed. “This is an important turn in the political economy of the Vatican,” noted Professor Giuseppe Di Taranto, an economist at Rome’s LUISS University. “It is following the new political line of Pope Francis towards transparency for Vatican finance.”44

  Francis was not done. Two weeks later, on January 31, the Pope swept clean the last of the old financial guard. Out was AIF’s president, seventy-six-year-old Cardinal Attilio Nicora. His replacement was sixty-six-year-old Bishop Giorgio Corbellini, a legal expert and president of the city-state’s labor office responsible for dealing with the lay workers. Corbellini was also considered a reformer.45 And his selection was timed to coincide with the hiring of two international firms to audit Vatican finances.46

  There was no better reminder of the consequences of failure to all those entrusted with getting the IOR onto the OECD’s white list.47 And the deadline was in place. It was two years and counting. When Moneyval finished its evaluation the previous December, it set 2015 for the next report from the Vatican.

  The Vatican was a place in flux. In February, Francis issued a motu proprio that established a new division, the Secretariat for the Economy. It was the same type of bold decree that his predecessor, Benedict, had used in 2010 to commit the Vatican to its first anti-money-laundering law. The Secretariat was given broad authority to govern all the city-state’s money matters.48 It was tasked with coordinating the budgets for nearly two dozen Curial divisions. And Francis put his personal stamp on the new department by picking one of his closest advisors, Australia’s no-nonsense Cardinal George Pell, as its chief.49 The motu proprio also made clear that moving forward, APSA would operate as the Vatican’s central bank.

  In April, Francis ended a year of speculation by announcing finally that he would not close the Vatican Bank. The press office issued a statement that the IOR “will continue to serve with prudence and provide specialized financial services to the [Roman] Catholic Church worldwide.”50 (“The Vatican Bank Is Back from the Dead” was the headline in The Daily Beast.)51 Brülhart’s AIF in late May showed how well its regulatory system was working: it had uncovered 202 suspicious transactions inside the IOR in 2013, compared to just six the previous year.52

  According to Massimo Faggioli, an Italian theology professor who has long studied the Vatican, Francis acted decisively because he is the first Pope in the last thirty-five years to understand how important it is to achieve substantive reform. “Pope John Paul II didn’t touch the bank because it served his purpose of funding Solidarity from the Vatican. Pope Benedict did not touch it because he had no interest in controlling it. Pope Francis is different because he knows the damage that has been done to the credibility of the church by this very small bank and its history of scandals.”53

  In May, the German newspaper Bild reported that former Secretary of State Bertone was under criminal investigation for approving a $20 million Vatican loan to a friend’s television productio
n company—over the objection of ex-IOR chief Gotti Tedeschi. Bertone’s friend, an Opus Dei member, defaulted on the questionable loan.54 According to Bild, there were questions about whether the ninety-three-year-old head of the company that made religiously themed films had kicked some money back to the Secretary of State’s office. While reviewing records in 2013, outside auditors had discovered the loan and the IOR board subsequently had to write it off.55

  It was the type of unexpected story that in the past had presaged a new scandal that put the church on the defensive. But Francis did not allow the report to fester, instead dispatching his spokesman, Federico Lombardi, the very next day to unequivocally deny its veracity.56 And less than two weeks later, the Pope ensured that any lingering rumors of a Bertone probe were forgotten because of the dramatic announcement that the Pontiff had fired the entire five-man board of Brülhart’s AIF.57

  On a flight returning to Rome from Israel, Francis told reporters that he had made new appointments because “economic administration calls for honesty and transparency. . . . The key is trying to avoid that there are more [scandals].”58

  Brülhart had successfully persuaded the Pope to replace his five “old guard” directors with independent professionals who had qualifications similar to his own.59 And Brülhart got a new vice director, Tommaso di Ruzza, a respected jurist who had helped draft the Vatican’s anti-money-laundering statutes.60 The press coverage of the sacking and the new appointments was universally positive, casting the Pope as someone willing to make bold moves to clean up the financial morass he inherited.61

  Francis—who once said “Money is useful to carry out many things . . . but when your heart is attached to it, it destroys you”—put the final touches on his revolution in Vatican finances in July.62 He replaced Ernst von Freyburg, the IOR’s chief, with Jean-Baptiste de Franssu, the former CEO of Investco Europe and the founder of a firm that specialized in merger and acquisition consultations.63 Joining him on the board were new directors who had strong experience in private finance and Wall Street. Michael Hintze had worked at Salomon Brothers, then ran all UK trading at Goldman Sachs, before becoming the chief of convertible bonds in Europe for Credit Suisse, and finally opening his own hedge fund (CQS). Another new director was Clemens Boersig, a former chairman of Deutsche Bank. And for the first time, Francis tapped a woman to serve as a director, Mary Ann Glendon, a seventy-four-year-old Harvard law professor and ex–United States ambassador to the Vatican.64

  “Vatican Turns to Wall Street to Fix Bank” was the lead story on CNN.65 The IOR released its annual report for 2013 on the same day as the director shuffle. It provided further evidence that a complete shakeup of the old regime was furiously under way behind the walls of the city-state. About 3,500 IOR accounts had been closed during the previous year—some because they were dormant, others because they did not qualify in the first place.66 The private accounts held by Italy’s ultra-rich and politically well connected, the source of so much scandal that had plagued the bank for decades, were under assault by the reformers.

  And yet another significant restructuring was rolled out. The IOR’s investment work would be moved to a newly created division, Vatican Asset Management.67 Going forward, the Vatican Bank would primarily be a payment service and financial advisor for employees, Catholic charities, and religious orders.68 The revamped IOR would no longer be able to trade in property and stocks as it did in its heyday under Nogara and Marcinkus.

  Cardinal George Pell, the new über-cleric of the Vatican’s money, drove home the point at a press conference: “Our ambition is to become something of a model of financial management, rather than the cause for occasional scandal.”69 Pell told the Boston Globe, “The ambition is to be boringly successful, to get off the gossip pages. The aim is to become a model of good practice in financial administration. Along the way, we’re not going to generate any less revenue for the works of the Church.”70

  • • •

  In September 2013, the author met René Brülhart in the courtyard of a run-down Roman sixteenth-century palazzo that is now a hotel for pilgrims and visitors to nearby Vatican City. Over two hours, Brülhart provided an intensive and thorough insider’s view of the massive reforms that were then under way. The Vatican was unique, said Brülhart. As opposed to Liechtenstein, or work he had performed in his native Switzerland, the city-state was not a financial center. There was no commercial activity. He had all the power and latitude he needed, he assured me, to make certain the IOR was compliant and ready to be added to the white list. He thought that “most of the difficult steps are ahead” and estimated it would take three to five years “to fully implement.”71

  “I came here with no expectations,” he said. “But I can see at the end delivering a financial institution to the Holy See that is above reproach. It is certainly not simple to do, but it is achievable.”

  What if Marcinkus saw the bank as it operated today?

  “I don’t think he would recognize it. And that is a good thing.”

  * * *

  I. That same month, March, after Italian prosecutors cleared Gotti Tedeschi in their money laundering probe, the ex-IOR chief announced that he was considering suing the Vatican because of the damage to his reputation done by his dismissal. “They have to say they’re sorry,” Gotti Tedeschi told reporters, “and finally explain after two years why they did what they did. . . . They ruined my life. It’s a shame that it was the Italian magistrates who had to clear this up and not the Church.”28

  II. Two days after Xuereb’s appointment, Freyberg announced that deputy director Rolando Marranci, who had joined the IOR only in June, had been promoted to serve as the bank’s director general.39

  1. and 2. From the sixth century, much of the money to run the Catholic Church’s lavish Papal Court came from the sale of indulgences, promises that God would forgo earthly punishment for the buyer’s sins. By Gregory XVI’s papacy (1831–1846), overspending, abysmal management, and antiquated views about investments forced the Pope (left)—to borrow money from James de Rothschild (right), the patriarch of Europe’s preeminent Jewish banking dynasty.

  (3) For more than a thousand years, along with leading the church, Popes were monarchs of the Papal States, a temporal kingdom that at its height in the late eighteenth century included much of central Italy. A succession of Popes condemned the popular uprisings that toppled European monarchies as a destabilizing modernist movement. Here, two Italian nationalists are beheaded in Rome in 1868.

  (4) As the rebellion to unify Italy gained momentum, the Vatican paid for its own army—Zuavi Pontifici (Papal Infantry)—of mostly young, unmarried Catholic volunteers from many countries. However, when in 1870, nationalist troops massed outside Rome, Pius IX (1846–1878) realized his militia was outnumbered, and ordered the white flag raised over St. Peter’s Basilica. That surrender reduced the church’s 16,000-square-mile empire to a tiny parcel of land.

  (5) For Pius IX, the loss of the Papal States—the church’s earthly symbol of power—also deprived it of huge income. Pius, the first Pope to be photographed, declared himself a prisoner in the Vatican and steadfastly refused to recognize the new Italian state.

  (6) Pius X (1903–1914), the first modern Pope from a working-class family, was an ultraconservative who encouraged anonymous denunciations of so-called freethinkers and modernists. And while he condemned unrestrained capitalism and reinforced the church’s backward view of finances, he also spent liberally, doubling the size of Vatican City.

  (7) Bologna’s Cardinal Giacomo Paolo Giovanni Battista della Chiesa became Pope on Pius’s death in 1914. He took the Pontifical name Benedict XV (1914–1922). All countries rejected his efforts at peacemaking during World War I. By the time he died in 1922, the Vatican was reeling from a 40 percent loss of its capital caused by a series of bad investments.

  (8) The son of a Milanese factory worker, the hot-tempered Pius XI (1922–1939) ordered the Vatican’s first internal audit. It took six years to co
mplete and revealed that the church was down to its last dollars. Yet the Pope still refused to loosen the restrictions on commercial investments or to modernize its finances.

  (9) Benito Mussolini (center) led the radical right-wing National Fascist Party. Only eight months after Pius’s election, Mussolini led tens of thousands of fascists in a “March on Rome.” A week later he was sworn in as prime minister. His ascent seemed ominous for the church. An avowed atheist, he had once described priests “as black microbes who are as deadly to mankind as tuberculosis germs.”

  (10) Pius feared godless bolshevism more than Italy’s fascists. Eugenio Pacelli, the Papal Nuncio to Germany, reinforced the Pope’s fear. Pacelli, who descended from Catholic aristocrats, had faced off against an armed gang of communist revolutionaries in Munich in 1925. Although he escaped unhurt, the confrontation reaffirmed his belief that communism was the greatest threat to the church.