How much progress is the Vatican financial watchdog making?
The ASIF gave itself good grades in its annual report this week. But how much has it really achieved?
The Vatican’s financial watchdog published its annual report May 10, touting increased international cooperation and the implementation of new regulatory laws issued by Pope Francis.
But given that ASIF’s two former leaders are currently on trial for financial crimes in Vatican City, how much progress has the watchdog really made?
—
While opening with a standard acknowledgement of the global financial pressures caused by the coronavirus pandemic, and the risks posed by the war in Ukraine, ASIF president Carmello Barbagallo sounded a broadly bullish note introducing the 2022 report.
“Expenditure mechanisms have been improved and controlling bodies strengthened,” Barbagallo wrote. “Through specific initiatives and training, knowledge of possible external threats and related procedural and organizational safeguards is increasingly spreading.”
“Thanks also to the implementation of the recommendations received from Moneyval two years ago, the residual vulnerabilities found are being remedied,” the president said.
Tightened expenditure mechanisms for Vatican bodies is, indeed, an important reform, often attempted in the Holy See, but frequently fought off by curial departments, and was part of the reason for Pope Francis’ decision to create a new central registry of funds, foundations, and other financial vehicles associated with Vatican departments in December last year.
The report makes clear that implementation of the new registry and accompanying norms, which came into force in January, were the result of considerable preparatory work throughout 2022.
As a focus for the ASIF in working to stamp out corruption, implementation of the registry would seem to be a top priority for 2023, and its preparation an important focus for the year covered by this week’s report.
But an interesting omission from Barbagallo’s introduction, and from the report itself, is specific mention of internal financial corruption in the Vatican.
That omission is even more curious, given that the ASIF president specifically boasted of the “implementation of the recommendations received from Moneyval two years ago” and the “residual vulnerabilities found” by onsite inspection conducted by the Council of Europe’s financial watchdog.
While the ASIF’s chief mission is usually framed as combating international money laundering and terrorist financing, Moneyval issued a broadly favorable verdict on that work in its own report in 2021.
But the same report also warned about the general culture among curial officials, which it concluded carried a real risk of “fraud, misappropriation, giving and receiving bribes, and abuse of office.”
If ASIF is working to combat that climate, it was not specifically mentioned in the report this week, which will strike many observers as a missed opportunity given the ongoing credibility problem the agency has.
—
Looming over the ASIF remains the figures of its former president and director, both of whom are on trial in Vatican City for crimes of abuse of office related to the now-infamous London property deal.
While coverage of the trial has largely — and understandably — centered on the alleged financial crimes of various officials working at and with the Vatican’s Secretariat of State, a less well understood axis of the case concerns ASIF and the IOR, the Vatican City commercial bank.
It was the IOR president, Jean-Baptiste De Franssu, and director Gianfranco Mammi, who flagged the London deal as suspicious in the first place, triggering the investigation which led to the current financial crimes trial.
In the process, the trial has heard, the men were subjected to coercion, threats, and retaliatory actions by senior Secretariat of State officials.
While that is bad enough, De Franssu has also testified that ASIF’s then-top brass — René Brülhart, who served as president of ASIF until November 2019, and the agency’s former director Tomasso Di Ruzza — both pressured him to approve a 150 million euro loan to refinance the London deal, and offered him “protection” when he pointed out doing so would violate Vatican financial laws.
It has separately emerged that Brülhart had a side contract with the Secretariat of State as an investment advisor, meaning he was tied to financial deals his department was meant to exercise vigilance over.
While it wouldn’t be appropriate for the ASIF annual report to specifically address an ongoing criminal trial, the failure of the report to acknowledge institutional corruption in curial agencies as a major risk to be mitigated will strike many observers as a glaring omission.
—
The unspoken tension created by the trial of ASIF’s former leadership will also, for many, color the annual report’s bullish presentation of progress in increasing regulatory compliance and combating financial crime.
The report notes ASIF’s “prudential supervision” in “regularly [carrying] out the verification activities of the relevant profiles for the purposes of the prudent, sound and sustainable management of the IOR.”
“In particular, it constantly monitored, both on-site and off-site, the implementation of the Plan of Remedy that the [IOR] prepared following the broad-spectrum General Inspection conducted by ASIF in 2020.”
While ASIF has a wider watching brief for anti-money laundering work in and through Vatican bodies, the only financial institution under its direct supervision remains the IOR, which, despite the scandals around ASIF, is broadly seen as the most credible actor in the fight against corruption.
Many at the IOR will perhaps savor the irony of the ASIF boasting of its close monitoring of the bank’s work to implement further internal reforms — reforms the bank determined for itself — while there is no similar oversight mechanism to inspect ASIF’s work.
The emergence of the IOR as the real driving force for reform, and center of financial credibility in the Vatican has been repeatedly underscored by Pope Francis who, last year, quietly reversed a key provision of his new curial constitution Praedicate Evangelium.
In August last year, Francis issued a rescript to the constitution’s provisions, stripping APSA, the Holy See’s sovereign wealth manager and paymaster department, of its custody of Vatican departmental funds and investments. Instead, the pope ordered all curial departments to move their account balances from all banks, foreign and domestic, to the IOR.
Earlier this year, Francis also renewed the status of the bank to, he said, “make it consistent with the most modern organizational needs, as well as with the operational needs that arise on a daily basis.”
The ASIF annual report, on the other hand, gives a long and detailed description its relationship to the IOR, setting up an unusually lopsided institutional relationship in which the regulator is closely yoked to the bank but the bank doesn’t appear to recognize ASIF at all as part of its constitutive law.
—
Perhaps the most objective metric by which the ASIF’s progress could be assessed is the number of suspicious financial activity it has flagged to prosecutors, and how well it is working to chase suspicious transactions into other jurisdictions.
By that measure, the ASIF reported this week a record likely to impress most observers.
According to the report, in 2022 the agency received 128 reports of suspicious activity, and ended up passing on 19 reports of its own to the Vatican City’s Office of the Promoter of Justice. Year on year, those figures have been trending up since 2020.
Unpacking those numbers, it is clear that the IOR remains the chief body detecting suspicious activity — 124 of the 128 ASIF reports were flagged by the bank itself.
But perhaps more interesting is the origin of the other four flagged transactions, of which two came from “Vatican authorities” and one from a “non-profit organization.” As the new central financial registry, created by Pope Francis in December last year and being overseen by ASIF, begins to take effect, the number of reports coming from other bodies than the IOR will be a likely indicator of how successfully the new registry is being inspected.
Looking at ASIF’s own activity, of the 19 reports handed off to Vatican prosecutors for possible criminal investigation, only seven were first-time referrals; the other 12 reports were supplementary reports on previously flagged activity.
The relatively high number of follow-up reports to prosecutors does suggest real progress in ASIF’s ability to cooperate and investigate internationally. The secondary files sent to prosecutors are, the annual report says, mostly the results of requests for help to financial authorities in other jurisdictions — with 30 such requests going out last year, broadly in line with the year before.
That ASIF appears to be working well with its international counterparts is, for the agency’s credibility, good in itself. And if that work is proving practical, allowing the agency to track suspicious activity starting in the Vatican across borders, it will be taken as evidence that the watchdog is being proactive in its work, and not just shuffling paper from the IOR to the POJ’s office.
But, longer term, the real test of ASIF’s effectiveness will be in the number of prosecutions and convictions which result from its work. In its last report on the Vatican’s financial health, Moneyval Moneyval highlighted the “under-resourcing on both prosecutorial and law enforcement sides, and insufficient specialization of financial investigators until comparatively recently.”
Vatican efforts to bring financial crimes to trial and secure convictions have been “modest,” Moneyval concluded.
Annual reports to one side, the real test for ASIF is for it to become better known for supplying Vatican prosecutors with prosecutable evidence, not defendants, in court.
Godspeed & happy hunting to everyone trying to root out all the Judases in the Vatican (reminding ourselves that Judas Iscariot, before he was a traitor, was a thief, stealing from the collection).