What can the Vatican expect on its Moneyval report card?

Analysis

This week, Moneyval, the Council of Europe’s anti-money laundering watchdog, is expected to publish a report on the Holy See, assessing nearly a decade of efforts by the Holy See to combat financial crime. At stake is the Vatican’s credibility on the global financial stage, and its place on the international “white list” of financial jurisdictions, essential for its daily economic operations.

While the ongoing Vatican financial scandal is a source of serious concern for many Vatican watchers - and officials - there is reason to expect this week’s report will not be all bad news.

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Moneyval conducted a two-week onsite inspection of Vatican financial institutions last year, wrapping up in October. The visit was the first time inspectors had visited the city state since 2012. This week, the organization is expected to issue a new evaluation report based upon its 2020 inspection, which will assess the Apostolic See’s progress on the issues flagged in previous Moneyval reports.

The forthcoming report will be released as allegations of corruption, money laundering, and other forms of financial malfeasance are investigated by Vatican City authorities. 

While that investigation has led to charges announced against some business associates of the Holy See, the suspension of several officials, and the resignation of a senior Vatican cardinal, it has not yet led to Vatican trials for those involved. 

But, while many might expect a stinging review from Moneyval, this week’s report is likely to offer a mixed assessment, and may even be broadly favorable. 

Here’s why:

The IOR

The Institute for Works of Religion is a (not “the”) Vatican bank which acts in many respects like any other commercial deposit bank. It holds accounts for religious orders and institutions spread across the globe, often in places where the local banking system might not be trustworthy, and offers checking and savings accounts for Vatican City residents and curial officials. 

Because the IOR is in Vatican City, its accounts are not subject to taxation and other regulations imposed by other countries, making it a target for abuse by money launderers.

The IOR is the only financial institution in Vatican City which falls directly under Moneyval’s purview, so its operation will likely shape much of Moneyval’s conclusions. 

Famously at the center of the 1980s “God’s Banker” scandal, and for decades linked to accusations of money laundering and financial abuse, the IOR has worked to clean up its act in recent years, and is now the point of origin for most of the current financial investigations underway in the Vatican.

Since 2012, Moneyval has emphasized the need for Vatican authorities to prosecute and convict financial criminals once they have been detected. And efforts to clean up the IOR yielded the Vatican’s most high-profile conviction to-date for financial crimes, when, earlier this year, the former president of the IOR became the first person to be handed a jail sentence by a Vatican City court for financial crimes.

Since the 2014 appointment of a new president, Jean-Baptiste de Franssu, the IOR has been the subject of several financial reforming efforts, with hundreds of accounts closed and charges filed against former officials at the bank. 

It was also the IOR, under de Franssu, which lodged a complaint with Vatican financial watchdogs in 2019 over a request for a loan from the Secretariat of State in relation to the London property deal. That complaint, which included efforts by Secretary of State Cardinal Pietro Parolin to pressure de Franssu into approving the 150 million euro loan, triggered the current sprawling investigation into Vatican finances.

While there has been no resolution to that case as yet, the fact that the IOR was able to rebuff the secretariat’s pressure and work with internal financial authorities to flag suspicious behavior will likely reassure Moneyval that the system is working.

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Changes at the top

As the Vatican’s investigation into the financial dealings of its most powerful department continue, Pope Francis has taken further steps to increase the independence and transparency of curial finances.

Previously, the Secretary of State - Cardinal Parolin - either chaired or had a seat on the boards of financial institutions like the IOR. Francis has removed the Secretary from those roles. The pope has also acted to strip the secretariat of its investment portfolio and control of bank accounts managing charitable donations to the Holy See and the pope’s personal discretionary funds.

The secretariat’s previous independence in financial matters has now been cancelled, control of its assets transferred to APSA, and its budget placed under the supervision of the Secretariat for the Economy, and its sensitive diplomatic expenditures put under the oversight of a specially created committee.

Moneyval is also likely to have noticed the dramatic sacking of Cardinal Angelo Becciu just days before its inspectors arrived last year. Becciu was forced to resign by the pope after investigators reportedly presented Francis with a dossier of evidence of financial misconduct by the cardinal. 

While that evidence has yet to lead to formal charges against the cardinal, still less a court case, Becciu’s forced resignation of the rights of a cardinal (which include the right to be judged by the pope alone) could be seen as a necessary first step in allowing an eventual Vatican City prosecution to proceed against him.

The chances of such a case moving to court, either against Becciu or others, were given a further boost in February, when the pope amended the Vatican City penal code to make trying financial crimes easier. 

Such ongoing legal reform is likely to be noted by Moneyval inspectors, even if it came after their on-site visit.

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International cooperation

In their 2017 progress report, Moneyval noted that “the authorities need to satisfy themselves that the [Vatican] Gendarmerie and the Promoter [of Justice]’s office have the capacity to conduct proactive financial investigations thoroughly and expeditiously, and to follow up investigations where necessary with clear requests for mutual legal assistance.”

As the current investigation into Vatican financial dealings unfolds, there remain serious questions about the ability of its prosecutors to mount a convincing case in court. 

In the first few months of 2021, Vatican prosecutors have had to withdraw an extradition request to an Italian court for the self-described Vatican spy, Cecilia Marogna, who has been charged by the Vatican with embezzlement and money laundering.

In March, a UK judge lifted a court order freezing assets belonging to Gianluigi Torzi, the businessman at the center of the London property scandal. That court order was brought in late last year at the request of Vatican prosecutors. 

Overturning the asset freeze, Judge Tony Baumgartner was scathing in his assessment of the Vatican case, and more than once noted that prosecutors appeared to be fighting with one hand tied behind their backs, perhaps looking to spare the Secretariat of State from further scandal and embarrassment.

But while both of these reversals are likely to mark down Moneyval’s assessment of Vatican City prosecutors, they are unlikely to prompt a failing grade — especially when it comes to working with international authorities on complicated cases.

While Marogna may or may not show up for her eventual day in Vatican court, authorities in Slovenia have opened a money laundering investigation into her company Logisic, which is registered in that country and through which she took hundreds of thousands of euros in payments from the Secretariat of State.  

And, while the UK asset freeze may have ended in embarrassment, earlier this month Vatican prosecutors working with Italian counterparts managed to persuade an Italian judge to issue an arrest warrant for Torzi on charges of money laundering and tax evasion.

They have also managed to secure the freezing of multiple bank accounts in Switzerland reportedly belonging to businessmen involved in the wider financial scandal.

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On the other hand

While there might be reason to expect some cautious praise from Moneyval’s upcoming report, that does not mean there will not be serious points of concern.

While the IOR might expect a reasonably clean bill of health, it is not without ongoing issues. 

In April last year, a Maltese court authorized the seizure of almost 30 million in IOR assets in response to the bank trying to renege on investments with two locally registered investment companies in conjunction with a Luxembourg real estate fund.

Like everything touching Vatican finances, the deal is complicated and is part of an overlapping set of lawsuits. The IOR tried to get itself out of its investment deal beginning in 2013, and the investment plan, linked to a building development in Budapest, has drawn comparisons with the London property deal. But, while the bank’s leadership maintains its investment board was misled about the terms of the deal, the companies involved have argued that it is a binding agreement.

APSA

Apart from the IOR, Moneyval inspectors may also want to rethink the status of APSA, the Vatican’s central bank and sovereign wealth fund. 

Following the recommendations of Moneyval’s 2012 inspection, APSA agreed to stop performing certain commercial activities, like granting loans for for-profit ventures. As a result of that undertaking, in 2015 APSA was exempted from the oversight of both Moneyval and the ASIF, the Vatican’s own financial watchdog. 

The ASIF’s 2015 annual report concluded that since APSA is no longer an “entity that carries out financial activities on a professional basis,” it “stopped being a part of AIF’s jurisdiction at the end of 2015.”

But that same year the Secretariat of State, through the personal intervention of Cardinal Parolin, pressured APSA into approving a 50 million euro loan to fund the secretariat’s stake in a for-profit venture to purchase a Catholic hospital which went bankrupt with debts of hundreds of millions of euros due to corruption, embezzlement and money laundering.

While Parolin admitted his role in the affair, he has insisted the loan was secured with “fair intentions and honest means,” and there has been no official response to the apparent violation of Vatican financial regulations or the agreement with Moneyval.