The
Vatican has until recently regarded its finances as so sensitive that its full accounts were known only to the pope and his closest aides. The Pope made a bold move, to have a detailed briefing with the princes or cardinals since before, it was only the pope that was allowed to know.This was the first time the Consistory of Cardinals had ever received such a detailed look at the books. Equally groundbreaking, the presenters included lay experts, not just clergy. And some of them spoke in English, the language of commerce, not in one of the Vatican’s two recognized tongues: Italian and Latin.
What’s more, the princely assemblage highlighted a more earthly side of Francis’s church reforms: risking a potentially crippling confrontation with the Roman Curia, the Holy See’s powerful governing bureaucracy, in order to attack waste, mismanagement, and corruption.
The Vatican bank or the Institute for Religious Works (IOR) value:
Aside from its priceless art collection, it controls less than $7 billion in assets—and that’s being generous in valuing its real estate portfolio.
Separately, the Vatican Bank, formally known as the
Institute for the Works of Religion, has less than $6.5 billion in assets, most belonging not to the Vatican itself but to Catholic dioceses, orders, and charities. Still, management of the Vatican’s finances matters because it reflects on the moral authority of the church.
Vatican Bank Scandals:
The Vatican Bank has seen enough scandal and intrigue to fill a bookshelf of Dan Brown novels. Pope Pius XII created it in 1942 on sovereign Holy See territory to circumvent a U.S.-enforced ban on wire transfers out of Axis nations, including Italy. The bank doesn’t make loans, but it does take deposits, offer asset management services, and process wire transfers. Only the Holy See and Catholic organizations, charities, clergy, and Vatican City employees are supposed to have accounts there. And yet for decades, the institution, opaque and unregulated, functioned as an offshore bank in the heart of Rome, much to the vexation of European regulators and police, whose jurisdiction stopped at the Vatican’s walls.
The most infamous of the bank’s scandals involved the mysterious 1982 death of Roberto Calvi, who was found hanged beneath London’s Blackfriars Bridge, his clothes stuffed with bricks. Calvi was chairman of Milan’s Banco Ambrosiano, which collapsed that year. The Vatican Bank, which was Ambrosiano’s largest shareholder and had vouched for many of Calvi’s suspect investments, ended up paying out $244 million to settle claims from Ambrosiano’s creditors.
It didn’t take long for the pope to be handed a mini-Calvi moment of his own. On June 28, Italian authorities arrested a priest, a suspended member of Italy’s secret service, and a stockbroker; prosecutors allege the men had attempted to smuggle €20 million ($21 million) in undeclared cash into Italy from Switzerland aboard a private plane. The priest was Monsignor Nunzio Scarano, formerly the chief accountant for the department that manages the Vatican’s real estate and investment portfolios.
Pope Francis' Reforms:
Francis’s first move was to summon to Rome six Davos-caliber lay Catholics, including Zahra, a former chairman of Malta’s Bank of Valletta and director of the island nation’s central bank, who chaired the group; George Yeo, Singapore’s former finance minister; Jochen Messemer, chairman of insurer Ergo; and Jean-Baptiste de Franssu, the former head of asset manager Invesco’s European business.
The pontiff charged the group with figuring out how to make the Vatican’s financial operations transparent and accountable. This was to make sure that the values of the church were actually moving the administration and the finances of the Holy See.
The pope announced the first major changes in the structure of the Curia since Paul VI’s papacy 50 years earlier. He established a new Secretariat for the Economy—essentially a Vatican finance ministry—and a 15-member Council for the Economy to advise him on policy. The council is headed by a cardinal but includes seven lay members with voting power
For the first time, nonclergy are more than mere advisers.
To head the new secretariat, Francis appointed Australian Cardinal George Pell. A blunt-talking former rugby player, Pell, 73, has a reputation as a tough administrator and one of the College of Cardinals’ loudest advocates for financial reform.
Pell announced a flurry of changes. He required all Vatican departments to use international accounting standards and to submit detailed annual budgets and quarterly reports. (In the past, there were no standard accounting procedures, and budgets were sketchy summaries of total spending.) His secretariat would take control of the Vatican’s real estate portfolio. He wanted English to become the official language of his ministry. He would report only to the pope.
The Vatican Bank itself was fortunate to survive Francis’s financial housecleaning. The pope at one point considered simply closing it.
“St. Peter didn’t have a bank account,” Francis said during a mass on June 11, 2013. But the reform efforts of Ernst von Freyberg, the aristocratic German financier who assumed the bank presidency in the waning days of Benedict’s papacy, convinced Francis the institution still serves a vital purpose: It helps poor dioceses, especially in Africa and Asia, safeguard their limited funds, and it enables charities to transfer money to the needy in remote or war-torn places, such as Syria. In addition, the Holy See is dependent on the bank’s profits. Without income from the bank, the state would operate in the red.
Secrecy was the bank’s original sin, and von Freyberg set about atoning for it.
The bank, which previously hadn’t even listed its phone number in the Vatican directory,
launched a website. In October 2013, it published its first-ever
annual report. In his transparency drive, von Freyberg has a formidable ally in René Bruelhart, who was hired in late 2012 to head the Vatican’s newly created regulator, the Financial Intelligence Authority.
To that end, the
Vatican Bank has closed hundreds of dodgy accounts.
Promontory Financial Group, a compliance consulting firm in Washington, helped the bank strengthen its know-your-customer requirements and install software to hunt for suspicious transactions. Before Bruelhart arrived, the financial intelligence unit had only ever examined one such transaction. By the end of 2013, the number was 202.
Having spared the Vatican Bank, Francis has big plans for it. In July 2014, he replaced von Freyberg—who stepped down to run his family’s shipping and engineering business—with the Zahra commission’s de Franssu. The Frenchman’s asset management experience was a key factor in his appointment, Zahra says.
The pope wants to create a hub for
Catholic investing. Francis’s vision is of a bank offering Catholic institutions attractive, socially responsible returns.
