December 6, 2013 12:05 pm
The scandal at the Vatican bank
By Rachel Sanderson
An 11-month FT investigation reveals the extent of mismanagement at the €5bn-asset bank
©Reuters
On June 28 this year, Italian police arrested a silver-haired priest, Monsignor Nunzio Scarano, in Rome. The cleric, nicknamed Monsignor Cinquecento after the €500 bills he habitually carried around with him, was charged with fraud and corruption, together with a former secret service agent and a financial broker. All
three were suspected of attempting to smuggle €20m by private plane across the border from Switzerland.
Prosecutors alleged that the priest, a former banker, was using the Institute for Religious Works – the formal name for the Vatican’s bank – to move money for businessmen based in the Naples region, widely regarded in Italy as a haven of organised crime. Worse still, Scarano (who, together with the other men, has
denied any wrongdoing) had until only a month earlier been head of the accounting department at the Administration of the Patrimony of the Apostolic See, the treasury of the Vatican.
The arrest, and the headlines that screamed across the Italian press, was the latest shock for the Holy See. The year had already witnessed an emotional upheaval in the church with the resignation in February of the aged Pope Benedict XVI – the first time in 700 years a pope had stepped down voluntarily. But this new
crisis demanded cold, hard resolve. For regulators and politicians in Europe who had pushed for change in the Vatican’s scandal-plagued bank over the previous four years – from the Bank of Italy under Mario Draghi to officials in Mario Monti’s government and in Brussels – it served as evidence of their concerns.
Those worries also jolted a number of international financiers determined to press for reform.
In early July, Peter Sutherland, non-executive chairman of Goldman Sachs International and the former attorney-general of Ireland, flew into Vatican City. His mission – although described by some insiders as simply a “bit part” in the wider drive for change – was an illuminating one. Sutherland, a practising Catholic and an unpaid consultant to the Vatican’s treasury, had been asked by reformers in the church to speak with the council of cardinals, the most senior advisers to the pope. His message to the men who filed into a room near Doma Santa Marta, the plain-fronted residence of Pope Francis, was respectful but direct.
The banker, who declined to comment for this story, added his voice to the many in and outside the church asking the world’s smallest city-state to change its ways. “Transparency is important and necessary,” Sutherland said, according to two people who were informed of proceedings in the closed-door meeting.
The cardinals, known for long, contemplative consultations, were surprisingly receptive, said one of those informed. After a decade of paedophilia scandals, the allegations of financial impropriety seemed set to unleash another storm of criticism and had to be addressed. Outside auditors as well as financial risk
consultants were already coming into the Vatican but the arrest of Scarano made the case for reform unavoidable. “We cannot have any more scandal. It is so shameful,” a senior member of the Vatican’s financial administration said.
The Financial Times has investigated the extent of the mismanagement at the Vatican bank. In this audio slideshow, find out how the scandal erupted and what has been done to help strengthen the bank.
How God’s bank ended up as a financial penitent this year is a bracing chapter in the history of financial reforms that have swelled up in the aftermath of the 2008 credit crisis. Untouchable havens such as Switzerland and Liechtenstein were forced to open their chocolate-box palaces to the probes of international regulators. This year the power of the popes was challenged.
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