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Sicily probe adds to Vatican bank pressure

November 3, 2010

By Guy Dinmore in Rome, Published: November 3 2010

An investigation in Sicily into suspected fraud and money laundering involving a Roman Catholic priest and possibly the mafia has highlighted mounting pressure on the Vatican to bring its sometimes secretive banking operations in line with international standards.

Police made six arrests last week in connection with Father Orazio Bonaccorsi allegedly using an account in the name of the Vatican bank to help his father launder €250,000 ($350,000) he had obtained from European Union funding for an allegedly non-existent fish farm project.

After passing through the account as a “charity” donation in 2006, the money allegedly returned to Sicily to be withdrawn by an uncle previously convicted for mafia association.

Asked for his reaction, Ettore Gotti Tedeschi, head of the Institute of Religious Works (IOR), as the Vatican bank is formally known, replied: “No comment. The fact regards the past. It could not happen anymore.”

Mr Gotti Tedeschi, who also lectures in ethics in finance, was appointed by Pope Benedict XVI last year with a mandate to draw a line under IOR’s sometimes murky past through greater transparency and by adopting international norms.

Italian officials credit Mr Gotti Tedeschi with moving in the right direction but the scale of his task was underlined in September when a separate investigation in Rome resulted in the freezing of €23m held by IOR in a Rome branch of Credito Artigiano, an Italian bank.

IOR was accused of violating Italian anti-money laundering regulations in attempting to make two transfers without providing adequate details of the intended beneficiaries or reasons for the transfers. The Vatican said there had been a “misunderstanding” with Credito Artigiano.

Officials, who asked not to be named, said Rome investigators backed by the Bank of Italy had since widened their probe to examine two IOR withdrawals totalling €900,000 from accounts it held at Intesa Sanpaolo and UniCredit, Italy’s largest banks.

Intesa and UniCredit declined to comment on an ongoing investigation.

Italian officials are hopeful that the investigations and pressure from Mario Draghi, governor of Italy’s central bank, will assist rather than derail Mr Gotti Tedeschi’s efforts to propel the Vatican into the modern age.

Officials note a recent exchange of letters between Mr Gotti Tedeschi and the Paris-based Financial Action Task Force in which the Vatican bank committed itself to adopt anti-money laundering standards set by the FATF.

This lengthy process would involve the Vatican passing anti-money laundering legislation and setting up the equivalent of the Bank of Italy’s Financial Intelligence Unit to monitor IOR’s activities.

Separately, a spokesman for Olli Rehn, EU Monetary Affairs commissioner, told Bloomberg News agency that the Vatican had expressed its commitment to implement EU laws against money laundering and financial fraud this year. The pope is expected to appoint Cardinal Attilio Nicora to act as the equivalent of a central banker with a regulatory role over IOR.

“IOR cannot work like this anymore,” an Italian official said. “People have used IOR as a screen,” he added. “What is behind the screen? That is the mechanism we are trying to dismantle,” he told the Financial Times.

A second official cited the Sicilian case as an example of how Italian authorities were concerned about the possible abuse of IOR accounts held in Italian banks to disguise the trail of money transfers. The Bank of Italy, which was involved in helping the Sicilian investigation, issued two memos to Italian banks this year, reminding them to implement anti-money laundering legislation in carrying out operations for IOR.

The issue is highly sensitive for the Vatican following IOR’s entanglement in the fraudulent collapse of Banco Ambrosiano in the 1980s – which resulted in the death of its former chairman, Roberto Calvi, who was found hanging from London’s Blackfriars Bridge – and the Enimont corruption trials involving payments to Italian officials a decade later.

IOR does not publish its accounts but is reported to hold €5bn in assets. It provides banking operations for Vatican staff, charitable operations and missions worldwide. It also serves an unknown number of private Italian account holders who use the Vatican as a tax haven – a separate issue that the Vatican is tackling with the Organisation for Economic Co-operation and Development.

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