2019-10-12_The_Economist_

78 Finance & economics The EconomistOctober 12th 2019

T

he blockof shops, offices and apart-

ments at 60 Sloane Avenue was once a

warehouse for Harrods of London. Now it

is the focal point of the latest financial

scandal to rock the Vatican—potentially

the worst since Archbishop Paul Marcin-

kus, whose buccaneering presidency of the

Vatican Bank in the 1970s and 1980s led it to

deal with Masons and mobsters. At stake

now, as then, is not just the probity of an in-

dividual, but the trustworthiness of the

Holy See’s system of financial governance.

On October 1st the Vatican’s gendarmes,

on orders from its prosecutors, raided the

offices of the Financial Information Au-

thority (aif), the banking regulator, and

the Secretariat of State, which combines

the roles of prime minister’s office and for-

eign ministry in the Vatican administra-

tion. They were looking for “documents

and electronic devices”, the Vatican said. A

leaked circular to the Swiss Guards, who

control access to the walled city, showed

that among the five officials suspended

pending the outcome of the investigation

was the aif’s director, Tommaso Di Ruzza.

“It’s a nightmare,” says a senior Vatican

official. “It risks undoing everything we

have achieved in the past eight years.” In

2011 the Vatican agreed to inspection of its

financial sector by Moneyval, Europe’s

anti-money-laundering and anti-terrorist-

financing watchdog. It has since created an

institutional framework similar to those of

more conventional states. Dodgy accounts

have been closed at the Vatican Bank (prop-

erly known as the Institute for the Works of

Religion, or ior). On the day of the raids the

ior passed the latest milestone on its road

to respectability when it began using the

money-transfer services of the Single Euro

Payments Area.

But the ior’s employees are not the only

ones handling money in the Vatican. The

Administration of the Patrimony of the Ap-

ostolic See (apsa) acts as the sovereign-

wealth fund of the Holy See, the central ad-

ministration of the Catholic church. The

government of the Vatican City State earns

revenue from the lucrative Vatican muse-

ums. And several of the Holy See’s minis-

tries, known as dicasteries, manage pots of

money without oversight by the aif.

In 2014 Pope Francis created a Secretari-

at for the Economy to oversee all the finan-

cial activities of the Holy See and the Vati-

can City State. Its first boss, Cardinal

George Pell, who is appealing against a con-

victionforchildabusein Australia, said

that after he took over he discovered “hun-

dreds of millions of euros” that did not ap-

pear on the balance-sheet. Some in the Vat-

ican, where conspiracy theories flourish,

believe he would not be in jail had he not

tried to seize control of those funds.

Also notionally under the new body’s

remit is the Secretariat of State, which re-

portedly manages around €800m ($880m).

It controls the contributions of the faithful

to the papacy—charmingly, if modestly,

known as Peter’s Pence (St Peter being the

apostle chosen by Jesus to lead his church).

It is also said to control a pot of cash known

as the Paul VI Fund, and assets transferred

to the Vatican from the Papal State when it

was dismembered in the 19th century.

L’Espresso, a news magazine, reported

that in 2011, under Pope Benedict, the Sec-

retariat of State sank almost €200m in a

fund registered in Luxembourg. Among its

investments was a 45% stake in a London

property. A Vatican official identifies it as

the converted Harrods depository. The

building’s managers did not respond to a

request for confirmation.

A Vatican source says that the prosecu-

tors’ investigation centred on a chain of

transactions to extract the Secretariat of

State from the fund and give it full owner-

ship of the London property, once more

acting through an intermediary. According

to this account, the Secretariat sought a

loan from the iorto pay off a mortgage on

the property. But the ior refused to get in-

volved, even though the overall operation

had been remodelled at the behest of the

aif to ensure compliance. In an otherwise-

vague statement, the Vatican said the in-

vestigation was launched on the basis of

reports from the ior and the office of the

Vatican’s auditor-general, which is also the

Holy See’s anti-corruption authority.

Why these apparently routine transac-

tions raised such concerns is unclear. Oth-

er questions include why the Secretariat of

State should twice have made investments

in such a roundabout way, especially since

it could have benefited from sovereign tax

exemptions; why the Vatican Bank and the

auditor-general’s office went to the prose-

cutors instead of reporting to the aif; and

why the prosecutors felt the need to in-

volve Mr Di Ruzza since the search warrant

accuses him of nothing specific, merely

stating that the role of the aif in the affair

was unclear. Noting that the warrant was

not signed by the prosecutor hired by the

Vatican to investigate financial offences,

Andrea Gagliarducci, Vatican analyst at the

Catholic News Agency, ventures another

question: “Did the green light for the inves-

tigation come directly from the pope?”

Among all the questions one thing is

clear: the job of keeping the Vatican and its

officials out of financial mischief is far

from over. That has implications beyond

the city-state: the Vatican’s secretive cul-

ture and sovereign privileges make it ideal

for dubious transactions. Yet responsibil-

ity for overseeing its sprawling financial

sector is divided between departments

whose competences overlap and conflict.

Ecclesiastical investments

The Secretariat for the Economy was meant

to bring most of it under a single authority.

Yet it has never been incorporated into the

Vatican constitution. “It exists, yet does

not exist,” says Mr Gagliarducci. Currently,

it has only an acting head. The same is true

of the auditor-general’s office. The original

appointee, Libero Milone, resigned in 2017.

He later claimed he was threatened with ar-

rest on “prefabricated charges” if he re-

fused to go. “Evidently, they didn’t want me

to report some things I’d seen,” he said.

It is into this murky scene that the Vati-

can’s latest external hire is due to step. On

October 3rd Pope Francis named a retired

anti-Mafia prosecutor, Giuseppe Pigna-

tone, as president of the Vatican court. One

of his first trials will be that of the former

ior president, Angelo Caloia, who is ac-

cused of skimming tens of millions of eu-

ros from property deals. Mr Pignatone is

best known for his role in busting an or-

ganised-crime network in Rome. He says

that he is looking forward to a “new and ex-

traordinary experience”. 7

VATICAN CITY

Raids and arrests cast doubt on the Holy See’s efforts to clean up its finances

The Vatican’s finances

Divine speculation

Holy See, unholy mess