VATICAN CITY (AP) — The Vatican on Thursday created a financial watchdog agency and issued new laws to fight money laundering and terrorist financing in a major effort to shed its image as a tax haven that for years has been mired in secrecy and scandal.
The decrees, which go into effect April 1, were passed as the Vatican’s own bank remains implicated in a money-laundering investigation that resulted in 23 million euros ($31 million) being seized and its top two officials placed under investigation.
The bank, formally known as the Institute for Religious Works, or IOR, is one of several Vatican offices that are covered by the new financial transparency rules. The Vatican city-state’s governing administration, the department that controls the pope’s vast real estate holdings and even the Holy See’s pharmacy, museum and TV station are covered as well.
The bank was created to manage assets placed in its care that are destined for religious works or works of charity. But it also manages ATMs inside Vatican City and the pension system for the Vatican’s thousands of employees.
The bank is not open to the public. Its list of account-holders is secret, but bank officials say there are some 40,000 to 45,000 among religious congregations, clergy, Vatican officials and lay people with Vatican connections.
Pope Benedict XVI, who wrote an entire encyclical on the need for greater morality in finance, said he was issuing the decrees because he wanted the Vatican to join other countries that have cracked down on legal loopholes that have allowed criminals to exploit the financial sector.
International financial organizations, which have been working with the Vatican to help it come into compliance with their norms, said Thursday it appeared the Holy See had taken a step in the right direction.
The decree creates an independent Vatican compliance agency, the Financial Information Authority, tasked with ensuring that all Vatican financial transactions comply with the new laws. The watchdog also will share information with international financial organizations, a big shift for the notoriously private Vatican financial system.
It can freeze suspect transactions for up to five days and can conduct investigations that, if warranted, can be passed onto prosecutors at the Vatican tribunal. Its work is conducted in secret — but the norms stress that secrecy won’t get in the way of cooperating with law enforcement agencies.
The legislation adopted alongside the new watchdog agency is remarkable reading, given that it concerns a city-state of 110 acres that is the seat of the Roman Catholic Church.
It’s now against the law in the Vatican to train anyone for terrorist acts or to provide them with chemical or bacteriological weapons. Punishment is stiff: five to 10 years in prison — in this case an Italian prison since the Vatican doesn’t have a jail.
People in the Vatican who traffic in human beings, for prostitution or other reasons, or who traffic in human organs, now face eight to 20 years behind bars. It’s now even a crime to pollute the Vatican’s soil, water or atmosphere; those guilty face up to a year in prison, or two and 52,000 euros ($69,044) in fines if the pollutants are particularly dangerous.
But it is the legislation directly concerning financial transparency that is key to the Vatican’s efforts to comply with international norms on money-laundering and terror financing and shed its reputation in the financial world as a secrecy-obsessed tax haven whose bank was implicated in one of Italy’s largest fraud cases.
The Vatican had pledged to pass such legislation by Friday, the last day of 2010, when it entered into a monetary agreement with the EU in December 2009 concerning the issuance of euros.
The effort, though, went into high gear following the money -aundering probe, which greatly embarrassed the Vatican and its bank chairman, economist Ettore Gotti Tedeschi.
Rome prosecutors on Sept. 21 seized 23 million euros ($30.54 million) and placed Mr. Gotti Tedeschi and his deputy under investigation, alleging the bank broke the law by trying to transfer money without identifying the sender or recipient. The two men have not been charged.
The Vatican has insisted the probe resulted from a “misunderstanding” that it hoped to clarify quickly. But Rome courts twice have refused to release the money, with a judge earlier this month saying that nothing had changed in the way the Vatican guards the identity of its clients.
Asked Thursday whether the bank now would identify its clients when it moves their money, the Rev. Federico Lombardi, the Vatican’s spokesman, said the question of the seized account was a very particular case.
“But I maintain that this law creates a situation in which the type of problems that were verified or unsuitable are unthinkable,” Father Lombardi said.
Mr. Gotti Tedeschi, who was named chairman of the bank last year, has said he has been working since then to get the Vatican to come into compliance with the norms of the Financial Action Task Force, the Paris-based policymaking body that helps develop anti-money laundering and anti-terror financing legislation.
The task force requires the Vatican to pass legislation making money-laundering a crime, to establish an entity to report suspicious transactions and then investigate them, and to pass legislation requiring that the bank identify its customers properly and make that information available to law enforcement agencies.
Rick McDonell, the task force’s executive secretary, said Thursday the agency hadn’t had time to study the Vatican norms in detail and in English.
“However on the strength of what has been released I can say it appears to be a significant step towards compliance with the global anti-money laundering standards,” he said in an e-mail to the Associated Press.
The norms also are designed to comply with EU norms on money-laundering and counterfeiting. Three of the four laws issued Thursday in fact concern the issuing of euro bank notes and coins to guard against counterfeiting and fraud.
Mr. Gotti Tedeschi also has said he wanted to get the Vatican on the Organization for Economic Cooperation and Development’s “white list” of countries that share tax information to crack down on tax havens.
To do so, though, often can take years as the Vatican must enter into tax information sharing agreements with at least 12 other countries after making a formal commitment to transparency.
Father Lombardi said the norms issued Thursday were a first step.
The Vatican bank was famously implicated in a scandal over the collapse of the Banco Ambrosiano in the 1980s in one of Italy’s largest fraud cases.
Roberto Calvi, the head of Banco Ambrosiano, was found hanging from Blackfriars Bridge in London in 1982 in circumstances that still remain mysterious.
London investigators first ruled that Calvi had committed suicide, but his family pressed for further investigation. Eventually, murder charges were filed against five defendants, including a major Mafia figure, and they were tried in Rome and acquitted in 2007.
Banco Ambrosiano collapsed following the disappearance of $1.3 billion in loans the bank had made to several dummy companies in Latin America. The Vatican had provided letters of credit for the loans.
While denying any wrongdoing, the Vatican bank agreed to pay $250 million to Ambrosiano’s creditors.
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