The Vatican's quest for financial transparency

The cardinals who elected Pope Francis gave him a mandate to reform Vatican finances, which had been the scene of obscure turf wars, accusations and scandals. This brought renewed focus to the work of René Brülhart, the president of the Vatican Financial Information Authority (AIF), a body established by Pope Benedict XVI to reform the Institute for Works of Religion (IOR), commonly referred to as the Vatican Bank. It is said that Pope Francis had considered closing the IOR but then decided it was needed, provided it was reformed.

Decades of acting as a financial haven for drug traffickers, tax evaders and the mafia threatened to shutter the bank for good, but for the past five years, Brülhart has been responsible for drawing the IOR out of its Dark Ages practices and into the transparent light of the 21st century.

Brülhart has been called the “James Bond of international finance.” The former Swiss banker has worked with governments and international bodies to fight money laundering and the funding of terrorism, and he helped locate the assets Saddam Hussein had squirreled away in Jordan in 2003.

In 2012 he was appointed as head of the AIF shortly after Pope Benedict XVI agreed to conform the Vatican to the Council of Europe’s standards of transparency. Pope Francis reinforced the autonomy and powers of AIF.

There was a crisis shortly after Brülhart’s arrival in Rome. At the peak of the tourist season, the Italian central bank, the Banca d’Italia, blocked all the Vatican’s credit-card machines, which were run by Deutsche Bank Italy. This was because the Italian authorities suspected the Vatican of financial irregularities. It was inconvenient for Vatican residents and tourists but also damaging for the Vatican’s reputation. What was predicted to be a blockage of a day or two lasted six weeks. Brülhart contributed to finding a solution by replacing Deutsche Bank with a Swiss institution that operates under an equivalent system pursuant to European Union regulations.

He believes the Vatican has a responsibility to Catholics to say what it is doing with money that is partly supplied by them. His background helped him connect the Vatican with the Egmont Group, a multinational financial information-sharing organization. In 2016 there were 837 international information exchanges. This input helps AIF to decide whether an operation is suspected of crimes such as money laundering, serious tax evasion, corruption or embezzlement.

Figures tell the story: In 2012 there were 12 exchanges of financial information with other institutions, but there were more than 1,500 exchanges by 2016. In 2011 and 2012, seven cases of suspicious activity had been spotted, whereas from 2013 until today there were more than a thousand.

In addition, more than 5,000 out of some 30,000 accounts have been closed. Some were dormant — the owners had died or could not be located — but others were suspect.

Our Sunday Visitor spoke with Brülhart about the Vatican Bank.

Our Sunday Visitor: There are accusations that Freemasons and mafiosi were able to use some accounts to launder money.

René Brülhart: Maybe you have more information about such things than me. ... With the introduction of the new legal framework to fight financial crimes, the IOR is a tighter operation now, and it has returned to its original aim of serving the Church globally.

OSV: Identifying suspect operations is important, but is there a follow-up, a prosecution of those which are illegal?

Brülhart: Those which AIF finds are dicey are sent to the Office of the Promoter of Justice, headed by Professor Gian Piero Milano.

OSV: How many cases have you sent to him?

Brülhart: In the last five years, AIF has forwarded 56 reports.

OSV: Have there been sentences, fines, seizure of illegal assets?

Brülhart: Several prosecutions have been initiated in the last few years, the most recent of them just a few days ago. However, you have to keep in mind that it is a new system, and it needs time.

OSV: Isn’t there a danger that AIF and the Secretariat for the Economy are duplicating each other’s work within the Vatican structure and are potentially in conflict?

Brülhart: No, the secretariat’s task is the economic control and vigilance over the dicasteries of the Roman Curia, but AIF supervises and regulates IOR.

OSV: IOR’s profits in 2016 were over 100 percent higher than the previous year — 36 million Euro against 16.1 million.

Brülhart: Financial aspects are one side of the coin and are subject to fluctuations, not least because of the financial markets.

For me, the most important thing at this stage is not the maximal annual returns but that a functional and sustainable system has been introduced and that IOR goes about its work in line with this system.

OSV: My understanding is that the Administration of the Patrimony of the Holy See handles mainly the real estate and investments from the compensation Italy paid the Vatican in 1929 for seizure of the papal states in 1870. IOR was founded during World War II to transfer money, mainly from religious orders, to missionaries who might not have received it because of difficult wartime circumstances. It is often called the Vatican Bank. Does the Vatican have a central bank?

Brülhart: I don’t use that term, as the Vatican does not issue its own currency and there is no financial center or real domestic economic market. You have to keep in mind the distinctive nature of Vatican finances. There are no commercial banking operations as such, no foreign banks in the Vatican, it has no stock exchange, no mortgage system or real loans, no insurance companies. The IOR is a financial system sui generis [“unique”]. One of the challenges is devising a regulatory system for a unique financial setup. APSA is a treasury-type institution while, as said, IOR is unique. Its task is to serve the Church globally.

OSV: Some in the Vatican say, yes, there were abuses in the past but applying international standards to a small-scale operation such as IOR has some unfortunate results. In the past, when asked by a religious order to send money to its members in a distant country, IOR simply told the Vatican nuncio on the spot to make the payment and paid the equivalent sum from the religious order into the nunciature’s account. Now the religious order has to pay costs to the international bank that handles the operation in the distant country. In other words, eventually less money gets to the missionaries.

Brülhart: It’s about finding a reasonable balance. The Vatican decided to conform to international standards — which are needed in a globalized world threatened by money laundering, criminals who are becoming ever more financially savvy and financing of terrorism — by introducing a tailor-made system to fight such crimes. The development in the last few years and the ongoing assessments since 2012 by the experts’ committee on the evaluation of anti-money-laundering measures and the financing of terrorism indicate that the Vatican is on the right path and has gained in credibility.

Like what you’re reading? Subscribe now in print or digital.

OSV: There has been a series of scandals, dismissals and resignations in the Vatican financial world that suggests some there have fought the reforms.

Brülhart: There is strong support for the work we are doing together in the Vatican. Changes inspire fear of losing what one already has, and you have to go about them with respect for the persons and institutions concerned. But when you do that, even those initially diffident can be persuaded.

OSV: So no more Vatican financial scandals?

Brülhart: I hope not, but one can never be sure. What I do know is that regulations and instruments to prevent them are now in place and being applied, making identification of potential vulnerabilities easier. Implementing a sustainable system is a process, but we are fully committed to it.

Desmond O’Grady writes from Rome.