Vatican reforms at a crossroad, Part I: the financial scandals

By Phil Lawler ( bio - articles - email ) | Apr 26, 2021

More than eight years have passed (2,966 days, to be exact) since Pope Francis was elected to Peter’s throne, with a clear mandate from the College of Cardinals to reform the Roman Curia and clean up the Vatican’s financial scandals.

More than eight years have passed (2,932 days) since the Pope formed the Council of Cardinals, to advise him on the process of curial reform. That Council has now held 33 meetings, but the long-awaited document that will reorganize the offices of the Vatican—which was supposedly in final form last June, given a title (Praedicate Evangelium), signed by the Pontiff, waiting only for official translations—has not yet appeared.

So as this pontificate approaches the 3,000-day threshold, we still have no clear frame of reference for judging the reforms that Pope Francis has undertaken. But this week we will have at least one interesting appraisal, coming not from either the Pope’s supporters or his critics within the Church, but from disinterested outside experts. If you find the subject interesting, and can tolerate a bit of “inside ball,” bear with me while I explain.

This week the “Moneyval” committee—the group that monitors banking and financial security for the Council of Europe—will deliver a report on the Vatican’s progress toward financial accountability. The Moneyval report, which will probably come late in the week, will grade the Vatican’s success in eliminating the dangers of money-laundering.

In the not-too-distant past, you will recall, international banking regulators regarded the Vatican as a haven for financial manipulators, and major financial institutions began to cut off ties with the Vatican. A series of reforms, begun under Pope Benedict XVI and expanded under Pope Francis, have gradually repaired the credibility of the Vatican’s financial institutions. Moneyval has given the Vatican high grades for its new regulations.

However, in its most recent reports, Moneyval has suggested that the Vatican must take one more important step to inspire confidence among international bankers. It isn’t enough simply to have rules, Moneyval advised the Vatican; regulators are looking for assurance that people who break those rules will be prosecuted. In the past few years the Vatican has compiled a good record for detecting suspicious financial transactions, but not such a good record—in fact, virtually no record at all—for convicting the perpetrators.

So Moneyval will, in all likelihood, take a careful look at the cases that Vatican prosecutors have brought most recently for financial irregularities. And frankly, that record is not encouraging.

The Pillar site, which has provided consistently sound and understandable analysis of the Vatican’s financial scandals, recently offered a rundown of where things stand in the most complicated and far-reaching case, which involves a London real-estate deal. This is the case that prompted Vatican police officials to raid the offices of both the Secretariat of State and the Financial Information Authority (AIF) back in October 2019. Vatican officials have been extremely tight-lipped about the case, but the Pillar analysis shows:

• Gianluigi Torzi, a central figure in the deal, has a record of questionable financial dealings; he currently faces criminal probes in Italy and fraud suits in the United Kingdom. The Vatican has charged him with fraud, but…
• … a British judge ruled that the Vatican’s case against Torzi—at least the portion of that case presented to the UK courts—was marred by “non-disclosures and misrepresentations so appalling” that he lifted a freeze on Torzi’s UK assets.
• Moreover, while the Vatican prosecutors say that Torzi acted illegally when he invested the Vatican’s money, the Italian financier showed the UK court documentary evidence that the Vatican Secretariat of State had authorized his actions.
• Cardinal Pietro Parolin, the Secretary of State, reportedly knew (or should have known) of Torzi’s transactions, and later pressed other Vatican institutions to rescue the troubled real-estate deal and/or cover its tracks. The cardinal himself has been named as a party to a lawsuit over the London deal.
• Still more recently an Italian court, in ordering Torzi’s arrest, ruled that the Secretariat of State had acted without legal authority when it poured Church funds into the questionable investments. So the Secretariat of State, the most powerful office in the Vatican, had acted at least imprudently and perhaps illegally in the handling of funds. Pope Francis himself had lent support to that claim last year, when he a) secured the resignation of Cardinal Angelo Becciu, who had handled the real-estate deal for the Secretariat of State, from the College of Cardinals; and b) issued new orders removing all financial investments from the hands of the Secretariat of State.

The details are murky, but the few available facts might be enough to shake Moneyval’s confidence in the progress of Vatican financial reforms. If so, the blame lies not with the institutions that have been central to the Vatican’s efforts at financial reform—the Secretariat for the Economy, the Financial Information Authority, the Vatican bank—but with the Secretariat of State, which was evidently acting outside its proper sphere.

But then it is not terribly unusual for the Secretariat of State to act outside its proper sphere, because at the Vatican, the Secretariat of State regularly makes its own rules—deciding for itself what is, and is not, its proper sphere. So in the campaign for effective reform of the Roman Curia, the first order of business should be to rein in the excessive powers of the Secretariat of State. Unfortunately, by all available accounts, the reforms to be proposed in Praedicate Evangelium (when it finally appears) will leave the powers of that office fully intact.

The Vatican’s financial reforms may succeed in easing suspicions about money-laundering—especially now that the Secretariat of State has been removed from the investment business. But as long as one office—the “superdicastery”—retains the right to set its own rules, effective reform of the curial bureaucracy will be an elusive goal.

In the second part of this essay I will show how the Secretariat of State has impeded the process of financial reform. If this one office could stall the necessary reforms in this one important area—under the spotlight of international attention, with banking regulators and civil prosecutors taking a keen interest—imagine how much easier it will be for the same office to stall reforms in other corners of the Vatican bureaucracy.