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Vatican bank installs new laws to end image as tax haven plagued by secrecy, scandal

Italian financial police recently near St. Peter’s Basilica at the Vatican, which Thursday created a new financial watchdog agency and new financial laws.

Associated Press

Italian financial police recently near St. Peter’s Basilica at the Vatican, which Thursday created a new financial watchdog agency and new financial laws.

VATICAN CITY — 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 $31 million being seized and its top two officials placed under investigation.

The bank, formally known as the Institute for Religious Works, is one of several Vatican offices that are covered by the new financial transparency rules, which were adopted primarily to comply with European Union norms. The Vatican's governing administration, the department that controls the pope's vast real estate holdings, 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 the pope's religious or charitable works. 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, and its list of account-holders is secret. But bank officials say there are 40,000 to 45,000 among religious congregations, clerics, 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.

The decree creates an independent Vatican compliance agency, the Financial Information Authority, tasked with ensuring all Vatican financial transactions comply with the new laws. The watchdog will also 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.

The legislation is key to the Vatican's efforts to comply with EU 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 effort went into high gear after the money-laundering investigation in September, which greatly embarrassed the Vatican and its bank chairman, economist Ettore Gotti Tedeschi.

Rome prosecutors on Sept. 21 seized $23 million and placed 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.

Asked Thursday whether the bank would now identify its clients when it moves their money, a Vatican spokesman, the Rev. Federico Lombardi, 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," Lombardi said.

Vatican bank installs new laws to end image as tax haven plagued by secrecy, scandal 12/30/10 [Last modified: Monday, November 7, 2011 1:51pm]
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