Report berates Vatican bank, urges serious reform

VATICAN CITY Wed Jul 18, 2012 6:52am EDT

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VATICAN CITY (Reuters) - A European report on Wednesday identified serious failings in the Vatican's scandal-plagued bank, sharply criticizing its management and giving it a negative rating in almost half the most important transparency-related assessment criteria.

The report, by Moneyval, a department of the Council of Europe, suggests the Vatican still has a long way to go before it can be included on an international "white list" of countries that abide by global norms on combating money laundering, the financing of terrorism and tax evasion.

It was particularly pointed in its criticism of the management of the Vatican bank, officially known as the Institute for Works of Religion (IOR), and "strongly recommended" it be "independently supervised by a prudential supervisor in the near future".

"Fit and proper criteria" should be applied to senior management at the IOR, it said.

The report comes at a time when the Vatican is battling to limit the fallout from a widening corruption scandal with Pope Benedict's butler suspected of leaking sensitive documents that allege wrongdoing in the Vatican's business dealings with Italian companies.

Italian magistrates are now investigating the IOR, the head of which was ousted in a dramatic boardroom showdown in May.

The Vatican has been trying to shed its image as a suspect financial center since 1982, when Roberto Calvi, an Italian known as "God's Banker" because of his links to the Vatican, was found hanging from London's Blackfriars Bridge.

Although Vatican officials say they are determined to improve financial transparency in order to qualify for inclusion on the global white list, Wednesday's report showed they have their work cut out.

It awarded the Vatican negative grades of "partially compliant" or "non compliant" on seven of the 16 so-called core and key recommendations, while handing out grades of "compliant" or "largely compliant" on the other nine.

The seven negative grades included insufficient customer due diligence, insufficient compliance on reporting of suspicious transactions, and insufficient supervision and monitoring.

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On the plus side, the report said the Vatican "has come a long way in a short period of time" and that many of the "building blocks" to combat money laundering were in place, even though more had to be done.

Moneyval, "The Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism", is a monitoring mechanism of the 47-nation Council of Europe that tries to ensure that member states comply with international financial standards.

Moneyval does not maintain its own "white list", but supplies information which could eventually be used by other organizations, such as the Financial Action Task Force (FATF), to determine whether the Vatican belongs on a "black" or "grey" list of countries that fail to measure up.

Any such decision is at least a year away, and would depend on a follow-up evaluation of how well the Vatican implements recommendations in Wednesday's report.

The Moneyval evaluation, which the Vatican requested several years ago, grades a country against 49 recommendations, of which 16 are deemed "core and key".

It is not uncommon for countries to receive partially compliant or non-compliant marks on their first and even subsequent evaluations, accompanied by suggestions on how to improve.

Vatican sources compared the performance to Italy, which they said had five non-compliant or partially compliant marks on "core and key" recommendations in a 2005 evaluation.

In 2010, the Vatican drafted new financial transparency laws and set up internal regulations to make sure its bank and all other departments that administer the Catholic Church around the world adhered to international standards on money laundering and terrorism financing.

Moneyval inspectors visited the Vatican in 2011 and 2012.

(Reporting By Philip Pullella; Editing by Andrew Osborn)

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