RPT-Ex-Vatican bank officials broke anti-money laundering laws, prosecutors say

Tue Jul 16, 2013 1:30am EDT

* Prosecutors suspect two former Vatican bank executives

* Allegations related to incomplete data on bank transfers

* Transfers alleged to have infringed money laundering laws

* Vatican bank has long been questioned over standards

By Lisa Jucca and Mario Sarzanini

ROME, July 15 (Reuters) - Prosecutors allege two former top executives at the Vatican bank repeatedly broke Italian laws on money laundering by failing to give sufficient information when ordering multi-million-euro bank transfers, according to judicial documents seen by Reuters.

While the prosecutors stopped short of accusing two men who were until recently the top officials at the Vatican bank of money laundering, they said confusion over the handling of IOR accounts had created the conditions where it could take place.

Key details missing on requested transfers included the identity of the owners of the funds and the reason for transfer.

The Institute for Works of Religion (IOR), as the Vatican bank is formally known, has long been in the spotlight for failing to meet international standards intended to combat tax evasion and the disguising of illegal sources of income.

A report by European watchdog Moneyval last year said the Vatican state, despite some progress, failed to meet some critical financial transparency standards.

The allegations by prosecutors in Rome investigating possible breaches of the rules, which have not yet been made public, are the latest blow to the Vatican bank, which has been under pressure since Italy's central bank ordered Italian banks to enforce strict transparency criteria when dealing with it.

Italy, along with other EU nations, adopted a 2005 European Union directive on fighting money laundering in 2007. The law introduced a number of measures intended to increase financial transparency and block or uncover illicit money flows.

The two men, former IOR director general Paolo Cipriani and former deputy director general Massimo Tulli have not been charged with any crime. Based on the results of the probe, a judge will determine if there is sufficient evidence to charge them. Cipriani's lawyer Vincenzo Scordamaglia said the events at the centre of the investigation took place several years ago and declined to comment when Reuters contacted him by telephone.

Elisa Scaroina, listed in the prosecutors' document as a lawyer for Tulli, said she no longer represented him. It was not possible to reach Tulli.

The future of the bank is in doubt after Pope Francis last month set up a special commission to reform it. Vatican sources said in April the pope, who has said he wants the Church to be a model of austerity and honesty, could decide to radically restructure the bank or even close it.

The allegations were contained in two documents filed by prosecutors with a Rome court detailing a long-running investigation into alleged breaches of anti-money laundering laws that ended two weeks ago. The prosecutors focused on 15 irregular bank transfers ordered by Cipriani and Tulli to bank accounts in Italy and Germany. The transactions were deemed irregular as they did not provide details on the origin of the money and on the reason for the bank transfers.

The prosecutors do not at any stage in the documents suggest that the transfers were related to the illicit funding of criminal activities.

Authorities around the world have stepped up pressure over the last decade on illicit financing of criminal activities and money laundering by introducing strict rules which require the origin of financial flows to be detailed.

Among the regulations, banks are obliged to verify the identity of customers. Money transfers that originate in non-EU states that do not comply with these stringent anti-money laundering rules are subject to stricter scrutiny.

In the documents, Italian prosecutors said former IOR Chairman Ettore Gotti Tedeschi, who attempted to improve practices at the IOR before he was fired in 2012, was no longer under investigation. His lawyer, Fulvio Palazzo, was not immediately available for comment.

In all the transactions detailed, the IOR failed to report who the money belonged to when it was transferred, which broke Italian rules aimed at preventing money laundering, the prosecutors said. Prosecutors did not allege that the sums involved were part of illicit financing or criminal activities.

In the largest transfer, prosecutors say that Cipriani and Tulli signed a fax on Sept. 6, 2010, ordering 20 million euros ($26 million at today's rate) be moved from an IOR account at Credito Artigiano, a small Italian bank owned by Credito Valtellinese, to a Frankfurt-based IOR account with JP Morgan. JP Morgan and Credito Valtellinese both declined to comment.

Another fax sent on the same day by Cipriani and Tulli told Credito Artigiano to transfer 3 million euros to an IOR account at small Roman bank Banca del Fucino, prosecutors allege in the document. That bank declined to comment.

In both cases, Cipriani and Tulli are alleged to have refused to provide details of the origin of the money to Credito Artigiano and the reason for the transfer, prompting Credito Artigiano to alert the Bank of Italy, which oversees Italy-based banks, of a failure to follow guidelines.

Credito Artigiano's report eventually led prosecutors to freeze the 23 million euros of funds, and triggered a wide-ranging probe into possible money laundering at the IOR, which declined to comment on the allegations.

"The seizure in question is just an example of a much broader reality," prosecutors said in one of the documents, in which they accuse IOR managers of "deliberately undervaluing and refusing to comply with anti-money laundering requirements".

Cipriani and Tulli resigned abruptly, without giving reasons, two weeks ago.

CONFUSION

The tiny Vatican state, which legally lies outside the European Union, does not yet fully comply with international rules to combat money laundering. It is taking steps to address this, however, including by setting up a financial supervisory authority.

In the documents seen by Reuters, prosecutors said there was "total confusion" regarding the IOR's accounts with Credito Artigiano and other Italian banks, making it impossible to identify the clients involved. The banks declined to comment. Credito Artigiano is not under investigation.

By statute, only members of religious orders, bank employees and Vatican citizens can open an account with the IOR, but prosecutors allege it was possible that lax practices within the bank meant IOR clients could allow the use of their accounts for money laundering.

In the absence of strict adherence to international standards, "the IOR could easily become a channel for the laundering of money related to crime", the prosecutors say in one of two documents they have produced.

The 23 million euros seized in 2010 by Italian prosecutors as a result of an alleged breach of the law were released a year later after the Holy See introduced a number of measures to improve supervision, including the setting up of an independent financial watchdog.

Credito Artigiano declined to say whether IOR had had access to those funds and whether it still had a client relationship with the IOR.

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