VATICAN CITY (Reuters) - The Vatican, whose bank is the focus of a money laundering investigation, enacted laws on Thursday to bring it in line with international standards on financial transparency and the fight against funding terrorism.
It was the biggest action ever taken by the Vatican to meet demands for more financial openness. It establishes an internal watchdog, known as a Financial Information Authority (FIA), to check compliance with international financial law.
Pope Benedict signed a “Motu Proprio,” a form of executive order, in which the Vatican establishes a set of internal laws promising its bank and all other departments will adhere to regulations and cooperate with foreign authorities.
“The Vatican now is totally inserted into this system in solidarity with the international community and with international authorities,” spokesman Father Federico Lombardi said.
The new laws aim to make the Vatican City, a 108-acre sovereign state surrounded by Rome, comply with the rules of the Financial Action Task Force (FATF), a Paris-based body that lists states failing to comply with standards on money laundering and terrorism financing.
By adopting the new laws, including establishing the FIA along the lines of those in other countries, the Vatican commits itself to complying with FATF standards and liaise with the group and law enforcement agencies.
The new laws, about 30 pages long and consisting of more than 50 articles, will take effect by April 1.
They affect all Vatican departments. This means offices such as its missionary arm, which handles tens of millions of dollars a year, will be subject to stringent regulations and oversight.
Last June, Italian magistrates began an investigation of Cardinal Crescenzio Sepe, former head of the missionary arm, on suspicion of corruption in the sale of a building in Rome owned by the department. He has denied all wrongdoing.
Vatican employees suspected of violating the norms will be investigated by its FIA and judged by Vatican tribunals, but would serve any prison time in Italian jails, in accordance with standing agreements between Italy and the Vatican. Money laundering would be punishable by up to 12 years in prison.
Lombardi said the laws would make Vatican institutions less vulnerable to misuse and make the Catholic Church “more credible before the members of the international community.”
The Vatican Bank, founded in 1942 by Pope Pius XII, was in the spotlight in September when Italian investigators froze 23 million euros’ worth of funds in Italian banks after they opened an investigation into possible money laundering.
The bank, officially known as the Institute for Religious Works (IOR), says it did nothing wrong and was just transferring funds between its own accounts..
A statement said the new laws, drafted with help from the European Union, Italy and the European Central Bank, stressed the bank’s “firm intention to cooperate according to principles and criteria which are internationally recognized.”
The Vatican hopes it can secure an entry in the Organization for Economic Cooperation and Development’s (OECD) “White List” of states complying with international banking standards.
The Vatican also committed itself to combating terrorism, market rigging, insider trading, counterfeiting and forgery.
The IOR mainly manages funds for the Vatican and religious institutions around the world, such as charities, religious orders of priests and nuns, and Catholic hospitals.
In 1982 it was caught up in the fraudulent bankruptcy of Banco Ambrosiano, then Italy’s largest private bank, whose president Roberto Calvi was found hanged under London’s Blackfriars Bridge.
Several investigations failed to determine whether Calvi, known as God’s Banker, killed himself or was murdered. The Vatican denied any responsibility for the collapse of the Banco Ambrosiano, in which it held a small stake, but made a “goodwill payment” of $250 million to creditors.
editing by Andrew Dobbie