Pope Francis and Reform: Financial Problems Persist

NEWS ANALYSIS: Part 2 of a Register assessment of the Pope’s efforts to reform the Vatican over the last five years.

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VATICAN CITY — After various financial scandals during Pope Benedict XVI’s pontificate, preceded by other notorious financial crimes of the 1980s and 1990s, Pope Francis was expected to finally clean up the Vatican’s finances, make them internationally respectable, and complete reforms that Benedict had begun in earnest.

Initially, the reforms looked promising: Francis set up various monitoring bodies, including a powerful Secretariat for the Economy, headed by Australian Cardinal George Pell.

Immediately, the secretariat, which when established in 2014 was put on an equal footing with the Secretariat of State, began uncovering vast amounts of money that had not been recorded in financial statements (94 million euros in the Secretariat for State, later followed by nearly 1 billion euros in various other dicasteries).

The Secretariat for the Economy was originally instructed to take over responsibility for real estate and personnel from the Administration of the Patrimony of the Holy See (APSA) — long considered to be a haven of corruption greater than the Institute for Religious Works, otherwise known as the Vatican Bank. Meanwhile, large consultancy firms were brought in to advise on efficiency and transparency.

But the reforms soon met resistance from the Secretariat of State, APSA and the Governorate of the Vatican City State, none of which wished to comply with tighter rules on transparency, compliance and accounting, largely because they might reveal corrupt practices or involve a loss of power among the so-called “old guard,” according to several informed sources.

Headed by Italian Cardinal Domenico Calcagno, a former treasurer for the Italian bishops’ conference, APSA has been particularly resistant to the reform process, and in the spring of 2016, it was able to claw back its supervision of the Vatican’s financial assets from the Secretariat for the Economy.

The cardinal is currently facing embezzlement charges from when he was bishop of Savona in northern Italy. Pope Francis continues to be close to Cardinal Calcagno, allowing him to continue to run the dicastery and even dines with him at his Santa Marta residence most evenings, according to sources. 

Further clipping of the Secretariat for the Economy’s wings took place in 2016, after an audit by the international accountancy firm PricewaterhouseCoopers (PwC) was ended just four months after it began. The order came from the Secretariat of State and was followed in July 2016 by a motu proprio, I Beni Temporali, in which Francis revoked the wide powers initially granted to the Secretariat for the Economy. Cardinal Pell reportedly was given no prior notification of either actions.

Relations between APSA and the secretariat further deteriorated the following year, when APSA unilaterally gave auditing instructions to Vatican departments without informing Cardinal Pell or Libero Milone, the Vatican auditor general.

Both wrote APSA a joint letter of complaint, saying the dicastery had far exceeded its authority and instructing other dicasteries not to comply with APSA’s instructions. Inside sources said APSA’s “show of strength” was “an apparent attempt to diminish the importance of the two new official Vatican oversight bodies.” The sources also told the Register that Francis’ failure to intervene, and his continuous siding with the entrenched “old guard” in similar disputes, badly crippled the reform effort.

Milone himself would be the next casualty. Put in place as a component of the reforms, the auditor general was supposed to be the Vatican’s chief financial watchdog reporting any discovered wrongdoing to the Pope. Last June, the Vatican announced he was resigning after just two years in the post. It later emerged he and his deputy, Ferruccio Pannico, had been fired and their offices raided.

Although the Vatican asserted Milone was spying on other officials, sources told the Register it was the opposite: They were spying on them, and the auditing officials were fired because their investigations were coming too close to the financial misconduct of those in APSA and elsewhere.

Milone himself later said in a newspaper interview in late September 2017 that he was “blocked by the ‘old guard’ that’s still entirely there” when they discovered he could tell the Pope “what I’d seen with my own eyes in the accounts.”

Only a week after Milone’s removal, Cardinal Pell became the next to depart, when Australian police summoned him home to address charges of “sexual offenses.”

Just weeks before the Australian police issued their summons, Cardinal Pell had told the Pope in a letter leaked to the Register that “serious irregularities” within APSA meant the Vatican could be approaching the “moment of truth” in the economic reforms.

Cardinal Pell took a leave of absence from his post at the Secretariat of the Economy to address the court proceedings. A preliminary hearing is now underway in Melbourne to determine whether the abuse charges, which the cardinal has emphatically denied, are credible enough to warrant a trial.

A senior prelate at the Vatican told the Register last month he was “deeply concerned” that Cardinal Pell’s reforms, “which he was taking forward very effectively amid a lot of difficulty, seem to have been reversed.”

In addition to the Curia’s finance reforms, the recent disclosure that the Pope pushed the Papal Foundation to donate $25 million to the Instituto Dermopatico dell’Immacolata (IDI), a Church-run Italian hospital in Rome that has been plagued by corruption and mismanagement, has also cast a further shadow over the Holy Father’s handling of finances.

The hospital, although well regarded, has a debt of nearly $1 billion and a history of corruption due to kickbacks and nepotism. Informed sources told the Register Feb. 20 that the Pope and senior Vatican officials were warned not to give money to the organization, but proceeded anyway, against the wishes of the Papal Foundation’s benefactors.

“In attempts to save the hospital, they’ve tried to take money from anywhere they can,” said a source involved in the financial reforms, “because if the IDI goes broke, the Italian government will take control of it from the Vatican.”

 

Inside Sources

Among the sources the Register spoke to for this report were two key lay officials closely involved in the financial reforms, who spoke on condition of anonymity.

The first source remains upbeat: He believes the problems highlighted in the media have been “exaggerated” and that progress is being made. He made a point of praising the Council for the Economy, established in 2014, to set policy guidelines for the secretariat and analyze its work, which the source said is a “vibrant council, well recognized by Pope Francis and the heads of dicasteries.” The council is comprised of eight cardinals and seven lay members with financial expertise and is headed by German Cardinal Reinhard Marx.

The source lauded the reforms made to APSA and pointed out that PricewaterhouseCoopers is now auditing that dicastery. “It’s not necessarily a full audit, but this is a journey, it’s about going one step at a time, and conducting it seriously,” he said.

As for the Vatican bank, the source said its current president, Jean-Baptiste de Franssu, is continuing the “fantastic” work begun by his Benedict-appointed predecessor, Ernst von Freyberg, “in introducing a different tone” and creating a “much more professionally managed institution, one which not only has policies on anti-money laundering and prevention of fraud, but actually is implementing these policies.”

He praised the Financial Information Authority, set up under Benedict XVI, for doing an “excellent job” in carrying out investigations and bringing them to the Vatican promoter of justice, or chief prosecutor.

In its latest report, issued in December, Moneyval, a Council of Europe committee of experts on evaluating anti-money laundering measures, said the authority had been working “efficiently,” but it criticized the Vatican for so far not bringing any money-laundering case to court.

The source put this down to the difficulty in “finding people with sufficient competence and experience” to act as promoter of justice rather than an “unwillingness to bring anyone to justice.”

He also welcomed the fact that, March 3, the Vatican seemed to be responding to Moneyval’s criticism by ordering Angelo Caloia, a former president of the Vatican Bank, to stand trial on charges of embezzlement and money laundering.

Admitting the Vatican cannot guarantee an end to future wrongdoing, the source said he believed it is “extremely difficult for anyone with bad intentions to try to do something now compared to five years ago — there are just too many safeguards surrounding the financial institutions.”

 

Criticism

By contrast, the second source, who participated in the reforms from the start, gave a blistering assessment.

The financial reforms, he told the Register, “are dead, over, finished, they've been blocked.”

Those in the Vatican opposed to the reforms “have completely annulled them and will lie if asked,” he said. “The corruption continues; it’s just better concealed,” he added, and that the state of Vatican finances is back to what it was five years ago, possibly even worse. 

The source said the Vatican continues to fail in “transparency, compliance and vigilance” and that it was “important to connect the dots.” He explained that events such as the dismissal of Milone, the departure of Cardinal Pell and the withdrawal of the PwC audit “are not isolated events, but all integral parts of the resistance.” Those blocking the reforms contributed to Cardinal Pell’s demise, he said, and saw Milone as “public enemy No. 1.”

The source welcomed the reform initiative to bring in outside consultants, such as the Promontory Financial Group, which “discovered a lot,” but said the “old guard” within APSA and elsewhere “know how to cover their tracks.”

One method, he said, is to “create layers of protection,” placing what appear to be “donations” in a sophisticated network of remote offshore accounts tagged with codenames that conceal their origins and beneficiaries.

But he partly exonerated Vatican Secretary of State Cardinal Pietro Parolin, saying the cardinal believes in the need to “clean up the Vatican finances,” but his wish to avoid the Secretariat of State “being hollowed out” made him appear to resist some of the reforms.

The source added that what drove other Vatican officials who are most resistant to reform was not so much greed or lust for power, but, instead, “the need to cover up, the control of information, destruction of evidence, the shredding of files, the silencing of people who might talk.”

 

Moving Forward

Ettore Gotti Tedeschi, who served as president of the Vatican Bank from 2009 to 2012, told the Register Feb. 22 that if the reforms are to be effective, steps must be taken to fully comply with Moneyval’s requirements.

Without fully complying with Moneyval, he said it would be impossible to “make real, sustainable” changes, as the “abuse, errors and wrongdoings can still be done if the anti-money laundering law is really not applied.”

Gotti Tedeschi, who was forced out as president in large part because he pushed for the dismissals of some of those opposed to reform, believes the Financial Information Authority should investigate top managers and hold them accountable. He also advocated other rigorous measures, including creating a commission “led by an independent cardinal.”

In comments to the Register Feb. 21, Vatican spokeswoman Paloma Garcia Ovejero said that “economic reform is a complex process that develops in different areas,” but that the “objective is clear: to act with due transparency and to create the supervisory and control mechanisms that, among others, prevent the repetition of past mistakes.”

“Although there is still work to do,” she added, “we are going the right way.”

Edward Pentin is the Register’s Rome correspondent.

Part 1, Pope Francis and Reform: Clergy Sexual Abuse, can be found here.

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