God's Bankers: A History of Money and Power at the Vatican

by Gerald Posner

  “I prefer a Church which is bruised, hurting and dirty because it has been out on the streets, rather than a Church which is unhealthy from being confined and from clinging to its own security,” he wrote not long after assuming the Papacy.20

  Little wonder the Pontiff dubbed “The People’s Pope” was “Man of the Year” for Time (“The septuagenarian superstar is poised to transform a place that measures change by the century”) as well as The Advocate, a leading LGBT magazine (“a stark change in rhetoric from his two predecessors”).21 Rolling Stone put him on its cover—the first time for a Pope—and titled their profile “The Times They Are A-Changing.”22 “Pope Francis Is a Liberal,” gushed the online magazine Slate.23 A monitor of web usage concluded that he was the most talked-about person on the Internet in 2013.24 Francis’s Twitter account, @Pontifex, had more than four million followers in ten languages. The entire Francis package was “stunning,” agreed most Vaticanologists.25

  Critically important for the church, Francis reenergized the faith for tens of millions of young Catholics who had given up hope that the clerics in Rome might ever be relevant in their lives. Priests in dozens of countries reported that Mass attendance soared. Volunteers for Catholic relief and charities zoomed. Contributions for Peter’s Pence jumped.26

  The best politicians realize there is a natural charisma, a chemistry of sorts, that allows a handful of them to connect with people in a way about which most can only dream. Despite shortcomings on promises and a failure to meet expectations, these men and women still inspire confidence and get high favorability ratings in opinion polls long after people would have soured on less magnetic personalities. Francis appeared to fall into this select group. Throughout his first year as Pope, people ignored what he did or said that they did not like.

  Six months into his Papacy, in September, he gave a broad-ranging interview to America, a prominent Catholic magazine, in which he pedaled back on some of his most popular impromptu remarks. “On issues related to abortion, gay marriage and the use of contraceptive methods . . . the teaching of the church, for that matter, is clear, and I am a son of the church, but it is not necessary to talk about these issues all the time.”27 That same month in a talk to Catholic gynecologists he issued as harsh a condemnation of abortion as anything Benedict or John Paul ever said: “In a decisive and unhesitating ‘yes’ to life” he said that abortion was a product of “a widespread mentality of profit, the ‘throwaway culture,’ which has today enslaved the hearts of so many.”28 He later tweeted support for pro-life demonstrations, reminding Catholics that life “begins in the womb,” and declaring, “This is not something subject to alleged reforms or ‘modernizations.’ It is not ‘progressive’ to try to resolve problems by eliminating a human life.”29

  He declined, when asked, to soften what he had said in 2009 when as a cardinal he opposed a gay marriage bill pending before Argentine legislators: “Let’s not be naive, we’re not talking about a simple political battle; it is a destructive pretension against the plan of God. We are not talking about a mere bill, but rather a machination of the Father of Lies that seeks to confuse and deceive the children of God.”30

  In July 2013, the U.N. Committee on the Rights of the Child had sent Francis a request for “detailed information” on the investigations and results of the Vatican’s sex abuse cases. The U.N. wanted transparency on previous offenders, especially so that any who were defrocked under Benedict might not return to civilian society as pedophiles without anyone the wiser. The Holy See had in 1994 ratified the U.N. Convention on the Rights of the Child (CRC), a legally binding instrument that committed it to protecting children.31 But in nineteen years, the Vatican had in 2012 only submitted a single summary, lacking any details. The U.N. thought that under Francis the church might be more forthcoming. But in November, the Vatican refused to provide the CRC the names or details it had gathered over the years about clerical sexual pedophiles.32

  “It is not the practice of the Holy See to disclose information on the religious discipline of members of the clergy or religious according to canon law.” (The next January, 2014, at a U.N. hearing in Geneva, Vatican representatives sat in silence as CRC delegates publicly castigated the church for its refusal to cooperate: “The Holy See has consistently placed the preservation of the reputation of the Church and the protection of the perpetrators above children’s best interests,” charged a CRC attorney. The CRC scolded the Vatican again in May, urging the church to “take effective measures.” In September, the Vatican shot back, criticizing the CRC for a “grave misunderstanding” of the church’s sovereignty.)33

  Those who know the Pope best do not think there is any contradiction between the progressive and reactionary Francis. Boston’s likable Cardinal Sean O’Malley, and the Pope’s closest American confidant, cautioned a reporter from The Boston Globe that Francis had softened the church’s tone but said, “I don’t see the Pope as changing doctrine.”34,I

  And except for a few on the American political right—Rush Limbaugh condemned Francis’s take on capitalism as “pure Marxism”—millions who wanted change inside the Vatican were not bothered. His socially liberal supporters seemingly tuned out any part of his message about which they did not agree, and focused instead on common ground, especially his unwavering commitment to the poor.36 Francis had sold them that he was the real deal when it came to reform and compassion and conservative statements that echoed his predecessors did nothing to dent his extraordinary appeal. At the end of 2013, after he had pulled back on many of the critical social issues, a slew of public opinion polls confirmed that all the excitement and mostly laudatory media coverage had made Francis one of the most well liked religious figures of the modern era. Ninety-two percent of U.S. Catholics approved of how he ran the church, reported ABC. A similar number in a CNN poll showed his “approval rating [is] sky high”; even 75 percent of non-Catholics liked him.37 A remarkable 85 percent thought Francis was neither too liberal nor too conservative and that he was the first Pope to be integrated with the modern world. London’s Express tabloid asked, “Could Pope Francis be the most popular ever?”38

  No wonder church veterans thought Francis was heaven sent. They remembered all too well that a similar poll taken in 2003, eighteen months before the end of John Paul’s tenure, revealed that more than half of U.S. Catholics thought the Pontiff was out of touch with their lives and the church had less meaning and influence for them than ever.39

  The remarkable change in the fortunes of the Vatican during the nine months of Francis’s 2013 Papacy was best summed up by Kay Campbell, an American religion reporter: “In the space of my lifetime, the Catholic Church has gone from pariah to rock star.”40

  * * *

  I. Over time, many traditionalists changed their opinion and concluded that Francis was meddling in long-established doctrines of faith. At an October 2014 synod on the modern family, there was firm pushback from conservative bishops over a Francis-favored draft that proposed liberalizing rules about nonmarital relationships and the right of remarried Catholics to receive the sacraments. Ross Douthat, a New York Times conservative Catholic columnist, suggested that if Francis pushed too radical an agenda too quickly, it could lead to “a real schism.”35

  43

  “Back from the Dead”

  It is anybody’s guess as to whether Francis’s incredible popularity can be sustained. But his historic international reception gave him enhanced power as a new Pontiff. No clerical faction was foolish enough to take him on. No one dared criticize him. Most inside the Vatican viewed the developments as a phenomenon on which to ride along. Francis, as a result, had an unprecedented opportunity to tackle significant Curial reforms. The challenge was great. The Pope oversaw an institution with 1.2 billion followers, 6 million lay employees, 4,500 bishops, 412,000 priests, and 865,000 members of religious institutes and schools. Catholic charities were the world’s largest (some twenty million people receiving some type of assistance).1


  Near the top of his to-do list was the Vatican Bank. He knew reform there would have to be a centerpiece of his Papacy if he was going to successfully streamline the city-state’s finances. Instead of repeating Benedict’s first year of unfulfilled expectations, Francis did act, and often decisively. He was not long in office when he issued two Papal decrees intended to speed reviews and provide more transparent oversight. Unnamed Bank of Italy sources told the Financial Times that those early decrees “marked important steps toward real reform of the legal and institutional framework.”2 But they were stopgap measures. Francis was faced with a historic decision: whether to shutter the Vatican Bank and have the church rely on the banks of other countries, or undertake the systemic change that had frustrated his predecessors.3

  René Brülhart’s AIF issued its 2012 annual report in May 2013, highlighting an enhanced screening system for reporting cash transactions and boasting it had more success in spotting suspicious activity—six cases had been sent on for investigation as opposed to only one the previous year.4 Meanwhile, the Vatican was working to meet a July deadline to submit an update to Moneyval demonstrating what progress it had made in those areas the evaluators had judged deficient.

  Ernst von Freyberg went on the offensive for the IOR in his first full interview as president in May. Noting that during “the financial crisis we were never in trouble. No government had to bail us out, we are very, very safe,” he boasted the banks 2012 profit was $113 million. As for the IOR’s terrible reputation, he claimed it was largely the result of media “slander.”

  “I can tell you that I have taken all the names I have found in the newspapers and looked them up myself. I didn’t find a single one of these names. This Mafia boss, this politician, Osama bin Laden. None of them have accounts here, nor are they delegates to accounts.”

  Since Freyberg’s interview was with Vatican Radio, nobody pressed him on how secret proxies had been used for decades in the bank to hide the identities of true account owners. A simple name check would not have sufficed to uncover them then or now. But his quotes made for good copy.5

  The real reason he had gone public was that top IOR officials had decided they needed to lobby for the bank’s survival as the rumors of its pending dissolution picked up pace. Freyberg had not yet had a personal audience with Francis, raising concerns that the Pope was putting it off so as not to confer legitimacy on the bank until he had decided on its future. “If we ask the question ‘should we close the IOR,’ our clients have voted 99.99 percent against it,” Freyberg said.6 Director General Paolo Cipriani followed up by telling reporters off the record that the bank’s Curial enemies had launched a vicious whisper campaign. On the record, he said that the IOR kept the church independent and that was not “just essential, but an obligation.”7

  On June 26, Francis created a five-person commission and invested it with broad powers to do a top-to-bottom review of the bank. It had complete authority to access all the IOR’s files. That panel was tasked to provide Francis with guidance about how to bring the bank into “harmony” with its original ecclesiastical mission.8 And it came less than two weeks after the Pope had tapped Monsignor Battista Mario Salvatore Ricca as the interim prelate, replacing Monsignor Pioppo, who had been exiled to Equatorial Guinea in 2011.9 The pick of Ricca was a progressive choice by the Pope. In a few weeks, Ricca was under assault when L’Espresso reported scandalous details over his private life during his service as the Nuncio in Uruguay.10 According to the paper, Ricca had a semipublic affair with a Swiss army captain, and it had been the subject of nonstop scandal among Rome’s bishops. Once Ricca was beaten up at a gay bar. Another time, when firemen had to release him from a trapped elevator at the nunciature, he was found with a partially clothed young man.11 Some were bitter that Francis had chosen Ricca, while others contended he was a genuine reformer and that resurrecting a seamy past chapter was no more than a smear campaign by the old guard.12 After a few days the Vatican issued a statement that “the pope has listened to everyone and has confidence in Ricca.”13 Francis stuck by his choice.

  Unknown outside of the Vatican, Francis had a newfound enthusiasm in tackling reform at the IOR. That summer he summoned to Rome six top Catholic financiers from around the globe.14 In a day-long meeting at the his Casa Santa Marta guesthouse, Francis told the moneymen he needed their help. The Pope, speaking Italian and relying on a translator, set forth a litany of financial problems facing the church. “You are the experts,” he said, “and I trust you. Now I want solutions to these problems, and I want them as soon as possible.”15 Those lay experts became directors of a new advisory council to guide the Pope in rolling out his reforms.16

  Not even Francis, however, with all his good fortune, managed to get through 2013 without some bumps when it came to the Vatican Bank. Two days after he had appointed the special oversight commission, sixty-one-year-old Monsignor Nunzio Scarano, an APSA senior accountant, was arrested. Prosecutors charged he was the mastermind in helping friends avoid taxes on $26.2 million, some of it cash flown to Italy on a private jet from Switzerland.17 Scarano’s money flowed through two accounts at the Vatican Bank (one personal and one a charitable foundation he controlled). The IOR was back on the front pages (typical was The New York Times headline “Cleric Arrested in $26 Million Plot, Leaving New Blot on Vatican Bank”). And Scarano’s tale had all the elements that kept it newsworthy for the rest of the year. A banker before he was ordained a priest at the age of thirty-five, Scarano had been suspended from his APSA job the previous month over an investigation by prosecutors into whether he had laundered $750,000 of Mafia funds through his own Vatican account.18 His nickname was Don cinquecento (Monsignor 500) because he habitually flashed a thick wad of cash and boasted that the 500-euro note ($670) was his favorite. When he reported a multimillion-dollar art theft from his 7,500-square-foot luxury apartment in Salerno, police asked how a simple monsignor—who earned about $40,000 a year—could afford it all. “Donations from friends,” he replied.19 The millions he passed through his IOR account allegedly belonged to three brothers of a wealthy Italian shipbuilding family, close friends of then Italian Prime Minister Silvio Berlusconi. Arrested with Scarano was a suspended intelligence agent from Italy’s equivalent of the FBI. (Scarano’s trial started in September 2014 and he faces up to twenty years in prison if convicted.)20

  Only a few days after Scarano’s arrest, the Vatican announced a shake-up inside the IOR. Gone were Paolo Cipriani, the bank’s director general, and his deputy, Massimo Tulli.21 The Vatican said their parting was “in the best interest of the institute and the Holy See.”22 But few were buying it. Their departure seemed hasty and unplanned, especially since there was no one set to replace the director general. Two Italian bankers with broad international experience in the private sector were brought in. One filled Tulli’s post while the other became the bank’s newly created chief risk officer.23 Freyberg announced that he would keep his president’s job while temporarily assuming Cipriani’s role.

  The resignations caught Brülhart by surprise. He learned about them on his way to Sun City, South Africa, for the Egmont Group’s annual meeting. Just that week he had received the good news that the Vatican had gotten a prized membership in Egmont, becoming part of a club whose goal is to freely share financial information in order to fight money laundering and terrorism financing.

  What Brülhart did not know is what had prompted the abrupt departure of the IOR duo. Behind the scenes, the Scarano prosecutors had informed the Vatican that they had wiretapped phone conversations that demonstrated Scarano was in regular touch with Cipriani and Tulli to get their approval to move huge amounts of cash through his accounts.24 When Brülhart learned about that, he pressed for full disclosure, contending to his colleagues that they should get credit for having taken swift action by dismissing the two bank officers. The old IOR would never have done that and it was to the Vatican’s credit that it happened now. But he was overruled and, not being at the city-state, he
was unable to forcefully argue his case. Admitting publicly errors of that magnitude was a level of transparency for which the church was not yet ready.25 Brülhart was proven right, however. A week later Italy’s financial police, led by a Rome magistrate, released a twenty-five-page report about how the IOR had for years circumvented money laundering laws. The conclusion was a familiar one: the Vatican Bank had operated as an offshore bank in the heart of Rome.26 A few days later someone leaked documents to Reuters that revealed Roman prosecutors had concluded that Cipriani and Tulli violated Italy’s money laundering statutes by failing to provide sufficient information about Scarano’s transfers.27 Soon, Michele Briamonte, an IOR legal consultant best known for his private jet and flashy lifestyle, was pulled into the criminal probe for possible insider trading (no charges were filed against Briamonte but Cipriani and Tulli were indicted with money laundering violations in March 2014 and are awaiting trial).I Once again the IOR looked as though it was only reactive, instead of jumping ahead as Brülhart had suggested.

  With Brülhart back from South Africa, he and Freyberg used the scandal to press their case to hire, for the first time in Vatican history, a financial consulting firm that could assist the AIF’s monitoring and enforcement. Their pick was Promontory Financial Group, a self-described “risk management and regulatory compliance consulting firm.” In lay speak it is a troubleshooter for all types of financial problems. Freyberg and Brülhart lobbied hard to get the approval for a $1 million contract retainer.29 By October there were nine Promontory employees at the bank, setting up temporarily in what used to be the oversized director general’s office. They cross-checked the paperwork against computer files to ensure there was proper documentation for each account and that the paper trail for money transactions was transparent. As of the close of 2013, about 25 percent of the IOR’s employees were from Promontory.30