The IOR is best seen as an "offshore" merchant bank in the heart of Italy, serving the universal Church—and, it has long been said, not a few favoured Italians as well. The anomaly of the Vatican, a sovereign state subject to neither exchange controls nor border checks with Italy, would turn it into an ideal conduit for spiriting money out of the country as the lira weakened and currency regulations tightened. Money deposited in an IOR account at an ordinary Italian bank, or simply brought to the IOR's counter in a suitcase, could then be sent anywhere in the world. Just how much money has left Italy by this route is unknown. The Vatican indignantly denies that any does now; in 1948, however, a Curia prelate called Monsignor Edoardo Cippico was arrested and imprisoned for having obliged Italians in this way. But that was more than twenty years before the paths of Calvi and Marcinkus crossed. The banker had far more ambitious and sophisticated designs. For the services that the IOR— wittingly or unwittingly—would render him, he was prepared to pay. And that suited the Vatican.
No-one has seriously suggested that for all his opaque dealings with Calvi and Ambrosiano, Marcinkus was bent on self-enrichment. He lives simply, and Sindona, undoubtedly experienced in such matters, has said he was not to be bought with personal bribes.
But the Church's growing financial needs were another matter. Marcinkus was a "team player", ready to serve its interests by every means. Now the IOR had to perform; and if its success was his own success, then so much the better. His prospects of advancement and of becoming a cardinal, would after all only be served if he could show the Pope he was as efficient a banker as he was organizer and advance man. Just how much profit the IOR earned from Calvi is unknown. What is known is that 85 per cent of its earnings are made available to the Pope, and fifteen per cent retained for administrative and other provisions. But Calvi, it must be assumed, helped them swell; and the payment of unusually high interest rates by Ambrosiano on deposits made by the IOR was just one possible way.
The lasting appeal of the IOR for unscrupulous Italian financiers is twofold—or, less charitably, threefold. In the first place, it was an ideal, much respected, candidate for the role of fiduciary or trustee. The technique used by both Calvi and Sindona over the years was roughly comparable to football's wall-pass or "one-two". Player One, Calvi or Sindona, would transfer funds, or the shares of a company, to Player Two, the IOR. According to the instructions received from Player One, Player Two then either holds the asset in his own name, or passes it on to a pre-specified recipient, not infrequently on the other side of the Italian frontier. The IOR with one foot inside the country, and the other outside, was perfect for the role. In football, the move is supposed to split an opponent's tight defence; for Calvi it was regularly to defeat Italy's steadily tightening exchange controls. The second advantage was the IOR's secrecy and offshore status, making discovery of what was taking place particularly difficult. The third, less charitable, advantage was that the Vatican bank never seemed to mind.
Indeed the IOR developed a speculator's mentality, where risk took second place to the tempting rewards on offer. It retained some holdings in Italy, such as its interests in Banco Ambrosiano and Pesenti's Italcementi, and smaller investments in bluechip industrial companies like Fiat. But scandal or near-scandal would dog its name. In the United States, the IOR was fined for an improperly documented acquisition of a stake in a company called Vetco Industries. That year too, by at least one account,* it narrowly avoided being caught up in a giant counterfeit stock deal sponsored by the Mafia. Then came Sindona, and then Calvi.
*The Vatican Connection, Richard Hammer, 1982.
"The IOR is not a speculative organization, and I'm not a speculator," Marcinkus declared in a rare interview* after Ambrosiano lay in ruins, in the autumn of 1982. "But can you live in this world without worrying about money? Even the Church has to see to the financial needs of its dependencies." God had to make an accommodation with Mammon; or in other words, and to repeat a celebrated Marcinkus dictum: "You can't run the Church on Hail Marys."
The argument over whether Marcinkus was quite as innocent a victim as he proclaimed in his dealings with Calvi would continue long after the demise of Ambrosiano. It is unlikely that Calvi had already conceived the perverted use to which that partnership was to be put, but its components were by 1971 in place. Apart from the IOR, Compendium in Luxembourg was well placed to exploit the lax banking laws of the Grand Duchy. Just over the Swiss border in Lugano, there was Banca del Gottardo, with emanations, through its Ultrafin associates, in Zurich and New York. In Nassau, Cisalpine was starting to feel its way. Then there were the shell companies, the indirect subsidiaries which compliant lawyers would set up, never to be mentioned on any balance sheet. One such, established in Luxembourg at this time or a little later, was called Manic S. A.—a singularly apt name in the light of what was to follow. Manic, under the titular control of the IOR, was to rise later from its obscurity with a vengeance.
But the time had now come to develop Ambrosiano within Italy, and events seemed to play remarkably into Calvi's hands. Following the failure of the Bastogi takeover that autumn of 1971, Sindona had resolved to pull out of Italy. The controlling interest in La Centrale held by Hambro's was of no strategic value, and the London bank was in any event anxious to break with the Sicilian. Calvi, on the other hand, signalled his willingness to buy.
In November 1971 Hambro's sold its La Centrale stake, with 37 per cent of the voting stock, to Compendium in Luxembourg. With La Centrale, Calvi had the company which would handle his subsequent investments in Italy.
*Il Sabato, November 1982.
CHAPTER SIX Empire Building
At the start of the 1970s, the Milan stock market was tiny and unregulated, even more so than today. As a theatre for speculation and financial manipulation it was perfect. The fewness of the companies quoted—never more than 150—meant that it was the smallest of fry when set alongside Paris, Amsterdam or Frankfurt, to say nothing of the London stock exchange or Wall Street. Rules of disclosure were minimal, and consolidated accounts were but a gleam in the eye of idealistic EEC officials in Brussels.
With comparatively small outlay, an imaginative and unprincipled financier could do much as he pleased, puffing up a share price on which to build paper pyramids of wealth. Reputations were made, and in Italy, as everywhere, there were those gullible enough to be convinced by them. Greed and fear, the dominant emotions in financial markets anywhere, were allowed play without hindrance. Nor did it seem that serious. Credit was easy, and OPEC's awakening of 1973 was still in the future. If the stock market was not fulfilling its theoretical function of providing venture capital, that did not seem to matter either. For Italy in the previous decade had achieved the fastest growth of any industrial nation except Japan.
And it was with truly Japanese diligence and inscrutability that Calvi set about realizing his goal of turning Ambrosiano into an Italian merchant bank. Throughout his life he would remain a strangely one-dimensional figure. Socially, he might not have existed, his culture was small, his life by most standards grey. These gaps his wife would try to fill, in her self-imposed mission of making Calvi outwardly, as well as inwardly, the perfect and complete banker. She would try to persuade him, with small success, to read books and take an interest in the arts. With her fondness of bright colours and antique furniture, she would try, again without great success, to persuade visitors of the taste and animation of their flat in Milan and country villa at Drezzo, close to the Swiss border. But, then at least, these shortcomings did not matter; her husband's dimension was finance, where he excelled, and the moment could not have been better.
Now that Sindona was losing interest in Italy after the Bastogi setback, Calvi, as managing director and chief executive of Ambrosiano, was his natural heir as leader of Catholic finance in Milan. He had both the conveniences of the IOR and the resources of his bank to hand. The combination of these with Calvi's own stealthy and perverted financial genius was to be i
rresistible. Between 1972 and 1975 he endowed Ambrosiano with two banks and a large insurance company, which in turn controlled other smaller banking interests. It would emerge as the most powerful private financial group in Italy.
In so narrow a market as Milan, a handful of manipulators was enough. Calvi, of course, was one, while two of the others were his mentor Sindona and a formidable lady called Anna Bonomi who ran a group called Invest. They were to be the main partners in the dealings which secured Calvi's Italian kingdom. There was also a third, more passive, partner—the IOR. The illegal nature of the transactions by which he won control for La Centrale of the Toro insurance company and a thriving Lombardy bank, Credito Varesino, would eventually lead to Calvi's downfall. But the acquisition of his other bank, Banca Cattolica del Veneto, is perhaps even more deserving of examination, as an illustration of both the laws of the financial jungle which then obtained, and the complicity between Calvi, Sindona and the Vatican bank.
All stemmed from two apparently unrelated events: the decision of Paul VI to reduce the Church's more conspicuous holdings in Italy, and the purchase by Sindona in 1969 of an insignificant leather tanning company called Pacchetti.
Banca Cattolica del Veneto had been in the hands of the IOR since the War. It was deeply entrenched in the Veneto, that region of Northern Italy inland from Venice, where respect for the Church is greatest and the Christian Democrat vote remains largest. Then, as now, the bank was a marvellous investment. Its property assets, notably the beautiful old buildings which would house its branches, were enormous. It was moreover flush with the savings of the faithful, and spread over one of the parts of Italy where the famous economia sommersa, or submerged economy, was most dynamic. Indeed, in 1981 the Banca Cattolica del Veneto announced the highest net profits of any bank in the country.
The same could not be said of Pacchetti, but Sindona had his own plans. Out of this nondescript concern, he intended to conjure a financial creature then unknown in Italy, but all the rage in the United States: the conglomerate. Sindona's model was Gulf and Western. Pacchetti saw its shares pumped higher and higher, and found itself the owner of an odd lot of companies in anything from steel to household cleansers. But after Bastogi, Sindona was interested in it no longer. It was time to find a buyer for Pacchetti, and a bait that would tempt him.
At this point, the three-way deal between himself, Calvi and the IOR was concocted. In return for buying Pacchetti, Calvi would gain the option to acquire from the Vatican a controlling interest in Banca Cattolica del Veneto. Everyone was content, Sindona was to make a great deal of money, Calvi would gain a bank, and the IOR could contemplate the genesis of a huge Catholic grouping around Ambrosiano, which would be a natural ally. In March 1972, La Centrale duly announced that it had paid the equivalent of $45 million for 37 per cent of the Veneto bank. On the face of it, an excellent arrangement for La Centrale, whose lustre had been tarnished by the departure of such as Evelyn de Rothschild from its board after the Hambro's disengagement.
Rather less appealing, had shareholders known about it, was the underside of the deal. Pacchetti had been sold by a Luxembourg shell company of Sindona's called Steelinvest, to a concern with the weird name of Zitropo Holding, also of Luxembourg. As would also later emerge, fat commissions seem to have been paid as well. Calvi was to hint that, yes, Zitropo might have something to do with Ambrosiano. But he was acting on behalf of an "important client", and more he could not say. In the light of what happened later, that client might even have been the IOR. As for Pacchetti, it was a child's doll to be cast aside. In a few months Sindona had inflated its price from 200 to 1,200 lire per share. Now it would be used as a staging post for shares traded between Calvi and the Bonomis, before being left to decay. By
June 1982, as the deluge overtook Calvi, its shares were worth just 75 lire apiece.
Apparently, though, someone did object to the sale of Banca Cattolica del Veneto by the Vatican. He was Albino Luciani, Cardinal Patriarch of Venice, in whose archdiocese the bank mainly operated. The story goes that he protested to Marcinkus at the IOR about the transaction, but received little sympathy. Later Cardinal Luciani was to become Pope John Paul I. But he reigned for only a month, in 1978, far too short a time to bring the IOR to heel.
But Pacchetti was not just a prime example of how the Milan market could be abused by the unscrupulous. Its sale to Zitropo was the first of the financial skeletons which Calvi was to hide away abroad. In return for Pacchetti, Zitropo/Ambrosiano paid Sindona $40 million. The money in fact came from Cimafin, a Liechtenstein front company, which in turn was lent the money by Compendium (later Banco Ambrosiano Holding) in Luxembourg. In the end, Pacchetti would cost Calvi, if subsequent capital increases and commissions were included, over $80 million at the then exchange rate. Thus Ambrosiano's foreign liabilities began, and thus Calvi began his habit of accumulating treasures in Italy at the price of troubles abroad. Zitropo was to be a millstone to the end.
But in late 1972, Calvi was blandly asking Ambrosiano's shareholders to agree to a capital increase, to enable the bank's foreign business to be "expanded further". As usual he was finding it hard to tell the whole truth, or even a significant part of it; and on that occasion the deception did not stop there.
Ever since the previous February, Calvi had been travelling through a separate financial labyrinth, which would lead to control of another rich bank. This time his object was Credito Varesino, based at Varese, to the north-west of Milan. As so often the IOR was a staging post. Put simply, Calvi bought Credito Varesino from the Bonomis; but his means were typically contorted. By the end of 1972, Calvi controlled 35 per cent of the new bank, a decisive interest—but for six months the shares involved were oddly left with the IOR. Calvi had sold them in April to Giammei, notoriously the Vatican bank's stockbrokers in Rome, for 11 billion lire. In October La Centrale, in other words Ambrosiano, bought them back, but for 31 billion lire. This remarkable difference of 20 billion lire was not, however, a profit for the IOR. It had merely acted as a screen, behind which Calvi could shift such a sum around his group.
With Credito Varesino safely netted, Calvi turned his attention to Toro, and the interests in other smaller banks in its portfolio. This time, he found the Bonomis in opposition, after Toro for reasons similar to his own. By early 1974, after a covert stock market battle, Calvi was the contender to triumph. The Bonomis had to give best, but remained allies of Calvi in some other of his obscure dealings until withdrawal in 1975. But by then, his basic design had been realized. Not only was Banco Ambrosiano an orthodox commercial bank, with 1,800 billion lire of deposits, but in practice a merchant bank as well—whatever the Italian banking laws might say.
Not until 1978 was the Bank of Italy to expose, in an outstandingly perceptive report, the most questionable side to some of those dealings in Toro and Credito Varesino. But Calvi's methods were already attracting criticism. Cesare Merzagora, head of Assicurazioni Generali, Italy's biggest insurance company, and something of a patriarch himself of Italian finance, wrote to the Bank of Italy complaining of Calvi and the unsatisfactory nature of the Pacchetti affair. Ambrosiano, he pointedly observed, had the reputation until recently of being well-run. Guido Carli, the Governor of the central bank, also publicly criticized the inadequacies of the Milan Market. But Sindona's generosities to the politicians had helped ensure that they were in no hurry to strengthen its rules.
In fact, the Bank of Italy did carry out two earlier inspections of Ambrosiano, in 1971 and 1973, proof that it already had its misgivings about Calvi. But the smokescreen proved too thick to penetrate, and nothing came of them. Meanwhile events at home and abroad were making Calvi's dubious activities a less pressing concern. For a series of upheavals in the international monetary system coincided with the beginning of the end for Michele Sindona.
The Sicilian had wasted no time in using the $40 million received from Calvi for Pacchetti. That same 1972, he bought control of Franklin National, the twentieth larg
est American bank. Franklin was to be used as the platform for a speculative extravaganza, made all the easier by the then liquid state of international capital markets. The
Vietnam war was at its height, and thousands of millions of dollars were leaving America, as the Nixon administration, under its much- criticized policy of "benign neglect", countenanced a succession of payments deficits.
Sindona, and his top foreign exchange specialist Carlo Bordoni, thus could borrow money to speculate on everything: from lire, dollars and Deutschmarks to gold, silver and commodities of many kinds. As far as the lira was concerned, Sindona speculated on its decline. Alas, however, it was the dollar which weakened, devalued by ten per cent in February 1973, and undermined further by Middle East war and the sharp rise in the price of oil which followed. The mark, which Sindona was expecting to fall, instead rose almost without interruption. As his losses accumulated, he was forced to resort to ever riskier expedients to recover them. Payments to the politicians in Italy multiplied; the Christian Democrats admitted receiving $3 million from him, but the true figure probably was considerably higher. During this period too the shadow of the Mafia lengthened over his affairs.
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