'Vatican Bank' Under Investigation Again: A History of Unholy Scandal

(Sept. 21) -- The president of the Institute for Religious Works (IOR) -- commonly called the Vatican Bank -- and another senior official are being investigated for money laundering, The Guardian reports. Italian police have ordered the freeze of 23 million euros ($30 million) from the account under dispute.

Just what is the Vatican bank in the first place, and why has it been so prone to scandal over the years? Surge Desk takes a look:

Founding and charge
Founded in 1942 by Pope Pius XII to manage the Vatican's coffers, the IOR operates outside the central administrative structure of the Catholic Church. That's no small charge, since the coffers were expanded greatly with the 1929 signing of the Lateran Treaty, when the pope conceded Italian sovereignty over the former papal states in exchange for 1.75 billion lire in cash and government bonds.

The institute operates much like any other bank, accepting savings and checking accounts (though only for a small group, mostly clergymen) and making investments.

Fascist funding source?
But just as Pope Pius has been accused of helping Hitler and the Nazis, the IOR is alleged to have funded various right-wing movements across the globe. In 1999, a lawsuit was filed in a U.S. District Court alleging that the institute colluded with the collaborationist Croatian government to steal assets from Hitler's victims. (The case was dismissed because of the Holy See's diplomatic immunity.)

In 1968, the Vatican hired Michele Sindona as a financial adviser, despite a history of laundering money for the Gambino crime family.

Banco Ambrosiano
But all of these pale in comparison to the role the IOR played in the 1982 Banco Ambrosiano scandal -- the $3.5 billion collapse in 1982 of Italy's largest bank, which was accused of laundering money for the Sicilian mafia. (Unfortunately for cinephiles and historians alike, this scandal in particular was fictionalized to a ponderous extent in the notoriously ill-received "The Godfather Part III.") Here's a much more vivid account, from an excerpt from a contemporaneous Time magazine report, which recalls a real-life murder scene befitting a Dan Brown novel:

Simmering for more than a year, the scandal came to a boil last June 18, when the body of a man was found hanging from London's Blackfriars Bridge, his toes just touching the surface of the muddy Thames. The dead man's pockets contained some $13,000 in various currencies, as well as 12 lbs. of bricks and stones. He was identified as Roberto Calvi, 62, the president of Banco Ambrosiano of Milan, the largest private banking group in Italy, with operations in 15 countries. Authorities in Italy, in the Vatican and throughout the international banking community were stunned by the news. Calvi, who had disappeared mysteriously from Italy a week earlier, was the architect of a financial house of cards, and his death brought the structure tumbling down.

Italian authorities have since ordered the liquidation of Banco Ambrosiano and declared the institution bankrupt. The government has also been pressing the Holy See for a fuller disclosure of its role in the bank's affairs, thus rekindling the age-old tension between Italy and the Vatican, an independent entity that occupies 108.7 acres in the center of Rome. The Bank of Italy, the nation's central bank, has agreed to cover only part of Banco Ambrosiano Group's $1.2 billion shortfall, and is suggesting that the I.O.R. may have to come up with at least some of the money. Part of the reason for the Bank of Italy's stand is to put pressure on the Vatican to bring its bank into line with Italian banking regulations. The Bank of Italy has long been resentful of the I.O.R.'s status as an unregulated "offshore," or foreign, bank in the heart of the country. In addition, Archbishop Marcinkus and his two principal lay assistants, Managing Director Luigi Mennini, 71, and Chief Accountant Pellegrino de Strobel, 70, are under investigation by Italian authorities in connection with the possibly fraudulent bankruptcy of Banco Ambrosiano.

Calvi's death was ruled to be a murder. There are even those who believe that the untimely death of Pope John Paul I in 1978, only 33 days into his tenure, may have been a murder to prevent him from carrying out a close look at the IOR's finances.

The present scandal
The Vatican has resisted cooperating with Italian authorities regarding financial investigations in the past. For now, it is backing the IOR's president, Ettore Gotti Tedeschi.