Vatican City is the smallest sovereign state in the world, both by size and population. As the base of operations for one of the largest organisations in human history, the Catholic Church, the Vatican is never long out of the public eye. The nature of this state, as well as its governing body, The Holy See, is shrouded in mystery. With a population of 820, mostly high-ranking members of the clergy, analysing the economy with traditional methods poses challenges. There is virtually no industry here, outside of tourism which is where the city generates a large chunk of its revenue. Peter’s Pence, an annual donation from Catholics directly to the Vatican City, is another important piece of their economy. Economic insignificance has prevented them from being let into the EU club, however, they have always made a conscious effort to keep trade relations smooth, probably because they are the most internationally-dependent country in the world.
Management of the church’s finances has been a source of controversy for centuries, but especially in the last 100 years. Since the formation of the Institute for Works of Religion (or Vatican Bank), a veil of secrecy has enveloped the organisation. Corruption, scandal, and deception dominate the headlines, as these men of God continuously embezzle, launder and hide money for personal gain. While the last few years have brought reform and attempts to increase accountability, the church still has to overcome its age-old struggle, a refusal to change.
History of the Vatican Bank
In order to fully understand the Vatican Bank, we need some context around its inception. For 1800 years, Popes ruled as kings over the Papal States of the Italian Peninsula. This power was ceased in 1870 by Italian Nationalists, leading to the country’s successful unification. It wasn’t until 1929 that they reacquired some semblance of their power. The Lateran Treaty was signed between the Italian government and the church, granting them sovereignty over the Vatican City. To sweeten the deal, the church also received some 1.75 billion lire in cash and government bonds, courtesy of Benito Mussolini. With this sudden influx of cash, the Vatican needed someone to manage it all, and so they brought in a financial advisor, Bernardino Nogara.
They would go on to foster a similarly cooperative relationship with the Germans four years later. By the time World War 2 came around, the church’s position was one of neutrality, a source of controversy in and of itself. But with a large number of institutional banks blacklisting trade with Axis countries, The Vatican was in a difficult position. Their dependence on Italy and to a lesser extent, Germany, for trade, led them to the conclusion that they needed to set up their own financial institution. And so in 1942, Pope Pius XII formed the Institute for Works of Religion (IOR), more commonly referred to as the Vatican Bank. Long-time financial advisor Nogara was put in charge, and use of this bank was to be restricted to Vatican City residents and high-ranking members of the clergy, as well as the occasional Italian official looking to stash some cash.
Cold. Hard. Cash.
The end of the war brought widespread change, and this was certainly the case for the Vatican. A book written by Gerald Posner called ‘God’s Bankers’ delves into the history of the church’s financial activities. After the Allies’ victory, he claims the church (through the Vatican Bank) funded US and British intelligence missions and participated in the geopolitics of the Cold War, due to a vested interest in the fight against communism. Most claims of Vatican involvement in the Cold War are difficult to verify, but it is widely believed that the bank was a channel used to promote anti-communist interests. Unfortunately, most of these stories are unverifiable, due to the ultra-private nature of the bank’s activities at the time. However, that was about to change.
Banco Ambrosiano
The Vatican Bank’s veil of secrecy started to lift in the 1980s with the notorious Banco Ambrosiano scandal. As a majority shareholder, the Vatican Bank found itself implicated when Banco Ambrosiano collapsed under the weight of illegal financial activities. The head of Banco Ambrosiano, Roberto Calvi, known as ‘God’s Banker’ due to his close relationship with the church, also had connections of the criminal persuasion. The investigation uncovered illegal money transfers, mafia ties, and losses of an alleged $1.3 billion which, paired with Calvi’s murder in London in 1982, tainted the Vatican Bank’s reputation and cast them into the public eye. Although the Vatican never acknowledged liability in this collapse, they did pay out $250 million to the creditors of Banco Ambrosiano. This financial slap on the wrist would set a precedent of financial accountability within the Vatican Bank, and by extension, the church itself. At least that was the expectation. Archbishop Paul Marcinkus, the head of the Vatican Bank at the time of the scandal, was implicated in financial wrongdoing but was never arrested.
Over the next few decades, accusations of corruption kept coming the Vatican’s way. Reports of the bank’s investment activities would reveal substantial shares in companies that contradicted Catholic values, such as Italian arms manufacturer, Beretta. Transparency was still a huge issue. In 2010, Italian officials seized $30 million from a Vatican account, and a money-laundering case was opened up. The accused officials claimed this was an overreaction to a technicality, and despite numerous suspicious activities being brought up, the investigation would eventually be dropped.
Vatileaks
Then, in 2012, confidential documents were leaked to the Italian press by the Pope’s butler, including letters to Pope Benedict XVI, suggesting that the bank was not fully compliant with international standards. This leak led to an internal investigation, which uncovered sex and blackmail scandals within the church. Many speculate that this scandal played a large role in the Pope’s retirement the following year.
Pope Francis
A change in Popes brought with it many reforms to the Vatican’s financial practices. A report from auditors brought to Pope Francis early in his papacy revealed a serious lack of transparency and structural issues. He vowed to examine the whole financial system, and there was promise for some real change in the financial practices of the church.
He began in 2014 by replacing four of the five cardinals overseeing the Vatican Bank, as well as dismissing the entire board of financial watchdogs. This move was a statement of intent from the Argentinian pontiff. Things needed to change, and he was the man to do it. He also ordered an examination of all Vatican Bank accounts, to root out money-laundering activities. External audits, legal reform, and increased international cooperation with financial institutions gave hope of a new Vatican Bank, free from the deception and corruption that had become so commonplace.
Old Habits Die Hard
Pope Francis’ time at the helm of the Holy See would not be without scandal. In 2013, a senior member of the Vatican who oversaw investments, Nunzio Scarano, was arrested and charged with attempting to smuggle $26 million into Italy, also being accused of money laundering through the Vatican bank. He was acquitted of the charges and received just a two-year suspended sentence for defamation against a co-defendant. It wasn’t until 2019 when the case was once more brought to trial, that the true nature of his crimes was revealed. He was convicted of corruption and sentenced to three years in prison.
In 2021, former bank chief, Angelo Caloia, was sentenced to nearly nine years behind bars for money laundering and embezzlement. The offences were committed during his 20-year tenure as head of the Vatican Bank, which ended in 2009.
Cardinal Angelo Becciu, former deputy secretary of state, is currently on trial facing accusations of fraud at a value of $412 million after a London real estate investment collapsed and exposed the fraudulent activity of one of Pope Francis’ primary financial advisors. The allegations caused him to step down from his post in 2020. While this case does not specifically involve the Vatican Bank, the precedent for financial accountability will have a ripple effect throughout the Catholic church. Becciu is the first cardinal to be tried by judges from outside of the organisation, further highlighting Pope Francis’ dedication to transparency and compliance.
The Future of the Vatican Bank
This string of legal action against the church’s money men can be viewed through a couple of different lenses. On one hand, the continued malpractice surrounding the Vatican’s finances demonstrates an institutional lack of responsibility amongst even the highest-ranking members of the clergy. The saying ‘old habits die hard’ is never more pertinent than when talking about the Catholic Church. It has never been an organisation known for its adaptability. With God as their only recognised authority, is it surprising to uncover so much unchallenged corruption and ineptitude?
That being said, the fact that these trials are happening, and these scandals are coming to the fore, in my eyes, demonstrates a positive change. For nearly a century, fraud and secrecy have been part of the job description for those employed at the Vatican Bank. As the veil is lifted, and external influences are accepted, there is hope for a future in which the Vatican operates under the laws of men.
Of course, this could be naive thinking. The church has given little evidence of being able to, or wanting to change. Pope Francis seems to be doing his best to create positive reform, but his time as Pope won’t last forever. Will the next head of the church share his aspirations for honesty and fairness in line with the teachings of the Bible? Or will it be back to business as usual within the walls of the Vatican?
FAQs
What is the Vatican Bank’s main purpose?
The bank manages the Catholic Church’s funds for works of religion or charity.Has the Vatican Bank ever faced corruption allegations?
Yes, notably in the Banco Ambrosiano scandal in the 1980s and various money laundering cases.How is the Vatican Bank unique?
It’s a private institution of the Holy See, serving mainly clergy and religious institutions.What steps has Pope Francis taken to reform the Vatican Bank?
He has replaced top officials, enforced audits, and pushed for transparency.- How much money does the Vatican Bank have?
Financial statements from 2021 show that the Vatican Bank accumulated net earnings of 18.1 million euros and held assets worth around 2.8 billion euros.