Vatican passes key financial transparency test

VATICAN CITY—The Vatican passed a key European financial transparency test, according to a report card released yesterday, but received poor grades for the effectiveness of its new financial watchdog agency and the ability of its bank to make sure its customers and transactions are clean.

The Council of Europe report marked a milestone in the Holy See’s efforts to shed its reputation as an institution whose finances have long been mired in secrecy and scandal and move on to the so-called “white list” of countries that share financial information.

The report showed the Vatican had received compliant or largely compliant grades on nine of the 16 “key and core” internationally recognised recommendations to fight money laundering and terrorist financing. But seven other areas were found lacking, particularly concerning the Vatican’s financial oversight agency, created amid much fanfare in 2010 to try to respond to international demands for greater fiscal transparency.

The 241-page report found serious problems with the agency’s role as a supervisor or regulator of the Vatican’s finances, giving it a failing grade. It said the agency had yet to conduct any inspections, can’t sanction one of the two key Vatican financial institutions and that its role, authority and independence needed clarification.

The report said the agency’s ability to share financial information with other governments was hobbled by the Vatican’s insistence that it enter first into bilateral agreements. The Holy See put the requirement in place largely because it fears Italy would make unreasonable demands for financial information from the Vatican bank, where Vatican officials, dioceses and members of religious congregations hold accounts. The Holy See wanted to make sure that if it gave such information to Italy, a reciprocity agreement would require Italy to share similar information with the Holy See.

The head of the Moneyval committee that evaluated the Vatican, John Ringguth, said the speed with which the Vatican came into compliance and the uniqueness of the Holy See as a state stood out to the inspectors: It is the world’s smallest sovereign state in terms of both size (44 hectares or 110 acres) and population (595 citizens of whom 247 are residents). It is the seat of the 1.2-billion strong Roman Catholic Church and a state with financial institutions, but has no private sector.

“One of the first things that we had to get our head around was the law of 1929, which basically creates a public monopoly system in the Vatican City State and Holy See,” Ringguth said in a phone interview. Overall he said the Vatican fared well in its first-round evaluation, noting that it comes out “somewhere in the middle” of Moneyval member states in terms of rankings and netting overall a compliant or largely compliant rate of 49 per cent with all the recommendations. Some of those states have had years to come into compliance, though, whereas the Vatican only began the evaluation process last year.

“They have moved very fast and been very responsive to our recommendations thus far,” he said. Monsignor Ettore Balestrero, the Vatican undersecretary of state, said the Vatican welcomed the findings and said the Holy See knew well it still had work to do.

“We take both the praise and criticism contained in the report with seriousness,” he told reporters. “The report released today is not the end, but is rather an important passage of our continuing efforts to marry moral commitments to technical excellence.”

The report set out several areas for improvement before the Holy See reports back in a year’s time on its progress. In particular, it said the Vatican bank, embroiled 30 years ago in one of Italy’s most spectacular banking collapses, should be independently supervised and should make rules about who is actually eligible to keep accounts there.

Currently, the bank is supervised by five cardinals, headed by the Vatican secretary of state. And only recently did the bank start researching its client database. While praising the bank for having instituted customer due diligence measures before required to by law, it found they were lacking in some areas.

It faulted the bank for simplifying the measures without first carrying out an assessment of the risks it faces for being used unwittingly for money laundering or terrorist financing. And it found fault with procedures to report suspicious financial transactions.

Balestrero acknowledged that the millions of dollars in cash donations the Holy See receives every year from the faithful could raise alarm bells for regulators seeking assurances that its money was clean.

AP