A Vatican Observer Waiting for the annual report, the Vatican financial watchdog released the "General risk assessment"

May 20, 2019

On the eve of the presentation of the Annual report of the Vatican Financial Intelligence Authority, the "General Risk Assessment" of the Holy See / Vatican City State has been released on the Authority's web site.

In short, the document states that the Holy See is not a country in financial risk. The potential risks come mainly from outside and are connected to international and cross-border activities, and the national legal framework does not cause them. This latter could have been more vulnerable before, but now, after reforms, perfectly works.
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The document was issued in Dec. 2018.  Monsignor Paolo Borgia, the assessor to the Secretariat of State and president of the Financial Security Committee, authored the foreword of the text.

Monsignor Borgia underscored that "the document shows how, also considering the uniqueness and geographical configuration of the jurisdiction, the potential risks come mainly from outside and are connected to international or cross-border activities." 

"On the domestic level, monsignor Borgia continued,  a number of specific areas have been identified in which to strengthen safeguards, such as donations, public procurement contracts and non-profit organizations registered in the Vatican City State."

In the 2018 AIF annual report, Tommaso Di Ruzza, director of the Financial Intelligence Authority who also serves as secretary of the Financial Security Committee and coordinator of the General risk assessment, noted that the assessment "did not highlight internal threats." 

The recommendations are aimed at strengthening the effectiveness and
sustainability of the anti-money laundering system. In particular, it is recommended to enhance the Financial Intelligence Authority, the office of the Vatican Promotor of Justice (i.e., public prosecutor) for economic-financial crime and the Tribunal and Appeal Court to the Vatican City State tribunals. 

These recommendations have a twofold goal.  

On the one hand, there is the need to strengthen the Financial Intelligence Authority, to make more sustainable its remarkable activity on financial intelligence and oversee. 

On the other hand, there is the need to strengthen and furtherly specialize tribunals, so that they could adequately follow up with investigations and prosecutions to the AIF suspicious transactions report.

These two goals were also recommendations included the Council of Europe's MONEY 2015 and 2017 progress report on the Holy See / Vatican City State. 

The general risk assessment based on the methodology provided by the World Bank and meet the recommendation n. 1 of the Financial Action Task Force, the international group that elaborates recommendations for countering money laundering. 

The general risk assessment shows that the Holy See is consistent with international standards. The Holy See reporting system is working and is continually improved. Recently, the Financial Intelligence Authority also issued the "Regulation n. 5 on suspicious transactions reports." 

The "General Risk Assesment Document" stresses that "a stable institutional and legal anti-money laundering has been created." 

In the course of the years, the Holy See improved its anti-money laundering legal packaged. In 2013, the Holy See issued the law n. XVIII that also established the Financial Security Committee. 

The Committee is a permanent body set up to coordinate policies and strategies to counter potential financial crimes. 

The Committee is composed by: the assessor for the General Affairs of the Secretariat of State, who is the president of the Committee; the undersecretary for the Relations with States of the Secretariat of State; the general secretary of the Vatican City State administration; the general secretary of the Secretariat for the Economy; the promotor of justice (i.e. the public prosecutor) of the Vatican City State Tribunal; one of the two adjunct auditors to the office of the General Auditor; the director of Financial Intelligence Authority; the director of the security services of the Vatican City State administration; the commander of the Pontifical Swiss Guards. 

According to the Financial Intelligence Authorities Reports, the number of suspicious transactions reports has diminished, but their quality improved. The reports also tell that there are periodic meetings among the Vatican promotor of justice, Gendarmes Corps and Financial Intelligence Authority to coordinate investigations.

Between 2011 and 2018, there have been 366 exchanges of information between the Financial Intelligence Authority and Holy See and Vatican City State authority. Sixteen out of those exchanges were spontaneous communication of information related to the prevention and fight against money laundering.

As said, donations and public procurements were given special attention.

 The donations are collected through ad hoc institutional channels, like Peter's Pence, the Papal Almoner, and the Pontifical Missionary Works. These latter are subjected to domestic legislation.

The Vatican City State was admitted on Nov. 21, 2018, in the SEPA, the Single Euro Payments, Area from the European Council of Payments. Financial operations in the SEPA area will then be smoother and compared to domestic transactions. 

The General Risk Assesment document also describes the Holy See economy. 

"Considering the particularities and the limited size of its economy, the document reads, it is not possible to assign a 'gross value' to the economic activities performed in the Vatican City State or to calculate the cost of the goods and services consumed in the State," and "the Gross Domestic Product (GDP) index is not applicable to the jurisdiction", since "in Vatican City State there are no free markets in the economic, financial and professional sectors." 

The document reminds that in the Vatican "there is no private real estate," and since this sector is particularly vulnerable "a regulation on public procurement contracts was drafted and is currently under assessment by the Superior Authorities, in view also of the implementation of Article 9 of the Mérida Convention against Corruption, as ratified by the Holy See on Sept. 16, 2016".

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The Vatican City State does not have a banking sector, and so the General Risk Assessment report on the limited financial sector present in the Vatican City State. 

The financial sector of the Vatican City State "is public in nature and is de facto closed", since in the State "there is no financial market", "no public debt instruments, capital instruments, securities or associated instruments are issued," "no insurance companies, electronic money institutions, trust companies, securities firm exist," and "there are no foreign financial entity branches, subsidiaries or offices."

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