A Vatican Observer Vatican Finances, what is going on? Sloane Avenue and more

May 20, 2020

The Holy See is reportedly seeking to renegotiate the £120 million loan it used to complete the purchase of property at 60 Sloane Avenue in London. The news appeared in the Corriere della Sera on May 3, 2020, in the economic reports, and sheds new light on the story of the real estate purchased by the Vatican Secretariat of State.

That purchase is, in fact, at the center of an intricate Vatican judicial affair, which led to searches in the Secretariat of State and the Vatican Financial Information Authority and the suspension of five Vatican officials, plus another suspended during the investigation.

The news is food for thought, and raises some new questions.

If the Holy See is trying to renegotiate the mortgage, then the investment was a good investment. If it was a good investment, then the efforts made to preserve it, leaving all the opaque areas (copyright Cardinal Pietro Parolin), were made to protect the Holy See, rather than to put it in a complicated situation. If this reconstruction is accurate, then why the suspensions, which then led to a total change in the leadership of Vatican finance, among other things on the eve of one of the evaluations of the Council of Europe's MONEYVAL committee?

There is still no real clarity on the real estate deal carried out in London by the Secretariat of State now under scrutiny.

Why, then, was the director of the Financial Intelligence Authority, Tommaso Di Ruzza, suspended if there was no clarity on charges? And why were both the former AIF chief René Bruelhart and Di Ruzza not confirmed at the end of their mandates, a decision that also led to the resignation of two members of the FIA's board of directors?

The outbreak of the crisis

The financial scandal has laid bare an institutional crisis inside the Vatican, which also affects the Secretariat of State.

The Secretariat of State has funds abroad and its emergency financial reserve. These are funds belonging to the dicastery, which Cardinal George Pell, then prefect of the Secretariat for Economy, quantified in 2015 at about €1 billion 400 million.

Between 2011 and 2012, the First Section of the Secretariat of State of which Monsignor Alberto Perlasca was administrative head starting in 2009, decided to invest in a luxury real estate development in London (the aforementioned property at 60 Sloane Avenue). The 60 SA company managed the property. The Vatican Secretariat of State signed its purchase for $160 million with the Luxembourg-based Athena fund, owned and managed by Italian financier Raffaele Mincione, who acted as an intermediary.

When the Athena fund was liquidated, the investment was not returned to the Holy See. The Holy See risked losing all the money if it did not buy the building.

Archbishop Edgar Pena Parra, deputy of the Secretariat of State since August 2019, saw little clarity in the operation and reported it to the AIF, which  consulted five foreign FIUs and blocked the purchase, communicating the decision to both the English FIU and the Secretariat of State.

The problem was this: the purchase of the property is included in a series of corporate schemes and screens that did not make the Vatican appear among the buyers, while the role of the mediator was enhanced. 

It was a way, in short, for Mincione to raise the price tag on the deal. The Vatican Financial Intelligence Authority blocked the deal based on the regulation it issued, providing full transparency to those who move money.

However, the contract obliged the Secretariat of State to purchase. The AIF restructured the investment, excluding intermediaries and thus making the Holy See save some money. The Secretariat of State, at that point, asked the IOR for resources sufficient to close the old mortgage and allow  the opening of a new one, to conclude the purchase.

The IOR said "No," involved the office of the auditor general led by Alessandro Cassinis Righini on an interim basis, and reported the operation to the Vatican Promoter of Justice, citing the lack of clarity regarding the way the Secretariat of State's money was being used.

The complaint was forwarded on July 2, 2019, by the IOR's general director, Gianfranco Mammì. Mammì had also directly warned the Pope, with whom he has a personal relationship.

On August 8, 2019, the office of the auditor general sent a document to the Vatican prosecutors. The document also noticed that almost 80 percent of the reserves of the Secretariat of State are deposited with Credit Suisse, rather than at the IOR.

According to the general auditor, the failure to use the IOR created a conflict of interest. The reason is that the investments employ donations received by the Pope for the sustenance of the Curia. These donations would be used in funds that, in turn, invest in securities that the client is not made aware of, as well as in funds allocated in off-shore countries such as Guernsey and Jersey, where they are exposed to high speculative risk and dubious ethics.

The promoter of Justice receivesd the green light directly from the Pope, not passing through the Vatican court. With the collaboration of the Gendarmerie, it launched an operation that led to the "raids" in the Secretariat of State and Financial Intelligence Authority, and to the suspension of five officials, including Monsignor Mauro Carlino, the former personal secretary of Cardinal Angelo Becciu (substitute of the Secretariat of State from 2011 to 2018) and at the time of arrest at the head of the Information and Documentation Office of the Secretariat of State.

The suspension left the suspicion that the investigation did not evaluate all the previous steps and deliberately put aside the AIF's work in the issue. It also left questions open regarding who might have stood to gain from the real estate sale.

The latest developments

The news of the search for a new mortgage went hand-in-hand with news that the  London and Kensington municipal councils had granted a new building permit for the estate on Sloan Avenue, which will no longer be destined for luxury apartments, but offices. The building will have two further floors.

This allows the Holy See to restructure and renegotiate the conditions for the £120 million mortgage with Cheney Capital.

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The mortgage had expired on April 30, 2020. It had 5 percent interest plus Libor, an interbank rate. According to the Corriere della Sera, the Holy See aimed to extend the debt to 5-10 years, with interest rates around 2 - 2.5 percent. Alternatively, the Vatican could replace the mortgage with a one from another bank.

All so as not to lose the investment, which between 2013 and 2018 took a sum of about €300 million from the Secretariat of State.

The people under investigation

Five people are under investigation: two managers of the Secretariat of State, Vincenzo Mauriello and Fabrizio Tirabassi; an administration officer, Caterina Sansone; and two senior Vatican leaders: Monsignor Maurizio Carlino, head of the Information and Documentation Office, and the director of the AIF (the Financial Intelligence Authority) Tommaso Di Ruzza. To these was added Monsignor Alberto Perlasca, who for ten years had been head of the Administrative Office of the Secretariat of State and who had then been transferred to the Apostolic Signatura.

On April 30, 2020, the Holy See Press Office said that "individual measures" were taken "for some employees of the Holy See, at the expiry of those adopted at the beginning of the investigation into financial investments and in the real estate sector of the Secretariat of State." Practically speaking, they were sacked.

Msgr. Carlino returned to the diocese of Lecce, Sansone has been moved to another office with fewer responsibilities, Mauriello and Tirabassi were suspended again until July

Di Ruzza was not renewed in his mandate as director of the AIF, which expired in January, after earning praise for the Vatican's financial structures from international monitoring agencies.

None of the people investigated have yet been charged.  The investigation is still in the preliminary phase. Rumors say  Tirabassi has yet to be questioned.

The institutional crisis and the players at stake

All these details show that we are not talking about a mere financial scandal, but rather a particularly severe institutional crisis. It seems to be an attack on the institution from within the institution.

On the one hand, there is the IOR.

The Institute for Religious Works recently reformed its statute and has focused heavily on ethical finance. The financial investments of the IOR have always met certain specific criteria, and since the mid-1990s, the Institute has subjected the financial statements to an external review.

The IOR balance sheet is not terribly healthy.

They range from the profit of €86.6 million declared for 2012 – which quadrupled the earnings of the previous year – to €66.9 million in the 2013 report, to €69.3 million in the 2014 report, to €16.1 million in the 2015 report , to €33 million in the 2016 report and €31.9 million in the 2017 report, to reach €17.5 million this year.

This is the fault of market trends, and also of the expensive external consultants who have been brought in to help craft  Institute's policies. For some time, draws were made on reserves, which gradually dwindled. The IOR could undoubtedly benefit from the obligation to allocate institutional investments to the Institute, which is what is being contested by the Secretariat of State.

It should be noted, however, that the latest IOR report certifies that the liquidity deposited by asset management has decreased by €47.3 million.

This drop in liquidity, which corresponds to a decline in customers, "is attributable to the withdrawals by some customers for their institutional activities," explained the general director Gianfranco Mammì. Does this mean that the IOR is no longer considered attractive for institutional activities even by religious congregations?

On the other hand, in recent years, the IOR has carried out a series of complaints and trials against former managers, establishing a subcommittee for past offenses closed in 2017 and working to build a narrative based on the idea that the IOR is cleaned up and rejuvenated.

There are ongoing or appeal proceedings, which in some cases raise doubts about the very possibility of the people under investigation to carry out operations without the consent of the Institute's top management.

One of these proceedings concerns a real estate sale in Hungary through a company based in Malta: the lawyers of the same company have raised the suspicion that the IOR is pursuing the procedure precisely to discredit the work done in the past. Again, justice will take its course.

The Financial Intelligence Authority

On the other hand, it was thanks to the AIF that Angelo Proietti was sentenced guilty for money laundering and that light was shed on banker Giampietro Nattino, who made himself the screen of the IOR and the APSA. These are cases of which the Institute''s publicity never speaks.

The Financial Intelligence Authority has played a crucial role in developing the international credibility of the Holy See. From joining the Egmont Group, which brings together over 140 intelligence authorities from around the world, to building and strengthening the Vatican's anti-money laundering system, the Financial Intelligence Authority has been recognized as a reliable partner in both its intelligence and supervisory functions.

The latest annual report of the Authority listed 56 memoranda of understanding signed with its counterparts in the field of information and eight memoranda of understanding in its supervisory function. Among these, the Italian Financial Information Unit and the Bank of Italy testify to a well-crafted and well-performing bilateral relationship.

Information exchange with Financial Intelligence Units worldwide has also made AIF a privileged interlocutor. The latest report shows that the AIF has exchanged information with foreign FIUs 473 times, while 158 spontaneous communications have been transmitted to foreign Financial Information Units, and 15 have been received.

The financial information and money laundering prevention system set up by the AIF, with the series of regulations issued, had given the Holy See the technical requirements for entering the Single Euro Payments Area (SEPA).

This workload is based on relationships of trust characterized by the necessary confidentiality of intelligence, as well as on a well-built and properly functional legal system.

The Vatican Tribunal

In its latest 2017 progress report, the Council of Europe's MONEYVAL committee praised both the anti-money laundering system and the establishment of financial crime section in the court, but also said the court needs to conduct more prosecutions.

The next Moneyval report will look at how well paper reforms are really being implemented, especially insofar as the tribunal is concernedThe Vatican court has always contested this accusation of ineffectiveness, as well as the idea that the court is the weak link in the system.

The day after the news of the searches, the appointment of Giuseppe Pignatone as president of the Vatican Tribunal was announced. Known for his anti-mafia investigations, Pignatone thus goes from being a prosecutor to being a judge. He is retired from the Italian judiciary system, which means he will be able to work full time for the Vatican Tribunal.

However, he came into the Vatican with the knowledge of the Italian code, not of the Vatican code. The Vatican took over the Italian 19th-century Zanardelli code, a liberal code adapted to modern times with a reform of Pope Francis in July 2013. It is different from the Rocco code in force in Italy, which was drawn up under fascism and rejected by the Holy See.

Before Giuseppe Dalla Torre presided the Vatican tribunal, Dalla Torre is a profound connoisseur of the Vatican particularities in criminal and canon law. Now, the appointment of Pignatone also suggests a loss of the Vatican "exception", and a State that conforms to Italy goes against the international accreditation work that has been done so far, first with Benedict XVI and then with Pope Francis.

What scenarios in the Secretariat of State?

Are we going back to the times when the Vatican modeled itself on the Italian State? Maybe it's too early to draw conclusions.

It should be noted that everything began to come to light when Archbishop Edgar Pena Parra began working and reshuffling the ranks of the Vatican Secretariat of State.

An Italian had always led the administration of the Secretariat of State.

Monsignor Alberto Perlasca led the office for ten years. In 2019, he was appointed Deputy Promoter of Justice at the Supreme Tribunal of the Apostolic Signatura. The new head of the administration is Monsignor Rolandas Makrickas, a Lithuanian, who recently arrived at the Secretariat of State after serving at the nunciature in  Washington. It is the first time that a non-Italian had led the administration of the Secretariat of State, which already had frictions with the Secretariat for Economy when it seemed the new economy outfit wanted to take control of all the Vatican finances.

The risk of returning to old balances seems strong in this moment, the very one in which the Secretariat of State has regained a central role; the Secretariat for the Economy has seen a well-defined separation between supervision and administration with the motu proprio "Temporal goods" of 2016, and the Auditor's office has been better inserted among the bodies of Curia.

The desire for a reversal has been there ever since Benedict XVI initiated the reform process with the Monetary Convention with the European Union of 2009.

The IOR's complaint has exposed an institutional wound that will be difficult to explain internationally. All the credibility and financial strength that the Holy See has acquired in these ten years could be at risk.

2 – continue

This is the second of a series of three pieces dedicated to the Vatican finances. The first piece of the series can be found here.

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