Analysis: Two former IOR senior managers found guilty of mismanagement

Vatican City, Feb 12, 2018 / 15:00 pm

A Vatican Court has found two former IOR senior managers liable for mismanagement, and ordered them to compensate the IOR for resulting damages.
 
IOR is the Institute for Religious Works, better known as "the Vatican bank," although it is not actually a bank and it does not operate as a bank.
 
The news of the sentence against the IOR's former senior managers was delivered Feb. 6 in a short release that provided no names, nor the amount of money to be compensated.
 
However, it was clear that the managers found liable were Paolo Cipriani and Massimo Tulli, respectively IOR general director and deputy general director until July 2013, when they stepped down following the outbreak of the so-called "Scarano case."
 
Msgr. Nunzio Scarano was an official in the Administration for the Patrimony of the Apostolic See, APSA, which does work as a sort of Vatican Central Bank. Scarano was charged with corruption and calumny by a court in Rome and with money laundering by a court in Salerno, and the charges involved the way Msgr. Scarano used his IOR account.
 
For the record, as a member of the clergy and a Vatican official, Msgr. Scarano was perfectly eligible to hold a IOR account.
 
In September 2014, after Cipriani and Tulli resigned, the IOR began a civil liability action against them, supported by a comprehensive review of financial investments made by the IOR before mid-2013, the recent IOR release read.
 
According to the release, the Vatican court ruling "is an important step, illustrating the significant work of IOR senior management over the last 4 years to transform the Institute", and demonstrates "IOR's continuing commitment to strong governance, transparency in its operations, and its determination to meet best international standards."
 
This court's ruling was anticipated Feb. 3, during the ceremonial of opening of the Vatican judicial year.
 
The judicial year is by custom opened by a report by the Vatican Promoter of Justice, who functions as a public prosecutor.  The report reviews the court's work over the prior year.
 
In his report, Promoter of Justice Giampiero Milani complained about the most recent Council of Europe's MONEYVAL progress report on the Holy See / Vatican City State. The report urged the Vatican Court to prosecute alleged cases brought to their attention by the Financial Intelligence Authority.
 
The Promoter of Justice noted that certain slowness is due to the Vatican system of justice, that is intended to protect from allegations until these are proven beyond any reasonable doubt.
 
Milani then stressed that "two sentenced for self-money laundering" will be delivered in the near future, and mentioned "a judicial civil litigation started toward IOR's senior managers, charged with mismanagement that caused highly onerous financial loss to the institute."
 
Milano underscored that the senior managers "contested the merits of the charges," and the issue "was complex and widely debated," and the promoter finally "made an intervention to defend the public interest."
 
Within one month, the full sentence will be available, and will clarify why Cipriani and Tulli were found liable for mismanagement.
 
It is noteworthy that the first IOR Annual report, published October 2013, recorded a 2012 profit of 86.6 million euro, while the 2013 report – issued July 2014 – recorded a 2.9 million euro profit.
 
The decrease was described as the result of "extraordinary expenses" and "corrections on investment funds managed by third parties" for 28.5 million euros in 2012 and 2013.
 
Is this the loss Cipriani and Tulli are considered liable for? And how much mismanagement in investments is due to their management and how much is due to those who took the helm of the Institute's financial operations?
 
These questions will be filled once the full sentence will be published.
 
In 2017, Cipriani and Tulli were also found guilty in a Roman court of failing to provide information to another bank on three money transfers.
 
The sentence had to be read in its entirety: Cipriani and Tulli were found guilty of 3 out of 9 charges, and they were minor charges, compared to those that began the trial.
 
That story began in 2010, with a decision by an Italian prosecutor to preventively seize money transferred by the IOR.
 
According to the prosecutor, the IOR did not fulfill its obligation of "reinforced due diligence"  when it transferred 20 million euro to JP Morgan and 3 million euro to Banca del Fucino from a bank account the Vatican financial institute held in the bank Credito Artigiano. At the time, the IOR was considered an entity in a non-European jurisdiction, that is "not equivalent" to the Italian jurisdiction.
 
The Vatican then adopted law n. 127, that is the first Vatican anti-money laundering law. Because of this, the Italian prosecutor revoked the seizure, as "there is no possibility of application, even because of new occurring facts." That is, the seizure revocation was motivated by the adoption of a general law. Was it really sufficient to fulfill the requirements?
 
In the meantime, the Holy See carried forward its anti-money laundering reform: "law 127" was replaced by a new law, following recommendations expressed by Council of Europe's committee MONEYVAL, which the Holy See joined  in 2011.
 
The new anti-money laundering law eventually led to the design of a brand new financial oversight system, and to the strengthening  of the Financial Intelligence Authority.
 
The change of pace given by the developments on new anti-money laundering law indicates the passage from a first phase focused on designing the anti-money laundering system to a second phase with a more stably designed system.
 
This second phase was marked by the issuance of Law n. 18 Oct. 2013, a comprehensive law governing the Vatican's financial system, and by the strengthening of the Financial Intelligence Authority via new statutes approved Nov. 2013. The same year, the Financial Intelligence Authority and its Italian counterpart signed a Memorandum of Understanding.
 
The funds were repatriated to the Vatican Nov. 2014. In a release, the IOR underscored that "the repatriation" of the funds was possible thanks to "the introduction of a fully fledged anti-money laundering and supervisory system in the Holy See in 2013."
 
Despite the fact that the funds had been repatriated, the trial against Cipriani and Tulli went on. The investigation started over an alleged lack of information on 155 transfers. In the end, the Italian prosecutor focused just on a few transfers lacking sufficient information.
 
So, beyond the 23 million transfer, the IOR was investigated for a 220,000 euro transfer operated by a certain Giacomo Ottonello; for a 100,000 euro transfer operated by a certain Giuseppina Mantese; for a 120,000 euros transfer operated by the Little Apostoles of Charity; for a 66,133 euros money transfer operated by Antonio D'Ortenzio; for a 70,000 euros transfer operated by Lelio Scaletti, who served as IOR general director; for a 100,000 euros transfer operated by Lucia Fatello; and 250,000 money transfer operated by "La Civiltà Cattolica".
 
While the Vatican's legal framework had changed, the trial went on. However, the court could only focus on minor issues, while finding Cipriani and Tulli not guilty of money laundering.
 
As the civil trial in Italy had a generally positive outcome, it is unclear why the Vatican prosecutor found the two former managers liable for mismanagements, especially considering that no investment could be undertaken without the approval of the IOR's Council of Superintendency.
 
The IOR's internal procedures will continue change. The Council of Superintendency met this week, and approved some reforms to the 1990 modification of the IOR's statutes. According to sources, the reform will eliminate the college of auditors and will establish a new overseeing body within the Institute's ranks.
 
This reform must be approved by the Cardinal's Commission, chaired by Cardinal Santos Abril y Castello.