A Vatican Observer AIF 2019 report, is the reform a good idea?

Jul 7, 2020

So, the Vatican's financial watchdog is getting a name change and new statutes. The Vatican's Financial Intelligence Authority will soon be known as the Supervisory and Financial Information Authority, or "SFIA" (ASIF in Italian). That's not the real news, though. The real news is that the figures of the  watchdog's recently released report for  2019 numbers show that the Holy See's anti-money laundering law has been further strengthened.

Not only. The figures also show that  the Holy See's successful anti-money laundering efforts are part of a broader improvement in the whole financial oversight system. This furthers  the growth trend seen in previous AIF reports.

The figures in the report are substantial: AIF received 64 suspicious activity reports (SARs), 55 of which came from supervised entities and four from other Holy See / Vatican City State authorities.

The AIF also enacted four preventive measures, including the freezing of a bank account. Moreover, it forwarded 15 reports to the Promoter of Justice, which confirms the rising trend in the ratio between reports to the Promoter of Justice and suspicious activity reports.

As far as international cooperation is concerned, the AIF involved 370 subjects in information exchanges with other financial intelligence units  (FIUs) and signed four new Memoranda of Understanding with foreign FIUs, for a total of 60 memoranda of understanding signed since 2012.

The positive trends risk being overshadowed by declarations from Carmelo Barbagallo, who  took the helm at the AIF in November 2019. In his remarks, Barbagallo announced that the AIF would change its name and tweak its statutes.

Barbagallo said that "first and foremost, pursuant to the new statutes, the name of the Authority would change to the Supervisory and Financial Information Authority (SFIA), a name that highlights the Authority's dual nature as intelligence unit and supervisory (and regulatory) authority."

Those remarks came through official Vatican media channels. Barbagallo  did not hold the traditional press conference to present the annual report. There was, in the end, no dialogue with the press, except for some arranged interviews, mostly in Italian and for Italian outlets. 

Barbagallo also explained that the AIF statutes would be tweaked. "With reference to AIF's governance," Barbagallo said, "the new statutes confirm the role of the Board of Directors and task the president with setting and monitoring the Authority's strategic goals."

In fact, the name change had already been discussed as far back as 2013, when the new Vatican anti-money laundering law was issued. Following the new law and the restructuring of the AIF with the two functions of intelligence and oversight, the proposal was better to highlight the outfit's functions in its name. In the end, then-AIF president, Cardinal Attilio Nicora, suggested keeping the name as it was a known quantity that had acquired some credibility. Keeping the name, he observed, also made sense to show the continuity of the Holy See's commitment.

This change would suggest a revival of the past and a re-emergence of the first phase of the AIF. The enhanced president's role would somehow limit the powers of a director and might create some problems. The president and the board of directors were tailored as guarantee bodies. With a proposing president and an executive board of directors, there can be potential conflicts of interest if the president and the board members keep their positions in activities outside the Vatican. How will this risk be solved?

All of these discussions need further analysis and are focused on the future of the authority.

On the other hand, the annual report is a snapshot of the activities of the past year, when the president was René Bruelhart and director Tommaso Di Ruzza.

The report follows the structure adopted in the past and provides a comprehensive overview of the work done.

In 2019, the Holy See joined the Single Euro Payment Area, which led to a Vatican IBAN issuance. In August 2019, the AIF also conducted a "targeted on-site inspection at the IOR for the purpose of verifying compliance with the current legislative and regulatory framework for payment services, including the fulfillment of all the necessary requirements for the IOR to join the SEPA schemes, as well as the 'effectiveness' of the payment systems."

The IOR adhered to the SEPA schemes in October 2019, while the Holy See joined the SEPA area in March 2019.

In May 2020, the AIF initiated the first general on-site inspection of the IOR for prudential purposes. The inspection is not linked to any particular event: it simply had to be done, and it could take place only after the issuance of the new IOR statutes, which were approved in June last year.

In 2019, the Financial Security Committee produced a second update of the General Risk Assessment. The report says the update "confirms a medium-low level of money-laundering (ML) risk and a low level of financial terrorism (FT) risk, with no significant domestic threats."

The AIF also issued in 2019 several instructions to counter money laundering and the financing of terrorism.

Regarding intelligence activity, the AIF suspended three transactions in 2019 for a total of €240,000 , and froze one account for a total of €178,970.65.

Barbagallo emphasized the Memorandum of Understanding he signed with the Vatican interim general auditor, Alessandro Cassinis Righi. A protocol of that kind was approved already in 2019 between the then president Bruelhart and the interim general auditor. Has the memorandum changed, or was it just updated? Barbagallo's statements suggest that it was mostly an update.

Barbagallo also underscored that the AIF signed a memorandum of understanding with the Vatican prosecutor. The signing of that Memorandum led to the AIF's re-admission to the use of the Egmont Group's secure communication network.

Egmont Group gathers some 165 financial intelligence units from all over the world. Via its secure network, members share intelligence about crimes such as money laundering, tax fraud, and terrorism financing. The AIF joined the Egmont Group in 2013.

Egmont suspended the AIF from its secure network following search and seizure operations on the AIF's offices during the Vatican police investigation into the purchase of luxury real estate in London by the Vatican Secretariat of State. The seizures also involved documents coming from foreign FIUs.

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The memorandum was designed to heal the breach generated by the seizures of reports from other FIUs. In the end, the protocol had to guarantee the independence of the investigation and the confidentiality of the information exchanged. International observers watched those developments keenly.  

The report also presents two example cases, with no mentions of names.

The first example case seemingly referred to the investigation on Italian entrepreneur Angelo Proietti, who was sentenced guilty for self-money-laundering connected with some procurements in the Vatican. It is known that the AIF reported the case. It is noteworthy that the Vatican tribunal sentence came in 2018, two years after Proietti reached a plea agreement in Italy.

The second example referred to the freezing of the accounts of a customer of Vatican financial institutions investigated by a foreign jurisdiction.

The 2019 figures show that the AIF's work in strengthening the Vatican anti-money laundering system has been widely positive. Neither the AIF president, nor its  director were confirmed at the end of their five-year mandates, the successes notwithstanding.

In the meantime, the AIF's staff was doubled, from 6 to 12 employees. The new powers of the president and the composition of the board suggest a comeback of the past. The president will return to be a sort of deus ex macchina. The board is already less "international" and more Italian. After the resignations of Juan Zarate and Marc Odendall as board members, and the expiration without renewal of René Bruelhart's mandate, the Italian Barbagallo (who comes from the Bank of Italy) was appointed president. Also, the Italian Antonella Sciallone Alibrandi filled one of the vacant seats on the board. 

The international observers have, in the end, only one question: will these decisions  strengthen the Vatican anti-money laundering system, or will they make past issues  resurface?