Church official arrested in Vatican bank investigation

An undated photo of Monsignor Nunzio Scarano in Salerno, Italy. (AP Photo/Francesco Pecoraro)

A Vatican cleric was arrested along with a financial broker and a member of Italy's secret service Friday as part of an investigation into the workings of the Vatican bank.

The cleric was identified as Monsignor Nunzio Scarano, who was arrested in a parish on the outskirts of Rome. Scarano had worked as an accountant in the Vatican's financial administration, but had been suspended for several weeks.

Scarano's lawyer, Silverio Sica, told the Associated Press that friends had asked Scarano to intervene with the broker, identified as Giovanni Carenzio, to return 20 million euros ($26 million) they had given him to invest. Sica said Scarano persuaded Carenzio to return the money, and the Italian secret service agent, Mario Zito, went to Switzerland to bring it back aboard an Italian government aircraft. Such a move would presumably prevent any reporting of the money coming into Italy.

The operation failed because Carenzio reneged on the deal, Sica said. Zito, nevertheless, demanded his 400,000 euro commission. Scarano paid him an initial 200,000 euros by check, which Zito deposited, Sica said. But in a bid to not have the second check deposited at the bank, Scarano filed a report for a missing 200,000 check, even though he knew Zito had it, Sica said.

Reuters reported that Scarano had been suspended from his duties earlier this year after he was placed under investigation in his hometown of Salerno. That investigation concerns transactions Scarano made in 2009 in which he took 560,000 euros ($729,000) in cash out of his personal Vatican bank account and carried it out of the Vatican and into Italy to help pay off a mortgage on his Salerno home.

To deposit the money into an Italian bank account -- and to prevent family members from finding out he had such a large chunk of cash -- he asked 56 close friends to accept 10,000 euros apiece in cash in exchange for a check or money transfer in the same amount, Sica said earlier this week. Scarano was then able to deposit the amounts in his Italian account.

The original money came into Scarano's Vatican bank account from donors, who gave it to the prelate thinking they were funding a home for the terminally ill in Salerno, Sica said. He said the donors had "enormous" wealth and could offer such donations for his charitable efforts.

He said Scarano had given the names of the donors to prosecutors and insisted the origin of the money was clean, that the transactions didn't constitute money-laundering, and that he only took the money "temporarily" for his personal use.

The home for terminally ill hasn't been built, though the property has been identified, Sica said.

"He declares himself absolutely innocent," Sica said of the Salerno investigation.

Earlier this week, Pope Francis formed a commission to investigate the Vatican bank, which is officially known as the Institute for the Works of Religion and has been rocked by corruption allegations.

The Associated Press contributed to this report.