Pope names commission to investigate activites of Vatican bank amid money-laundering allegations

June 26, 2013: Pope Francis delivers his speech in St. Peter's square at the Vatican during his weekly general audience. (AP)

VATICAN CITY – Pope Francis took a key step Wednesday toward reforming the troubled Vatican bank, naming a commission of inquiry to look into its activities amid a new money-laundering probe and continued questions about the very nature of the secretive financial institution.

It was the second time in as many weeks that Francis has intervened to get information out of the Institute for Religious Works, or IOR. On June 15, he filled a key vacancy in the bank's governing structure, tapping a trusted prelate to be his eyes inside the bank.

On Wednesday, he named a commission to investigate the bank's legal structure and activities "to allow for a better harmonization with the universal mission of the Apostolic See," according to the legal document that created it.

Francis named five people to the commission, including two Americans: Monsignor Peter Wells, a top official in the Vatican secretariat of state, and Mary Ann Glendon, a Harvard law professor, former U.S. ambassador to the Holy See and current president of a pontifical academy.

American cardinals were among the most vocal in demanding a wholesale reform of the Vatican bureaucracy — and the Vatican bank — in the meetings running up to the March conclave that elected Francis pope. The demands were raised following revelations in leaked documents last year that told of dysfunction, petty turf wars and allegations of corruption in the Holy See's governance.

Francis, who has made clear he has no patience for corruption and wants a "poor" church, has already named a separate commission of cardinals to advise him on the broader question of reforming the Vatican bureaucracy as a whole.

The bank commission's members have the authority to gather documents, data and information about the bank's legal status and activities, even overriding normal secrecy rules to do so. Members can receive information from anyone in the Vatican bureaucracy as well as people who spontaneously volunteer information, and the commission can refer to outside advisers if necessary, according to the terms.

The bank's administration continues to function as normal, as does the Vatican's new financial watchdog agency which has supervisory control over it.

The commission will report back to Francis — presumably with both information and recommendations — and then will be dissolved, the document states. No timeframe was given but the commission is to start working soon.

The Vatican bank was founded in 1942 by Pope Pius XII to manage assets destined for religious or charitable works. Located in a tower just inside the gates of Vatican City, it also manages the pension system for the Vatican's thousands of employees.

The announcement of the committee came amid a new embarrassment for the Vatican in which prosecutors in the southern city of Salerno have placed a senior Vatican official under investigation for alleged money-laundering.

The Vatican spokesman, the Rev. Federico Lombardi, confirmed Wednesday that Monsignor Nunzio Scarano had been suspended temporarily from his position in one of the Vatican's key finance offices, the Administration for the Patrimony of the Apostolic See. Scarano has said he did nothing wrong, though in an interview with the local daily, La Citta di Salerno, he acknowledged he received bad advice from his accountant.

Italian daily Corriere della Sera reported over the weekend that Italy's central bank had asked the Vatican's financial watchdog agency for information about Scarano's Vatican bank account as part of the probe. Lombardi said he didn't know if the Vatican had responded to the request.

Such exchanges of financial information are the hallmark of the financial transparency that the Vatican has committed itself to as part of its efforts to join the "white list" of countries in the fight against money-laundering and terrorist financing.

The Vatican in November must submit a progress report to the Council of Europe's Moneyval committee on the steps it has taken to comply with such international financial transparency norms. The Vatican passed Moneyval's key test on its first try last summer but received poor or failing grades for its bank and its financial oversight agency.

There have long been questions about just what the IOR actually is and does — questions which the commission presumably will try to iron out for Francis. Vatican officials have long insisted it's not even a bank, since it doesn't perform key banking activities like making loans.

It does however take deposits, transfer money and invest for its clients, performing asset management services that in 2012 helped earn it 86.6 million euros in profit on 7.1 billion euros in total assets under management.

Some cardinals have questioned if the Vatican needs such a financial institution and whether its activities are even in keeping with church teaching.

In 2010, Italian financial police seized 23 million euros from an IOR account and Rome prosecutors placed the IOR's then-president and general director under investigation for alleged violations of Italy's anti-money laundering norms after they conducted a transaction from an IOR account at an Italian bank. The money was eventually unfrozen. The men technically remain under investigation but nearly three years on, haven't been charged.

The Vatican bank's workings have long been shrouded in secrecy. Most famously, it was implicated in a scandal over the collapse of Italy's Banco Ambrosiano in the 1980s in one of Italy's largest fraud cases. Roberto Calvi, the head of Banco Ambrosiano, was found hanging from Blackfriars Bridge in London in 1982 in circumstances that remain mysterious.

Banco Ambrosiano collapsed following the disappearance of $1.3 billion in loans the bank had made to several dummy companies in Latin America. The Vatican had provided letters of credit for the loans.

While denying any wrongdoing, the Vatican bank agreed to pay $250 million to Ambrosiano's creditors.