Perhaps more than any other, the Vatican Bank should be expected to maintain the highest of moral standards in the way it conducts its business. However, despite its saintly links, the bank that acts on behalf of the Catholic Church has developed a reputation for corruption, scandal and mismanagement over the last few decades.

Murder, bribery, suspicious deaths, money laundering, and many other nefarious acts have been linked to the bank that is officially known as the Institute for Works of Religion (IOR).

However, when Pope Francis began his term as leader of the Catholic Church in early 2013, he made it clear that one of his goals was to reform the way the Vatican Bank is run, bringing about a series of reforms that would restore confidence and trust in the financial arm of the church. But seeing through the changes to such a secretive institution was always going to prove a difficult task, and one that has been unsuccessfully attempted previously.

Past scandals
Like the Catholic Church, the Vatican Bank has been steeped in mystery for much of the time it has been in operation. Founded in 1942 as a means to manage money on behalf of the Catholic Church, its main purpose was to ‘provide for the safekeeping and administration of movable and immovable property transferred or entrusted to it by physical or juridical persons and intended for works of religion or charity.’ It was plunged into disrepute in the late 1970s after many years of rumours about money laundering on behalf of the mafia.

When Pope John Paul I died in 1978 in apparently mysterious circumstances, many conspiracy theories suggested it might have had something to do with his desire to clean up the affairs of the Vatican Bank. The scandal intensified a few years later, when in the early 1980s a bank that it had a majority stake in called Banco Ambrosiano hit the news for all the wrong reasons.

Its leaders were accused of transferring money out of the country into shady overseas banks, as well as being linked to an illegal masonic loge known as Propaganda Due (P2), which had ties to the mafia. Banco Ambrosiano was investigated and its Chairman, Roberto Calvi, was arrested, trialled, and sentenced to four years in prison. After being released on appeal, Calvi fled Italy, before being discovered hanging under London’s Blackfriars Bridge shortly after. It marked a dark period in the history of the Catholic Church, leading to the scandal forming the basis for the plot of the third instalment of the Godfather trilogy.

The aftermath of the scandal rumbled on long after Calvi was found dead. Repeated attempts to prosecute individuals supposedly responsible proved unsuccessful. Bishop Paul Marcinkus, who led the Vatican Bank between 1971 and 1989, avoided prosecution, despite overseeing the darkest period in its history. Others included businessman Flavio Carboni, who was linked to the P2 lodge and mafia boss Pippo Calò. Both Carboni and Calò have been tried a number of times for the murder of Calvi, each time being cleared. They remain prominent figures in Italian business and politics, despite the controversies that have surrounded them.

History repeating itself
While the scandals of 30 years ago are yet to be fully put to bed, new ones have emerged in recent years that have sent the Vatican Bank back into the murky spotlight of before. In 2009 the bank was being investigated by authorities over money-laundering worth €180m. More allegations followed against then IOR President Ettore Gotti Tedeschi, leading to a police investigation, although charges were never brought.

Further allegations then emerged over money laundering – which led to US investment bank JP Morgan closing one of the Vatican Bank’s accounts – after it failed to provide sufficient information about the sources of the €1.8bn deposits. In response, Pope Francis established a new Pontifical Commission to study potential reforms for the bank, which later led to four senior cardinals being sacked.

Shortly before the shocking and unprecedented resignation of Pope Benedict XVI in February 2013, the Vatican Bank appointed a new President in Ernst von Freyberg as Tedeschi’s replacement. Tedeschi had been in the role just three years, but it was a period beset with scandal. He was eventually forced to step down in 2012 when a no-confidence vote among the board of directors was held, due to him failing “to fulfil the primary functions of his office.” However, after his departure, Tedeschi claimed that it was his push for greater transparency at the bank that led to his ousting, and specifically his looking into the accounts that were ‘non-religious’.

Von Freyberg, on the other hand, joined the IOR as a representative of an untainted new leadership that would help to transform its reputation. He called for a “zero tolerance” attitude to any transactions that were deemed suspicious, investigating all cases of potential tax evasion and money laundering. He also aimed to make the IOR much more transparent than it had ever been, opening it up to international regulatory standards.

Out with the old, in with the new
After Pope Francis took the reins of the Catholic Church there were many rumours that he would look to shake up the way it managed its finances. Rumours coming from the church hinted that changes were afoot for much of his first year in charge. They became true when Pope Francis made his first change in February, appointing Australian Cardinal George Pell as the Prefect for the Secretariat for the Economy, a newly created department that would oversee the annual budget of the Holy See and the Vatican.

Shortly after his appointment, Cardinal Pell told reporters there needed to be considerable work on reforming the Vatican’s financial arm. “There needs to be changes in the economic area – not just with the so-called Vatican Bank – but more generally there is work there to be done [and] a need to ensure that things are being properly done.” Other, bigger changes took a few more months to be announced. In somewhat dramatic fashion in June, Pope Francis began by sacking all five members of the board of the Financial Intelligence Authority, which regulates the Vatican’s finances. The entirely Italian board had been due to head up the regulator until 2016, but Pope Francis decided that a new batch of board members, from across the globe, would help to give it new impetus. New members included Juan Zarate, a former national security adviser to President George Bush, and Singaporean civil servant Joseph Pillay.

However, despite von Freyberg’s best efforts, his time in charge came to an abrupt – and surprising – end in July, with the news that he was being replaced by Frenchman Jean-Baptiste Franssu as IOR president. The 51-year old de Franssu immediately claimed that “Catholic, ethical investment” would be the focus of the bank in the future. However, Franssu was quickly accused of having a conflict of interest, when it emerged that the Promontory Financial Group had hired his son a few months before, which was in the midst of conducting an investigation into the bank’s operations and its relationships with clients.

Obstacles to change
How successful the new leadership of the IOR is in restoring the reputation of the bank remains to be seen. Certainly the words emanating from Pope Francis and his new appointees are encouraging, but it has proven difficult in the past to translate well-meaning words into meaningful actions. Author Philip Willan, whose book The Last Supper looked into the murder of Calvi and the scandals surrounding the IOR, told our sister publication European CEO magazine earlier this year that the bank needed to undergo some serious reforms, and that Pope Francis was serious about ensuring they were carried out. “I think Pope Francis has a sincere desire to turn the page on an embarrassing past and reform the way in which the Catholic Church handles money.”

However, he added that getting any meaningful reforms passed was likely to be difficult, with many people opposed to much change. “I don’t doubt, though, that there are powerful forces ranged against the reformists. The recent scandals show how a habit of flouting the law had become deeply ingrained among senior Vatican bureaucrats and their friends, something I examine in the last two chapters of the latest version of my book on the Calvi case.”

The scandals of the past reflect how corruption had infiltrated all aspects of Italy’s political and business class, and that meant a reluctance to pursue proper reforms. “The scandals show how even without the excuse of an ideological war against communism, Vatican officials continued to exchange favours with members of Italy’s political and business elite, simple greed supplanting ideology. It is remarkable how defendants from the Calvi murder trial, Flavio Carboni and Ernesto Diotallevi, have continued to have business contacts with people associated with the Vatican,” says Willan. “Paolo Oliverio, a financial consultant to the Camilliani, a religious order dedicated to the service of the sick, was arrested last year on suspicion of laundering money for the Calabrian mafia – Europe’s biggest cocaine traffickers. He is reported to have been in contact with both Carboni and Diotallevi, as well as their offspring. Carboni has also been shown to have cultivated contacts with members of Silvio Berlusconi’s inner circle in recent years, despite having been on trial for murder. A thorough reform of the church’s business culture will not be either easy or quick, but I think Pope Francis and his team are serious about pursuing it.”