What happened: The Council of Europe’s anti-money laundering watchdog has issued an in-depth review of efforts by the Holy See to combat financial crimes.
What’s new: The long-awaited report from Moneyval recognized areas of progress, but highlighted the significant risk of abuse of office within the Vatican, and the lack of experience and resources among investigators and prosecutors in efforts to combat financial crime.
Why it matters: The report’s recommendations appear linked directly to a slew of changes to Vatican financial law in recent months, and to the high-profile Vatican financial scandal.
The report from Moneyval, published Wednesday but originally expected to be released in April, presents the findings of a two-week onsite inspection of Vatican financial institutions last year, which wrapped up in October. The visit was the first time inspectors had visited the city state since 2012.
The report primarily focused on the Institute for Works of Religion (IOR), which is the sole Vatican commercial banking institution under Moneyval’s oversight, and the efforts of the ASIF, the Holy See’s financial intelligence unit, along with Vatican City prosecutors.
While generally praising Vatican institutions’ assessment and efforts to combat money laundering and terrorist financing by non-Vatican residents and institutions, inspectors “disagreed” with the Holy See about the ongoing threat of internal financial misconduct by officials.
“[Vatican] authorities have advised that they consider the risk of abuse of office for personal or other benefits presented by insiders and related money laundering to be low,” the report concluded. “However, the assessment team disagrees with this conclusion and is of the view that risks presented by insiders are important.”
“Cases which have received wide coverage in the media have raised a red flag for potential abuse of the Holy See/Vatican City State system by mid-level and senior figures (insiders),” the report noted.
The Moneyval inspection covered the period up to October 2020, which includes the still ongoing investigation into the Secretariat of State’s London property scandal, which has seen several senior officials dismissed or suspended, and at least one person arrested.
The investigation into the secretariat’s investment of hundreds of millions of euros of borrowed money into a London building at 60 Sloane Avenue is being conducted by the Office of the Promoter of Justice for the Vatican City State and began in July, 2019.
Moneyval concluded that, while the system for internally reporting suspicious activity appeared to be functioning with “varied” results, “insufficient attention seems to be given to information provided in incoming mutual legal assistance requests” from foriegn jurisdictions.
The report was generally positive in its treatment of the IOR, which is the single financial institution under its review, and called the risk of money laundering “medium-low”.
Because the IOR is in Vatican City, its accounts are not subject to taxation and other regulations imposed by other countries. This has made it a target for abuse by money launderers. But, a key finding of the report suggests that threat of internal corruption, not abuse by outside crime syndicates, presents the most likely risk of ongoing money laundering at the IOR.
While in 2012 the inspectors did not emphasize the risk of internal corruption ahead of external abuse of Vatican financial institutions, the 2021 report did just that. This change follows concerted efforts in the years 2014-20 to close suspicious accounts held by non-Vatican residents and institutions at the IOR and other Vatican institutions like APSA.
“The authorities originally concluded that the main risk of money laundering arose from tax evasion by non-residents,” the report said. “It later became clear that tax evasion is no longer considered to be the main source of money laundering.”
“The dominant typologies suggested by cases and suspicious activity reports include predicate offenses of fraud, misappropriation, giving and receiving bribes, and abuse of office” within the Vatican itself, Moneyval found.
According to the report, Vatican officials told Moneyval inspectors “that they consider the risk of abuse of office for personal or other benefits presented by insiders and related money laundering to be low.”
“However,” the report said, “the assessment team disagrees with this conclusion and is of the view that risks presented by insiders are important.”
“The assessment team has concluded that the general risk assessment process cannot be fully complete without a comprehensive assessment and articulation of the risks presented by insiders and the risks in relation to public authorities.”
The report, dated April 2021, was written prior to several recent changes to Vatican financial law issued by Pope Francis, which appear to address these specific concerns.
In the week the Moneyval report was originally slated for release, Francis issued two new laws for the Vatican.
The first, issued on April 29, aimed to combat corruption by senior officials in the curia and in the city state, and that bars investments in companies or businesses “contrary to the social doctrine of the Church.” It also criminalized the Vatican’s bustarella culture of officials exchanging cash gifts.
This change appears to have been a direct answer to a key action item recommended by the Moneyval report, which called for the Vatican to “establish a comprehensive procedure for petitioning the Holy Father when requesting consent to pursue a criminal prosecution against cardinals and bishops.”
While recognizing that responses to Vatican requests for international cooperation in pursuing cases were sometimes late and delayed, Moneyval highlighted the Holy See’s “under-resourcing on both prosecutorial and law enforcement sides, and insufficient specialisation of financial investigators until comparatively recently.”
While the Vatican has made efforts in recent months to hire new specialist judges and prosecutors, the report recommends that the Vatican “recruit more prosecutors with practical experience of prosecuting financial crime in other jurisdictions, and ensure all new prosecutors work exclusively for the Holy See/Vatican City State.”
On the key metric of securing legal convictions in instances of money laundering, Moneyval called the Vatican’s results since the last inspection in 2012 “modest,” and said that while crimes were investigated once detected, sentences imposed after convictions were arguably not enough to deter future offenses.
“Money laundering activities investigated and prosecuted so far are, in general, consistent with risks identified by the jurisdiction,” the report said, but warned that “actual sanctions imposed in money laundering cases where there have been convictions are below the statutory thresholds for the money laundering offense and appear rather minimal.”
“Arguably,” the report said, “they are not proportionate and dissuasive.”
