Holy See and financial transparency. The path to the white list

Will Ettore Gotti Tedeschi have to stand trial before a Vatican court? The possibility is rather remote. If he will, it would be because of the documents the former president of the IOR. Board of Superintendence took from his office in Torrione Niccolò IV. Gotti Tedeschi probably is not in possession of  “sensitive documents”. His folders are more likely a collection of letters, e-mails, and private papers, which show the propensity of the former president of the IOR to focus on his own interests and to champion his image as the “man of transparency” within the Vatican. The personnel of the IOR would never give Gotti Tedeschi sensitive documents. But – if some IOR sensitive document are to be found among the papers, he could be prosecuted for theft by the Vatican.

After the no confidence vote. The words of Gotti Tedeschi

After receiving a no confidence vote by the IOR Board of Superintendence, Ettore Gotti Tedeschi became part of the investigation on the Italian defense company Finmeccanica. He is not charged with any crime, but he is suspected to have stored documents of Finmeccanica CEO Fernando Orsi. As Gotti Tedeschi, Orsi hails from Piacenza. They are long-time friends. That is why Gotti Tedeschi’s house in Piacenza and his office in Milan were searched. The police took 47 folders, that are said to contain Gotti Tedeschi’s private documents – and not IOR correspondence. These folders are now in the hands of the Public Prosecutor of Naples investigating Finmenccanica. The Public Prosecutor of Naples sent to the Public Prosecutor of Rome some of the documents. The Public Prosecutor of Rome is still investigating 23 million euro transferred by the IOR in September 2010 (20 million were transferred from a IOR account to a branch of Credito Artigiano and 3 million from a IOR account to Banco del Fucino toward a IOR account to a JpMorgan branch in Frankfurt). Gotti Tedeschi has been questioned by both Public Prosecutors. On the one hand – according to the press – he said he wanted to be discreet and not to speak about the IOR in order not to cause pain to the Pope (he insistently has asked for a private audience with Benedict XVI); on the other hand, he reportedly said that there had been opposition to him for his commitment to transparency, his desire not to have any more cipher accounts in the IOR, and his work to add the IOR to the list of virtuous banks compiled and monitored by the Bank of Italy.  On this, he would have had the collaboration of Anna Maria Tarantola, then number two of the vigilance in the Bank of Italy and now general manager-elect of Italy’s public broadcaster, RAI Television.

IOR transparency

These allegations  are a strong blow to the IOR image. But they are not true. One telling conversation – that is in some ways confirmed from what Paolo Cipriani, IOR general manager, recently told in an interview – even if no one will ever officially confirm it, offers insights.  When Ettore Gotti Tedeschi was still the president of the Institute, Paolo Cipriani, the IOR general manager, asked Gotti Tedeschi to show him where the cipher accounts were, since Tedeschi had been repeatedly calling for their closing. Gotti Tedeschi, angry, did not want to identify which accounts he was talking about and said: «There are such accounts, the Bank of Italy told me about them». Cipriani explained the IOR security and transparency procedures in an interview to the Italian newspaper Corriere della Sera. The policy of the Institute changed in 2002, when the KYC procedures was first and scrupulously applied. KYC stands for «know your customer», and involves a thorough screening of customers.

The IOR has always maintained informal but close cooperation with the Guardia di Finanza, i.e. the Italian financial police. The cooperation is so strong that it is told that Paolo Cipriani once got a letter from the Guardia di Finanza, thanking him for the expediency and the precision of his information in response whenever Guardia de Finanza asked for anything. This was a relationship based on trust.  But the handling of the IOR. account at the JP Morgan branch in Milan did not follow this pattern.

The news of the closing of the account was made public the day after the press release of the second on-site visit to the Vatican of the MONEYVAL advisors. The press release acknowledged the steps forward taken by the Holy See.

Il Sole24Ore – the Italian newspaper that spread the news – claimed that the account was closed because the IOR was «unable to answer» requests for further information regarding some payments of the account to the branch of Milan – a peculiar account, which balance was brought to zero at the end of every day. JPMorgan also recalled that the bank activities of the branch are subject «both to the law of the Italian State and to internal regulations». That is why – after looking atthe IOR needs and the requirements imposed by Italian law and bank regulations – JPMorgan reportedly did not think it had enough information to offer pay and cash services to the 1365 account. However, in fact, it was the IOR that closed the account. The decision to close it was in part also a response to the way in which Italian magistrates had asked for information about the account.

FIUs’ – Financial Intelligence Units –purpose is the exchange of internal information. When there is suspicion of money laundering, the bank alerts the vigilance of the Central Bank, which then alerts its financial intelligence unit. The alerts are kept anonymous, to protect the way that the systemprevents money laundering. These parameters are designed by the Egmont Group of Financial Intelligence Units, a «working group» of FIUs to improve cooperation in combating money laundering and the financing of terrorism, and to help develop each State’s programs against money laundering.

The confidentiality of information is a key element in efforts to combat money laundering, as is also stated in Italy in the law 231/2007, that deals with the competences of the Bank of Italy. Art. 6 of the law says that «the FIU carries its functions with full autonomy and independence. To implement these principles, the Bank of Italy regulates the organization and the functioning of the FIU, including the confidentiality of the information collected. The Bank of Italy provides the FIU with financial means and other adequate resources to insure the efficient pursuit of its institutional goals».

In the case of the closing of the JPMorgan account, none of the standard procedures were followed: the Rome’s Public Prosecutor directly alerted the FIU of the Bank of Italy; the FIU then alerted the vigilance of the Bank of Italy; and the vigilance asked the JPMorgan branch information on the account. But, if the public prosecutors want to investigate an account, they must do it through the Guardia di Finaza. Yet, Ettore Gotti Tedeschi maintained that there were valid reasons why  JPMorgan closed the IOR account of its Milan branch. Gotti Tedeschi’s lack of initiative to defend the Institute was noticed by the IOR Board of Superintendence in the now famous meeting of May, 24, when the board passed the no confidence resolution on its president.

The 24 May board of Superintendence

Usually, the meeting of the Council of Superintendence – called on trimestral basis – are divided in two parts: during the first part – that lasts about half an hour – the members of the Board meet; only after – and this is the second part – Paolo Cipriani, general manager of the Institute, enters, and reports on technical aspects and bank operations of the previous semester.

On May 24, Cipriani had to wait two and a half hours. When he was called by the board, Ettore Gotti Tedeschi had already left the meeting, and the no confidence vote had already taken place. The memorandum was already drafted by Carl A. Anderson, who was the secretary of the Board.

Gotti Tedeschi – as written in the memorandum – began the meeting, and spoke for about 70 minutes. After his speech, the members of the board raised some issues. They remarked to the president his unjustified absence to the last two scheduled meetings of the board (on February, 24 and April, 17). The absence to the last meeting was very disappointing: it was the meeting when the board approved the balances and the earnings to be allocated to the Pope. The IOR, in fact, is not a bank, and its fund are at the Papal disposal. Rumors says that Gotti Tedeschi was in Rome, and he was invited to join the meeting. He did not go.

The board also raised with Gotti Tedeschi news leaks. Among the several documents of the institute leaked to the press in the previous months, there was an e-mail sent by Francesco De Pasquale (general manager of the Authority for Financial Information, so formally a controller) to Ettore Gotti Tedeschi (formally, one of the ones controlled) that complained about the ramifications of the Vatican anti-money laundering law – the law n. 127.  The law had been amended as per MONEYVAL recommendations, and this had sparked a lively debate inside the Vatican.   The e-mail – the members of the board noticed – could have only been leaked by Ettore Gotti Tedeschi’s office.

Last key issue, the closing of the JPMorgan account: why did the president not defend the Institute from the attacks and the inaccuracies of the press? It was then that Gotti Tedeschi, angry, abandoned the meeting. It was – for the members of the board – the climax of a tense and overdue situation. In order to manage thecontroversy,it was decided to publicly release the memorandum of the meeting.

On May, 25 – the day after the no confidence motion– the IOR Commission of Cardinals was convoked to decide how to manage the new situation. Only Card. Odilo Scherer could not be part of the meeting, while Card. Telesphore Toppo arrived right in time from India. In that meeting, the cardinals decided how would Gotti Tedeschi be let go from the institute.

What will follow

While awaiting how the investigation would proceed, and as soon as the news of the «memorandum» of Gotti Tedeschi spread, the Holy See released a press communiqué in which it maintained that it trusted that «the prerogatives acknowledged to the Holy See by the international legal order are being adequately considered and respected by the Italian judicial authorities». It is a clear statement: the Holy See reminds all that those are documents from a sovereign country, seized from an ex president of a «body of State».

To think that this would be of detriment to the evaluation of the Holy See Transparency by the Council of Europe would be wrong. It seems MONEYVAL evaluated the IOR «largely compliant» with international standards.  It was just part of the evaluation. The evaluation is not just about the IOR.  It includes the 120 Vatican bodies that deals with budgets and financial transfers.

Holy See financial transparency. Risks and procedures.

It is worth to clarify some assertions made in the last few days. These assertions had partially come out from the same environment that defended Ettore Gotti Tedeschi. They claim that the Holy See risks not to be added to the white list of the virtuous States in terms of prevention of money laundering; the Holy See has been selected to undergo MONEYVAL inspections; and that the Holy See does not want to cooperate with Italian authorities. But these statements are false or grossly inaccurate. It is thus worthwhile to be  very thorough, and explain everything step by step.

White list

Let us begin with the so-called «white list» issue. MONEYVAL – the body of the Council of Europe that evaluates the adherence to the anti-money laundering norms of Council of Europe State members – does not have a white list. MONEYVAL is a body where peer-to-peer evaluations of member States takes place. There are no inspections. There are processes of mutual evaluation. And these evaluations are part of an on-going process. After the plenary assembly of MONEYVAL – 2-6 of July – the report about the Holy See will be public. The draft of this report was first discussed in Strasbourg, during the meeting between Holy See officials and MONEYVAL evaluators in May. Some weaknesseshave been noted. But these weaknesses often deal with the fact that the Holy See is a peculiar State. MONEYVAL reports are divided in three parts: legal, financial and law enforcement. The evaluators rate the adherence to each GAFI recommendation (40+9 until February, now 40, with several novelties). Rating can be: non-compliant, partially compliant, largely compliant or compliant. Of the GAFI recommendations, 16 are «key and core». Of these 16 key and core recommendations, the Holy See – according to the press – would be partially compliant or non-compliant in 8. Obviously, this could change after discussionsat the plenary assembly. If it got 10 negative ratings, the evaluation of the Holy See adherence to international standards would be then assigned to the GAFI International Cooperation Review Group, and so it would take more time to be evaluated largely compliant. There are also infringement procedures on particular ratings. In 2005, Italy was evaluated generally largely compliant. At the same time, there were – in the Mutual Evaluation Report – several non compliant or partially compliant ratings. After two years, the GAFI closed the infringement procedure.

The meetings with the evaluators.

In fact, there is no intention to vote out a State. And the fact that there are 8 points to discuss does not necessarily lead to a general negative rating. The meetings with the MONEYVAL evaluators are characterized by an open discussion. The Holy See could eventually challenge the rating, and explain to the evaluators the reason for some of its peculiarities. The procedure is very well defined in several steps. During the plenary assembly of MONEYVAL, at least one whole day will be dedicated to discuss the draft report about the Holy See/Vatican City State. Three countries must canvass each of the three parts of the report. Then, the assembly as a whole will hold an open discussion. At the end of this discussion, the draft report could be amended. The final decision will be taken by all the delegates that will take part in the plenary assembly in July.

This will not lead directly to the Holy See being added to the white list. There is not a white list that is directly linked to the MONEYVAL evaluation. The white list generally refers to the Common Understanding – i.e. the criteria (defined by the EU. regulation 2005/60/EC) used by EU members about efforts against money laundering. A country is added to this white list only if sponsored by a member State, and only after getting a positive evaluation on its AML/FT (Anti Money Laundering/Financing of Terrorism) policies by an independent and authoritative international body. This white list is not perfect or definitive. For example, the list of virtuous countries published every year by the American Secretary of State follows a different approach. Another aspect of this white list is that States can acknowledge the European white list, and still consider a particular country not trustworthy. For example, Italy has excluded Switzerland from Italy’s white list.

Financial transparency is never ending

Even if MONEYVAL will positively rate the Holy See/Vatican City State, the path to transparency will not stop there. MONEYVAL has already done three evaluation rounds, and at this time some countries are being evaluated for a «follow up round», i.e. a fourth round that – beyond the implementation of specific GAFI recommendations – takes into consideration statistics and effectiveness of the legislation adopted by the member States. The first evaluation round took place in 1998-2000, the second in 2001-2004 and the third in 2005-2009. The Holy See became a MONEYVAL member on April 6^th 2011, and it was promptly admitted to the third evaluation round, that looks at the legislation of a country and the international  standards – for example, if the countries evaluated signed and ratified the Palermo and Wien conventions.

MONEYVAL on site visits to the Vatican

MONEYVAL evaluators went for the first time for an on site visit to the Vatican on November, 21-26. The evaluators assess the legislative situation of the countries incombating money laundering. The result of the visit is reserved to the counterpart: it is a report that shows the key findings of the evaluators and that rates the adherence of the country evaluated to each GAFI recommendation. After the completion of the report, the evaluated country has two months to implement the MONEYVAL recommendations.

On January, 25 2012, with the decree n. 59, the Holy See amended its anti-money laundering law n. 127, following MONEYVAL recommendations, and making it more compliant with international standards. That same day, the Holy See signed and ratified the conventions of New York, Wien and Palermo: this was proof of a long-term commitment to financial transparency. The new law was substantially different from the old one, and outlined a better power distribution. The control of Vatican finances was not exclusively entrusted to the one and only Authority for Financial Information. The amendment of the law was the focus of a strong internal debate, and some – in primis Card. Attilio Nicora, president of the Authority for Financial Information – defined the new law «a step back». In fact, the Holy See followed the MONEYVAL recommendations. Jeffrey Owens, head of tax issues at the Organization for Economic Cooperation and Development, praised the Holy See’s reforms. «The Vatican is heading in the right direction with the revised norms», he said to the Associated Press.

This amendment profoundly changed the Vatican legislative scenario. That is why there was the need for a second on site visit of MONEYVAL evaluators, that took place March 14 to 16 . This visit was not an inspection: it was an assessment of progress. After this second evaluation, the draft report was completed and sent out to the Holy See in April. In May – from the 14th to 16th – a delegation of the Holy See went to Strasbourg to comment on the report and get it ready to be presented to the next plenary assembly. Now, a pre-meeting will probably be held before the plenary assembly of July. And finally, the plenary assembly in July, where a decision will be taken: will the Vatican be subjected to an infringement process? Or will its efforts be awarded? « I have not seen any State – a MONEYVAL evaluator said informally to a Vatican official – going so quickly toward the financial transparency, and making so many changements». These words confirms the Strasbourg appreciation for the Holy See job. Neverthless the difficulties, one could also preview a positive MONEYVAL evaluation. And this would be gained in a very short time.