The head of the Vatican’s bank said he had been “humiliated” by the announcement of an investigation into alleged money laundering as the Roman Catholic Church received another blow to its battered reputation.
The investigation demonstrates a more muscular attitude toward the Vatican's finances on the part of the Bank of Italy, which has instituted new regulations on banking transparency, experts say.
Italian authorities froze 23 million euros ($30 million) belonging to the bank, officially known as the Institute for Religious Works, and placed its president, Ettore Gotti Tedeschi, and chief executive, Paolo Cipriani, under investigation for alleged breaches of money laundering laws.
The unprecedented move could hardly come at a worse time for the Vatican. For months, it has been the target of scathing criticism for failing to deal with clerical sex abuse cases around the world.
Pope Benedict XVI’s historic four-day trip to England and Scotland last week, which drew large crowds and was widely regarded as an unexpected triumph, had begun to repair some of the damage. But within a day of his return to Rome, Italian authorities announced the probe into suspicious transactions at the Vatican bank.
It has never been established whether he was killed or committed suicide, although there have been suspicions that he may have been murdered by the Mafia after losing large amounts of mob money.
An American archbishop, Paul Marcinkus, who headed the Vatican bank at the time, was charged as an accessory to fraudulent bankruptcy following the disappearance of $1.3 billion in loans to institutions in South America.
As a Vatican employee, he claimed immunity from prosecution by Italian authorities. A warrant for his arrest was eventually canceled, and he protested his innocence until he died four years ago in Arizona.
Italy's Guardia di Finanza police have also been investigating allegations that the Vatican bank has been involved in money laundering for at least a year.
In December, a respected Italian news magazine, Panorama, reported that officials were probing the bank for suspected money laundering via one or more accounts held at a branch of Italy's largest bank, Unicredit.
Prosecutors have not explained whether that investigation is linked to the one announced Tuesday.
In the latest case of alleged wrongdoing, Italian finance police froze the 23 million euros, which the Vatican bank had transferred to a small private bank, Credito Artigiano.
Mr. Gotti Tedeschi, who was appointed last year, was placed under investigation for allegedly failing to communicate to financial authorities where the money originated, in breach of strict rules designed to prevent money laundering and terrorist financing. Neither man was arrested or charged with any offense.
But the Vatican’s embarrassment was made all the more acute by the fact that Gotti Tedeschi has frequently spoken out on the need for more morality in financing, echoing appeals made by Pope Benedict in various encyclicals.
He is also a close adviser to Italy’s finance minister and serves on the board of several large Italian banks.
"Since I became president of the Vatican bank, together with Paolo Cipriani I have spent my entire time resolving the problems which I am now being investigated over," Gotti Tedeschi told an Italian news agency, Adnkronos.
"I feel deeply humiliated over what is happening. I have nothing more to add," he said.
In a statement, the Vatican expressed “the utmost confidence” in both senior executives and said it was “surprised” by the investigation. "The Holy See is perplexed and surprised by the initiatives of the Rome prosecutors, considering the data necessary is already available at the Bank of Italy, and similar transactions commonly take place with other Italian banks."
The mayor of Rome also threw his support behind Gotti Tedeschi. “I would like to express my solidarity with the president of the bank. I hope that this affair, which has left me rather perplexed, can be cleared up as soon as possible,” said Gianni Alemanno.
The Institute for Religious Works is a bank unlike any other in the world. Its cash machines in the Vatican City State have the unique distinction of allowing account holders to conduct transactions in Latin.
It manages Vatican finances as well as the accounts of Catholic organizations and religious orders, and the pensions of the city-state’s thousands of employees. It has no shareholders and is not open to outsiders.
A commission of Catholic cardinals oversees it, but professional bankers under the direction of Gotti Tedeschi conduct day-to-day business.