Fri, Dec 13th, 2013

http://www.windsorstar.com/news/Vatican+gets+mixed+report+card+efforts+fight+moneylaundering/9276133/story.html

VATICAN CITY - European evaluators have given the Vatican a mixed report card in its efforts to comply with international norms to fight money laundering and terror financing, praising progress over the past year while highlighting delays and shortcomings at the Holy See's financial watchdog agency. Chief among them: its failure to inspect the embattled Vatican bank.

In the progress report released Thursday, the Council of Europe's Moneyval committee revealed that 105 suspicious transactions had been flagged to the financial watchdog agency in 2013 as potential cases of money-laundering — a significant increase over 2012 when only a half-dozen were reported. The increase stemmed from the bank's ongoing process to review all accounts at the Institute for Religious Works to make sure its customers and assets are clean.

Three of those cases were forwarded to Vatican prosecutors for investigation, including one that made headlines earlier this year: the case of the Vatican accountant, Monsignor Nunzio Scarano, who was arrested by Italian authorities in June after he allegedly tried to smuggle 20 million euros ($26 million) from Switzerland into Italy without declaring it at customs.

The Scarano affair prompted the bank's top two managers to resign and laid bare the lax controls that for years fueled the bank's reputation as an off-shore tax haven where money could be laundered. Scarano is also under investigation for alleged money-laundering in a separate case involving his Vatican bank accounts; Vatican prosecutors seized 1.98 million euros from his accounts as part of its own investigation, the report showed.

The Vatican submitted itself to the Moneyval evaluation process more than three years ago in a bid to shed its shady reputation and comply with the requirements of signatories to the 2009 EU Monetary Convention. Since then, the Vatican has written and rewritten laws criminalizing money laundering, ratified U.N. anti-crime treaties and created the financial watchdog agency to supervise its financial activities and work with other countries in cross-border investigations, among other measures.

Pope Francis has ramped up the reforms, forming two commissions of inquiry to try to rationalize the Vatican's opaque and often wasteful finances and make sure institutes like the bank are serving the church. Outside consultants have been brought in to help speed along compliance.

"It is clear from this review that much work has been done in a short time to meet most of the Moneyval technical recommendations," the report concluded, citing in particular legislative changes that clarified the role and autonomy of the financial watchdog agency, and measures taken to improve reporting of suspicious transactions.

But it said it was "somewhat surprising" that the Financial Intelligence Authority watchdog hadn't inspected the bank or the Vatican's other main financial institution APSA, where Scarano worked, and said a basic regulation to make sure criminals don't end up in management positions must be enacted quickly.

The report was the second from Moneyval: In July 2012, the Vatican passed the inaugural Moneyval test but received poor or failing grades for its bank and financial intelligence authority. This second round didn't revise those grades but merely evaluated how the Vatican had responded to recommendations made last year to improve compliance.

One area that had been singled out for criticism in the 2012 report was the bank's lax customer due diligence practices, which are necessary to make sure the bank knows who its clients are and where their money comes from. The revised report noted continued shortcomings — there's still no clear law about who can have an account at the IOR — and said only 30 per cent of the bank's accounts had been reviewed by October; the review was to have been completed a year ago.

But the report said the bank, which was founded in 1942 by Pope Pius XII to manage assets destined for religious or charitable works, is considering codifying such a law and is now closing accounts that "are not strictly related to the purpose of the IOR at the service of the Catholic Church."

The head of the Vatican delegation to the Moneyval committee, Monsignor Antoine Camilleri, said the report confirmed the "significant efforts" taken by the Vatican in the past year. "The Holy See is fully committed to continuing to improve further the effective implementation of all necessary measures to build a well-functioning and sustainable system aimed at preventing and fighting financial crimes," he said in a statement.