When Jorge Mario Bergoglio was chosen as the 266th pope of the Roman Catholic church, taking his name from St Francis of Assisi, the great saint of the poor, one of the few things his peers knew about him was that, as archbishop of Buenos Aires, he had sorted out financial scandals and maladministration, when church officials had become embroiled with bankers who picked up their credit card bills in return for church endorsements. Bergoglio had acted swiftly, decisively and transparently.
Within weeks of taking office, Francis set about tackling the problem of the Vatican bank and the wider finances of the Holy See in three ways. First, he moved swiftly to curb obvious excesses, scrapping the €1,500 bonus traditionally paid to Vatican staff between papacies, and stripping the bank’s five supervisory cardinals of their €25,000 annual stipend. Second, he strengthened existing organisations and brought in no fewer than five firms of top-level management consultants to scrutinize every aspect of Vatican operations. Third, on 24 June 2013, four days before Scarano was arrested, he set up a commission of external secular financial and legal experts to work out what should be done. A month later, in July, he set up a second group of outsider financiers to look at every aspect of the rest of the Vatican financial and economic portfolio. The two groups were told to think the unthinkable – including whether the Vatican bank should be simply shut down.
Inside the Vatican bank, the grand office of its president was taken over by Elizabeth McCaul. She was a Roman Catholic, and a mother of seven, but also the partner-in-charge of the New York office of the management and regulatory compliance experts Promontory Financial Group. The president’s expensive leather furniture and fine oriental rugs were pushed to one side. Beneath the crystal chandeliers and heavy gilt-framed oil paintings, rows of desks were crammed in. At each desk, three individual computer terminals were set up for the teams taking over. The baroque clerical drawing room suddenly looked like a city trading floor.
McCaul – a former superintendent of banks for the state of New York who had helped stabilise the banking sector after the 9/11 attacks – had flown in 25 regulatory specialists from the US. They had been given six months to trawl through every single one of the Vatican bank’s 19,000 accounts. “It has been a huge cleaning effort,” Markus Wieser told me as we toured the high-security building. The team began by sorting through computer scans of the passport of every account holder, which were painstakingly cross-checked against the names and faces of bank records. “The activities were designed to make this place compliant with Vatican law and align Vatican law to international standards.”
Archbishop Paul Marcinkus, chairman of the bank in the 70s and 80s, said: ‘You can’t run the church on hail Marys’
The US outsiders worked in seven work streams, checking the information on the account of each and every customer. They set up new standard rules. They established an IT system to automate the rules by running an algorithm over every transaction in each account to see whether it fitted the usual customer profile. Later they did the same with the accounts of Monsignor Scarano’s old stamping ground, APSA. What they uncovered was embarrassing for the Italians who had previously been in charge. The US banking experts found poor cashflow checks, inadequate documentation, ignorance about due-diligence procedures and a complex system of proxies that clouded who really controlled many accounts. When senior IOR officials were asked by Promontory staff how – amid such chaos – they answered to the regulator, they replied: “We answer to God.” Well, they were told, now you will answer to more earthly authorities.
The Americans worked through 16,900 accounts before they returned to the US. Within six months 3,300 accounts were shut down. “The vast majority were dormant accounts with a negligible balance,” said Wieser. “Or were held by individuals no longer eligible to hold an account under the new rules introduced by Promontory. But some, Wieser revealed, had “been frozen in the course of regulatory or criminal proceedings”. The team found 200 serious irregularities, each of which triggered a “suspicious transaction” report that was sent to the bank’s regulator, the AIF.
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One case Promontory referred to the regulator was the Lux Vide production company investment the bank made – against the advice of its staff and supervisory board – on the insistence of Cardinal Bertone. In May 2014, the Vatican denied that the 79-year-old cardinal was under investigation by Vatican magistrates. But, according to Wieser, a case on the transaction has been opened. The entire supervisory board of the AIF was sacked and replaced by Francis a month later, in June 2014, sweeping out all Bertone’s allies. Few in Rome expect the Bertone case to advance to the Vatican prosecutor. But the fact that a pope’s former second-in-command is under the scrutiny of the regulator is a measure of how far Francis’s revolution has advanced.
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Cardinal George Pell is a big man. His physique – broad and 6ft 3in tall – is that of a priest who played professional rugby as a young man. An Australian, and the son of a heavyweight boxing champion, he has a personality to match, belligerent and blunt. He is conservative both doctrinally and politically. He is a climate-change denier who has been, at the very least, grossly insensitive to the victims of sex abuse in Sydney and Melbourne.
Yet, for all his conservatism, Pell had for years been a vocal critic of the Roman Catholic bureaucracy and its corruption under the previous two popes. He knew what he was talking about. The pugnacious Australian had knocked the finances of the archdiocese of Sydney into shape during his time in charge, leaving a legacy of nearly AU$1.2bn after 12 years. It was not a one-off. He had done the same thing in the much larger archdiocese of Melbourne before that.
So, when the two financial thinktanks delivered their reports a year into the papacy, it was Pell whom Francis asked to lead the complete overhaul of Vatican finances. “Francis has played it very cleverly,” said one seasoned Vatican diplomat. “It was a masterstroke to get Cardinal Pell involved. He is a really tough nut. And it is far better to have him in the tent shouting out than outside shouting in.”
The Vatican bank was not to close, but it was to be stripped of its function of managing investments. The post of secretary of state – Bertone’s old job – was to lose control of Vatican finances. The Amministrazione del Patrimonio della Sede Apostolica was to confine itself to its original function of managing the Vatican’s property, purchasing and personnel portfolio. A new overarching finance ministry, the Secretariat for the Economy, was established. So was a new Vatican asset management unit. Pell was announced as the new supremo over it all. He was also one of nine prelates Francis chose to be in his new cabinet of cardinal advisers, the C9.
The pope was careful not to place too much power in one man’s hands. Though Pell has been given unprecedented reach over all Vatican finances, he is overseen by a supervisory council chaired by another of the Pope’s trusted C9 cabinet, Cardinal Reinhard Marx, the Archbishop of Munich. “It’s a separation of powers,” Pell told me over breakfast in the Domus Australia, the boutique hotel he established for Australian pilgrims to Rome three years before. It was just a few days after my tour of the bank. “It’s designed so there will be no unique focus of power.” Nor is it exclusively clerical. “Half the members are lay people who have an equal vote with the cardinals.”
To add to the system of checks and balances that Francis has introduced, there will be a new position of auditor general, a non-cleric with powers to go “anywhere and everywhere” in the Vatican to conduct spot checks as well as annual audits.
Pell has moved swiftly. All Vatican departments, for the first time in their history, have been told they must produce quarterly reports comparing actual spending with budgeted expenditure – standard practice in the secular business world. There was initial resistance. So, Pell sent out a 45-page manual to all 200 Vatican departments and allied bodies outlining the international standards of accounting and budgeting he is enforcing. “The penny dropped after that,” Pell said. “People realised the game has changed.”
The old guard has not taken the changes lying down. Early on, the pope placed an old friend, Monsignor Battista Ricca, inside the bank to be his eyes and ears there. When Ricca, who had been given authority to access all documents, got too assertive, dark forces within the Curia leaked a story about him to the Italian press. It claimed that Ricca had homosexual affairs while serving as a papal diplomat in Uruguay a decade before. One headline announced: “Catholic bishop in charge of cleaning up Vatican finances got stuck in a lift with a rent boy.”
The Vatican denied the claims, but it was widely assumed that Ricca would have to resign. However, Pope Francis was not to be so easily manipulated. He saw the leaks behind the story as an attempt by conservatives to undermine his Vatican bank reform programme by trying to discredit one of his key reformers. When Ricca offered to go, the Pope refused to accept his resignation. When the press asked Francis about Ricca’s gay past, he came out with the line which was to become the totemic phrase of the early part of his papacy: “If a person is gay and seeks the Lord and has good will, who am I to judge?”
As Pell’s reforms began to bite, similar dirty tricks were deployed against him. Stories were leaked to the Italian press, repeating Pell’s more controversial attitudes on clerical abuse. (Some years before, he had claimed that the Roman Catholic church should be no more responsible for the abuse of children than a trucking company is for a driver who picks up and molests a woman while on the job. Pell’s record on predator priests is currently under scrutiny by a Royal Commission in Australia.) More damaging to his role as Vatican finance supremo, fictions were put about that he was submitting extravagant expense claims. Pell shrugged his shoulders when I asked him about it. “That’s part of the game,” he said. “It doesn’t greatly cause me concern.”
At a consistory of cardinals earlier this year, attempts were made by old-guard prelates to curb Pell’s powers. Pope Francis would not allow it. The pope was clear that no compromise could be permitted in the pace of change. His watchword was the Italian fretta, meaning faster, stronger, more.
Francis has not just set the wheels in motion, he is following up. “We speak every fortnight,” Pell revealed – and more often, if the Australian prelate requires help or advice. “He understands money and he’s interested in it. Honesty, efficiency and transparency are his priorities.” The pope has backed the reform effort at every turn. “Whenever there were things we couldn’t clean up on our own, he’s been there to support us.”
Some might see an irony in that. The man who began his pontifical ministry demanding “a poor church for the poor” has ended up establishing the Vatican asset management unit. But anyone acquainted with the pope’s track record from his time in Buenos Aires would recognise in this the combination of an audacious prioritising of the poor and a canny understanding of the politics of how change is achieved in this world.
Francis told his financier advisers at their first meeting in July 2013 that “sound financial management was a pillar of his greatest mission: aiding the poor and underprivileged”. What that meant, said Cardinal Pell, is that “the Pope wants to maximise the amount of money coming in so that it could be spent on the poor and the works of the church. Because we’re trying to help people is no reason why we should be inefficient, or not transparent, or open to being robbed.”
As he rose from the breakfast table to head off to meet the pope, I reminded Pell that he had once said he would only be happy when the Vatican bank was “off the gossip pages”. Had he managed that? He smiled grimly: “Not quite.”
Adapted from Pope Francis: Untying the Knots – The Struggle for the Soul of Catholicism by Paul Vallely, published by Bloomsbury on 27 August.
This piece was amended on 13 August to correct an error. The Contras operated in Nicaragua, not El Salvador
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