ROME — Unveiling the most radical financial reforms to date under Pope Francis, the Vatican today announced new leadership and a sharply limited role for the troubled Vatican bank, a new office to administer its several billion dollars in investments, studies of its pension fund and media operations, and enhanced powers for a new Secretariat for the Economy.
Officials say the aims of the overhaul include compliance with global best practices and legal standards, internationalization of leadership, and shared authority between clergy and laity, striving to overcome a history in which perceptions of intrigue and shady practices vis-à-vis money management have repeatedly given the Vatican a black eye.
“The ambition is to become a model of financial management, rather than an occasional source for scandals,” said Australian Cardinal George Pell, tapped by Francis in February as his new finance czar.
“The pope has said clearly that he wants rapid movement,” Pell said.
During a news conference today in Rome, Pell announced several major steps:
• A downsizing of the Vatican Bank, formally known as the “Institute for the Works of Religion”. Investment of its roughly $8 billion in assets will be transferred to a new Vatican Asset Management office, which will also take over the investment activity of other Vatican departments.
• The appointment of French businessman Jean-Baptiste de Franssu, who serves on a Council for the Economy created by Francis to oversee financial reform, as the new president of the bank. From 1990 to 2011 de Franssu was an executive with Invesco Europe, an investing firm with $35 billion in assets under management.
• Appointment of one new member to a body of cardinals governing the bank, and of several lay people to a board of directors responsible for routine oversight.
• The creation of two commissions to study the sustainability of a pension fund for the Vatican’s roughly 5,000 employees, and a reorganization of media activity expected to result in a downsizing and greater emphasis on social media.
• For fiscal year 2015, every Vatican department will be expected to have a formal budget, and will be held accountable for over-spending – both departures from past practice.
Overall, observers see the changes as a major boost for the power wielded by Pell and his secretariat, bringing virtually all the Vatican’s important financial centers under his control.
Notably, of the seventeen appointments announced today, there are only two Italians. That’s in keeping with Francis’s policy of striving to break what had been an historical Italian monopoly over financial management.
“We’re a universal church, so the people in the key positions should be universal,” Pell said, “though with many terrific Italians.”
Over the years the Vatican bank has been a recurrent source of scandal, a legacy that continues today with criminal investigations by Italian authorities against a handful of former officials. Rather than shutting it down, today’s changes significantly trim its responsibilities.
German businessman Ernst von Freyberg, who’s stepping down as president of the Vatican bank after 16 months, said the bank’s new profile will be largely as a “savings and loan for religious congregations.”
Among the new members of a six-person supervisory council for the bank is Harvard law professor and former US Ambassador to the Holy See Mary Ann Glendon, who had previously served on a study commission about the bank’s future created by Francis in 2013.
Yesterday, the Vatican bank announced a sharp drop in profits for 2013, attributing them mostly to $11 million in expenses associated with a detailed review of all accounts and a $60 million loss in deposits associated with closing roughly 3,000 of those accounts.
Though a critical letter about von Freyberg from the pope’s hand-picked delegate at the bank recently surfaced in the Italian press, observers nonetheless credit him with leading the bank through adherence to international standards, putting in place a new anti-money-laundering framework, and hiring the US-based Promontory Financial Group to review its clients.
Von Freyberg said he believes that by accelerating reform, he gave Pope Francis an option other than closing the bank.
“Today, we know who our clients are,” von Freyberg said, insisting there are no “secret accounts”, no pools of money from “Italian families and politicians,” and no accounts held by “bad organizations.”
He defended shelling out $11 million to Promontory, saying the firm “wasn’t simply doing a consulting job, but a control that hadn’t been done for the past 20 years”.
Officially, the Vatican said von Freyberg is leaving because “other commitments keep him from a full-time dedication to his IOR duties”.
The new Vatican Asset Management office will be in charge of combining the bank’s investments with what’s known as the “extraordinary section” of the Administration of the Patrimony of the Apostolic See (APSA), an office originally created to manage a lump-sum payment from Italy in 1929 as compensation for the loss of papal territories.
The idea, as the Vatican described it, is to consolidate the Vatican’s investment activity in order to get a better return and to eliminate duplication of effort.
De Franssu defined the office as “a platform of the highest ethical and Catholic standards, to guarantee returns competitive to those offered by other institutions.”
By bringing APSA into his orbit, Pell has assumed responsibility for another department that’s generated headaches.
In 2013, a former APSA accountant named Monsignor Nunzio Scarano was charged by Italian authorities with money laundering and involvement in a cash smuggling scheme. In turn, Scarano alleged several abuses at APSA, such as officials accepting vacations in five-star hotels and other perks from commercial banks in exchange for parking Vatican funds there.
Pell said that taking over the ordinary section of APSA will also give his department control over the Vatican’s purchasing and human resources.
Pell defined the future of APSA as the Vatican’s treasury, saying it will establish close relationships with the world’s major central banks as recommended by Moneyval, the Council of Europe’s anti-money laundering agency.
Pell insisted the Vatican’s pension fund today is “totally secure,” but said the idea of the commission is to ensure that it remains viable in 20 or 30 years. On the media front, he said that the Vatican’s sprawling communications operation, which includes a massive radio service and a daily newspaper in multiple languages, may cost too much with a reach that’s overly limited.
After seeing the success of the pope’s Twitter account and other digital initiatives, he said, the idea is to “ensure the Holy Father’s messages reach more of the faithful around the world, especially young people”.