On the weekend of October 31, the Vatican gendarmes detained the highest-ranking Vatican official ever to be arrested. The news shocked the distinguished team of financial experts who had worked shoulder-to-shoulder with the accused, Monsignor Lucio Balda, for nearly a year, and who once admired the 54-year old Spaniard as a loyal, energetic lieutenant.
Today, Balda’s colleagues are dumbfounded that a figure they trusted could hand an investigative reporter clandestinely made recordings of Pope Francis’ orders to his financial advisors, and reams of top-secret documents assailing the Vatican’s fiscal management, as well as the confidential emails they sent him—one demanding the ouster of Paolo Mennini, a top Vatican financial official.
Balda was arrested along with a second former Vatican advisor, Francesca Chaouqui, a glamorous PR specialist in her mid-30s. Chaouqui was released after agreeing to fully cooperate with the investigation. Balda, who remains incarcerated in the Vatican gendarmerie, appears to be the only person charged in the scandal. Pope Francis himself is denouncing the activities. While delivering his Sunday blessing in St Peter’s Square a week after the scandal broke, the pontiff branded the leaks “a grave illegal act” and “a deplorable crime.” He added that the scandal will do nothing to slow his historic reforms, which, he declared, “have already started to bear fruit.”
The Vati-leaker handed the secret tapes and documents to Italian journalist Gianluigi Nuzzi, who quotes extensively from the explosive material in his book, Merchants at the Temple, which was published days after Balda’s arrest. While condemning the insider, and possibly the author, as lawbreakers, neither the Pope nor the Vatican press office are challenging the authenticity of the documents and tapes. If Balda is the leaker, he’s no whistleblower. The accounts of rampant mismanagement were all well-known to Pope Francis, and the advisors’ recommendations, as he noted, are already being enacted in a successful campaign to modernize the Vatican’s financial management. The documents show just how bad things were a few years ago, not how the Vatican is run now.
So the question remains: Why would Balda betray his own employer, the Catholic Church, where he was destined to work for a lifetime? And why would he betray its most prestigious arm, the Vatican, an institution that he appeared to love and, in all probability, expected to reward him with bigger jobs?
To understand why the leaks are so shocking, it’s important to review the role of the council Balda helped direct, and how its recommendations shaped the Vatican’s new financial structure. In June 2013, just two months after becoming Pope, Francis attended a meeting of 15 cardinals overseeing the Vatican’s finances known as the C-15. The cardinals were reviewing a report from an international group of lay auditors whom Francis had chosen to assess the Vatican’s practices. (The auditors themselves didn’t attend the meeting.) Nuzzi’s book contains a word-for-word account of their scalding report, probably the Pope’s first inside view of flagrant mismanagement within the Vatican bureaucracy. Nuzzi also quotes extensively from a tape recording of the Pope’s adamant response. It reveals a skilled business mind: the pontiff demands that all departments obtain three bids for every contract, and states that invoices should only be paid if they match the supplier’s original quote. Otherwise, said the pontiff, “We don’t pay!”
Then, as now, Balda served as secretary of the Prefecture for the Economic Affairs of the Holy See. In that role, he was present when the auditors’ report was presented to the C-15 and could have taped the Pope’s remarks. Chaouqui had no official role at the time and was not in the room.
A few weeks later, Pope Francis appointed a special commission to study the Vatican’s finances and recommend reforms. The Pontifical Commission for Reference on the Organization of the Economic-Administrative Structure of the Holy See, or COSEA, consisted of eight members: seven from Europe and one from Asia, Singapore’s former minister of foreign affairs, George Yeo. Its chief was Maltese banker Joseph Zahra. Balda was the sole Vatican employee to serve on COSEA. He continued to hold his regular job as the second-ranking official in the Prefecture for Economic Affairs, the organization overseeing the finances of the Holy See, the councils performing the Pope’s sundry diplomatic and humanitarian missions. For the next 10 months, Balda served as the head of COSEA’s administrative staff that did much of the day-to-day work and as Zahra’s closest collaborator.
Pope Francis granted COSEA broad powers to collect previously confidential records from every corner of the Vatican, from the secretariat of state that manages contributions for the faithful to the arm that oversees investments.
“We were a very efficient machine,” says Zahra. “Everyone knew the Pope was behind us. They could complain behind closed doors, but when the people from COSEA sent by the Pope come to their offices, they cooperate.”
COSEA unearthed case after case of waste and abuse, including the excessive use of contributions for operating expenses, gigantic under-funding of pensions, and over-charging by outside lawyers advising the congregation for the canonization of saints. COSEA made recommendations on a number of matters—from bolstering the pension fund to generating more revenue from the Vatican museums—directly to Pope Francis.
Aside from the major problems, a number of petty issues epitomized the Vatican’s lax controls and rankled the COSEA members. The Vatican has 875 residents and 5,000 employees. They’re the only ones who are supposed to benefit from the cheap prices at its stores. But those folks arranged to get special “buyers’ cards” for their friends and relatives. No fewer than 40,000 bargain-hunters were filling their tanks with cheap petrol at the Vatican gas station and buying VAT-free fragrances in its stores.
Balda served as a liaison between COSEA and the Curia, which in many cases bristled at requests for full disclosure. In Merchants in the Temple, Balda emerges as something of a hero. He’s portrayed as an ardent agent for change. According to Nuzzi, Balda demanded that the departments end the old system of awarding contracts to a closed group of suppliers and open the process to outside bidders. He’s also credited with advocating for far leaner staffing at the Vatican newspaper Osservatore Romano.
From what Fortune has learned, the COSEA officials also regarded Balda as a valuable asset. On background, he has been characterized as a “lovely man who was full of energy, and was always focused on doing the right thing.” He has also been praised for “speaking his mind” and supporting the reformers against the obstructionists in the Holy See where he had his permanent position.
But flashes also surfaced that could explain why Balda may have betrayed his colleagues, if indeed he is the leaker. The Spaniard is described as someone “who loves Vatican intrigue,” and he had a priceless view of hidden, inside machinations unknown to the outside world. Perhaps the temptation to reveal those amazing tales was just too strong. Balda may have also felt unappreciated. Just after COSEA’s mission ended in May 2014, the Pope named a new organization with historic powers overseeing all sectors of the Vatican’s finances, the Secretariat for the Economy, headed by Cardinal George Pell, a formidable prelate from Australia.
The new Secretariat assumed much of the power previously held by the Prefecture for the Economic Affairs of the Holy See. Given COSEA’s success, Balda might have expected a big new job in Pell’s all-powerful organization. He didn’t get one. Instead, he remained as secretary to the now-downgraded Prefecture. By contrast, four members of the COSEA group serve on the council that oversees the new Secretariat, including Zahra and Yeo.
A notorious cocktail party may have stalled Balda’s career. In April 2013, just after Francis’ ascension, the Prefecture for the Economic Affairs of the Holy See arranged a bash for VIPs to celebrate the canonization of Popes John Paul II and John Paul XXIII. The plush affair reportedly appalled Pope Francis, who expressed his strong objections, and apparently undermined his faith in the Prefecture’s management.
Today, Pope Francis is carefully following COSEA’s recommendations. The Vatican is now far more open to competitive bidding, and secret holdings that didn’t appear on the balance sheet are now included on the new, comprehensive financial statements. The Pope’s goals reach far beyond anything attempted by his predecessors.
“Pope Francis wants the Vatican to show best practices, to be a role model,” says Zahra. “So when a diocese asks how things should be done, its leaders look to the Vatican.”
In the past, transforming the Vatican’s scandal-ridden management into an exemplar of honesty and efficiency would require nothing short of an act of providence. Despite the shock of the recent revelations, they show how hard those reforms were to accomplish and how they’re actually happening.