Following Raid, Doubters Questions Pope Francis' Vatican Bank Reform Efforts

Earlier this month, gendarmes raided the offices of the offices providing oversight to the Vatican Bank in search of “documents and electronic devices,” a move casting doubt on the six-year reform process for what must be the world’s most mysterious and high-profile small bank.

Information about the raids trickles out daily. The latest investigation was triggered by a series of wire transfers connected to paying off the mortgage on a building in London’s tony Sloane Square neighborhood. That the London building was partially owned by the Vatican’s Secretariat of State raised the suspicions of investigators.

Earlier this month, gendarmes raided the offices of the principal regulator overseeing the Vatican Bank in search of documents and electronic devices, a troubling sign that Pope Francis’ six-year campaign to reform one of the world’s most secretive banks has come up short.

So far, five officials have been suspended and blocked from entering the Vatican city-state, including Monsignor Mauro Carlino, the only clergy in the group, and Tommaso Di Ruzza, second in command at the Vatican’s Financial Information Authority, the bank’s regulator. The Secretariat of State and the Financial Information Authority were among the offices raided by the gendarmes.

By most standards, the Vatican bank—officially known as IOR, or L’Istituto per le Opere di Religione in Italian, or the Institute for Religious Works—is a small financial institution. At the end of 2018, it held assets worth $5.6 billion. If it were in Italian bank it would rank just outside the country’s 50 largest banks.

The bank provides its clients with limited services. It does not offer clients loans, investment vehicles or checking accounts. ATM cards from the Vatican Bank are only accepted at three teller machines: two in the Vatican City and one just outside the Vatican’s walls in Rome, all of them offering Latin as one of the language choices.

But those limits have not prevented the 77-year-old institution from being involved in a long series of colorful controversies.

In the past, it is alleged to have been involved in money laundering for the ‘Ndrangheta crime syndicate, with providing secret financial support to the Solidarity trade union uprising in Poland which hastened the collapse of the Soviet Union, and with illegally funding of the Contra Movement in Nicaragua.

In the 1980s, the bank was a major shareholder in Italy’s Banco Ambrosiano when the institution collapsed. Its then chairman, Roberto Calvi, fled to London and died. His murder remains unsolved. The Vatican Bank’s chairman at that time was U.S. Archbishop Paul Marcinkus, suspected of alleged ties to the Masons and the mob. Multiple warrants for his arrest were issued in Italy, but he avoided arrest by hiding out within the Vatican walls for nearly a decade until the arrest warrants expired.

The latest reforms seemed to be working. Last December, the IOR formally joined the European Banking System, giving it its own International Bank Account Number (IBAN), enabling it to make financial transfers directly rather than through intermediaries. Then, on Oct. 1, the day of the raids, the IOR became part of the Single Euro Payments Area (SEPA), simplifying euro currency transfers. Among other things, SEPA membership will dramatically expand the bank’s ATM network.

These milestones were among the things Pope Francis hoped to accomplish when he was elected pope in 2013 as he sought to make the bank more transparent and operate in line with international banking standards. He started by closing some 5,000 accounts held by people without active ties to the Vatican. The pope also streamlined the oversight of the bank, and appointed banking officials from outside the Vatican, led by squeaky clean French banker Jean-Baptiste de Franssu, who has run the Vatican Bank since 2014.

The new SEPA status is a big deal. But critics quickly seized upon the raids as proof that perhaps the bank was unreformable, and that Pope Francis’ efforts to change that were wildly ambitious. But those in the know remain bullish on the IOR reform process.

The veteran Vatican watcher Carlo Marroni, a journalist with Italian financial daily Il Sole/24 Ore, says Pope Francis’ measures are in fact working.

“The latest news is important because the image of the Vatican is at stake,” Marroni told Fortune. “But I think it’s clear the IOR reforms are effective. In fact, we might have never found out about these latest developments if the oversight hadn’t been changed.”