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Vatican Bank Probe Threatens New Scandal for Beleaguered Pope

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VATICAN CITY -- The head of the Vatican bank is being investigated on suspicion of money laundering, Italian law enforcement officials said on Tuesday, a bad omen for the Catholic Church as it struggles to overcome the scandal of clergy sexual abuse.

Italian authorities said that besides bank chairman Ettore Gotti Tedeschi, chief executive Paolo Cipriani was also a target of the probe. And Italian prosecutors said they have seized $30 million in Vatican assets held in another Italian bank, Credito Artigiano.

Reports in the Italian press said that investigators suspect influential people who reside here in Italy are using the Vatican bank -- which is housed in a huge stone tower behind the Vatican walls -- as a "screen" to hide fraudulent dealings or evade taxes.

The Vatican responded in a strongly worded statement saying it was "perplexed and astonished" at the investigation and was expressing "the maximum confidence in the president and in the chief executive of the IOR" -- the acronym for the bank's formal Italian name, Istituto per le Opere Religiose, or the Institute for Religious Works.

The IOR, which was created during World War II, manages bank accounts for religious orders and Catholic associations and benefits from Vatican offshore status.

But the Vatican bank is perhaps best known for its role in a sinister scandal in the early 1980s while it was under the direction of the late American archbishop, Paul Marcinkus. (The events inspired a plotline in the "Godfather III" movie.)

The IOR eventually paid out more than $240 million to creditors in connection with its role in the fraudulent bankruptcy of Banco Ambrosiano, then Italy's largest private bank.

News of the investigation is certainly unwelcome press for Pope Benedict XVI, who just returned Sunday night from a four-day visit to Britain during which he met with sexual abuse victims and issued his most forthright apologies yet on the abuse crisis, winning him better-than-expected reviews for what was a challenging trip to the largely secular island nation.

Moreover, bank chairman Gotti Tedeschi, a conservative Italian economist with a sterling reputation, was appointed just a year ago to move the IOR "towards greater transparency and better business practices," as Vatican-watcher John Allen put it.

Both executives are accused of violating legislation passed in 2007 that requires banks to disclose information on financial operations.

The revelations also put the spotlight on Gotti Tedeschi, who was an unusually high-profile appointment for a post where discretion and a low profile had been valued, especially in recent years.

For example, in a speech last September just before his appointment as head of the IOR, Gotti Tedeschi, a daily communicant at Mass, argued that beyond the United States' "debt addiction," a main reason for the financial crisis was that people did not follow the Catholic Church's ban on birth control, which in turn led to "the rejection of life and the suppression of childbirth."

Gotti Tedeschi, 65, likes to say that he has five children, "all from the same mother." As a profile last year by Vatican expert Sandro Magister noted, he worked for years in Milan, Italy's financial capital. "He gets up very early in the morning, like a monk," driving his BMW to work, reading the newspapers in his office, then heading to Mass, "every morning, without fail."

He taught financial ethics at the Milan's Sacred Heart University, and his economic thought seems an unusual mixture of conservative and liberal tendencies.

Gotti Tedeschi cites free-market Catholic champions like Americans Michael Novak and Father Robert Sirico as influences, and he likes the work of Friedrich Hayek, Glenn Beck's favorite economist, as well as the "clash of civilizations" thesis of Samuel Huntington.

In 2007 he signed a 13-point manifesto spearheaded by the former leader of Italy's Radical Party which proposed a 20 percent "flat tax," tax credits for health care and education and tax exemption for overtime work, among other things.

Yet he also helped Pope Benedict on his social justice encyclical, "Caritas in Veritate" (Charity in Truth), which has been blasted by conservatives in America for its critiques of capitalism and the financial system. And he believes in "the superiority of a capitalism inspired by Christian morality," and specifically a Catholic morality.

In fact, in his 2004 book, "Money and Paradise: The Global Economy and the Catholic World," Gotti Tedeschi argued that capitalism was born in Italy -- "the home of Catholicism" -- in the 13th century as a result of the writings of Franciscan theologians, and at a time "when Protestantism, to which Max Weber's famous thesis attributes the birth of the 'spirit of capitalism,' was yet to arrive."

Protestantism, he said, was arguably responsible for "defects" in capitalism, such as profiteering and a laissez-faire dedication to "the law of the strongest."
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