Shine a Light on the Vatican Bank

Where money sometimes got misplaced.

Photographer: Alessia Pierdomenico/Bloomberg

Over the years, the Institute for the Works of Religion, better known as the Vatican Bank, has been linked to swindlers, crooked politicians, assorted mafiosi and the occasional suspicious death. Pope Francis has made a heroic effort to crack down on such iniquities, as Bloomberg Markets reports this month. He still has a ways to go.

The bank was founded, in 1942, to manage money for charities and religious works. But it was also a convenient way to evade Allied restrictions on asset flows during World War II. From the beginning, it shunned outside audits and regularly destroyed its records. Its address and phone number went unlisted. It published no annual reports, paid no taxes and answered to no one but the pope.

In banking, as in life, such secrecy corrodes the soul. And in the decades that followed, plenty of crooks took advantage of the institute's opacity. Add to the mix a Byzantine record-keeping system, bureaucratic infighting and generalized institutional chaos, and the Vatican became the kind of place where a billion dollars sometimes got misplaced.

Although his predecessors made attempts -- of varying ambition -- to clean house, Francis has been unyielding. He shook up the bank's hierarchy, ousted its chief and installed financial professionals on its board. The bank shut hundreds of shady accounts, started publishing annual reports, and made substantial progress in combating money laundering.

But Francis's reforms went deeper. He replaced the entire board of the Vatican's Financial Intelligence Authority. He hired consultants to examine the bank's books, rationalize its accounting and improve its management. Perhaps most crucial, he created a new oversight system to demand budgetary transparency throughout the Holy See. The idea wasn't just to modernize a medieval culture of money management -- it was to alert all of Vatican officialdom that the purse strings had been tightened.

The key to further reform is the Financial Intelligence Authority. It needs to maintain its independence from the Vatican's meddlesome bureaucracy, and it must stay aggressive in inspecting the bank's account holders and ensuring compliance with know-your-customer laws. Doing a better job of vetting employees would also go a long way toward improving the bank's culture.

And if all this doesn't stem the corruption? Then the pope should simply close the bank's doors, as he has threatened. The Vatican's money could surely be handled by a financial institution with the wherewithal to prevent corruption, offer advice and conduct transactions across the church's global network. That would diminish the Vatican's financial independence. And it would disappoint the insiders who liked the quiet discretion and expansive patronage opportunities of the old system.

But it would remove a constant source of temptation and corruption. And it would free the Vatican, and the church at large, to focus on life's higher callings.

To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at davidshipley@bloomberg.net.