Vatican bank signs up to new laws on money laundering after Italian police crackdown

THE VATICAN bank has broken with hundreds of years of convention by taking steps to satisfy tough EU and international norms on money laundering and terror financing.

But the move only came after the bank was confronted with an unprecedented crackdown by Italian prosecutors.

The bank has made written and in-person pledges to pass anti-money laundering legislation, report and investigate suspicious transactions, identify customers to law enforcement and create a compliance authority.

Italian prosecutors previously placed Vatican bank chairman Ettore Gotti Tedeschi and his deputy Paolo Cipriani under investigation and police seized 23 million from a Vatican bank account in recent weeks. The Vatican reacted furiously, insisting any gaps in its records were a "misunderstanding" that could be easily clarified. It also tried to get the seizure lifted, but the court refused.

Now the Vatican has given its commitments to some of the key institutions involved in the fight against money laundering, officials said.

Vatican bank bosses have now made a written commitment to the Financial Action Task Force - the Paris-based policymaking body that develops anti-money laundering and anti-terror financing legislation - to do whatever is necessary to come into compliance with its norms, a senior FATF official said.

The FATF requires the Vatican to pass legislation making money-laundering a crime; to establish an entity to report suspicious transactions and then investigate them; and to pass legislation requiring that the bank identify its customers properly and make that information available to law enforcement agencies, the official said.

Separately, on 15 October, Vatican bank officials met with European Commission officials and agreed that Pope Benedict XVI would act to bring into Vatican law European Union directives on money laundering that are required of Eurozone countries, said Amadeu Altafaj i Tardio, spokesman for the European commissioner for economic and monetary affairs, Olli Rehn.

The bank, formally known as the Institute for Religious Works, also pledged to establish a compliance "authority" headed by a Vatican cardinal on 1 January to implement the anti-money laundering legislation, he said. The authority will be the contact for all EU and international agencies working to fight money-laundering.Vatican bank officials also had two meetings starting in the spring of this year with officials from the Organisation for Economic Co-operation and Development to learn how to get on the "white list," of states that share tax information to crack down on tax havens, said Jeffrey Owens, head of tax issues at the OECD.

To join the OECD's club, the Vatican must first make a formal commitment to transparency and exchange of financial information and then undergo peer review.

To get on the "white list" the Vatican must enter into tax information sharing agreements with at least 12 other countries - a process that can take years. "The next step is: they know what the standards are. Do they want to advance the dialogue with the aim of committing to the standards?" Owens said.