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Financial watchdog for the Vatican

Dec 30 2010 16:36 Sapa-AP

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Rome - The Vatican on Thursday created a financial watchdog agency and issued new laws to try to comply with international rules to fight money laundering and terrorist financing.

The decrees, which go into effect on April 1, were passed as the Vatican's own bank remains implicated in a money-laundering investigation that resulted in €23m being seized and its top two officials placed under investigation.

Pope Benedict XVI signed the documents on Thursday, saying the Vatican wanted to join other countries that have cracked down on legal loopholes that have allowed criminals to exploit the financial sector.

International financial organisations said on Thursday it appeared the Vatican had taken a step in the right direction.

The decree creates an independent Vatican compliance watchdog, the Financial Information Authority, that is tasked with ensuring all Vatican financial transactions - including those of the Vatican bank - comply with the new laws.

The watchdog agency will also be the Vatican office to work with the European Union and other international organisations.

The Vatican spokesperson, Rev. Federico Lomabardi, stressed that the new laws and creation of the compliance authority had nothing to do with the seizure of the Vatican account in September.

The Vatican pledged to pass such legislation by Friday, the last day of 2010, when it entered into a monetary agreement with the EU in December 2009 concerning the issuance of euros.

The effort, though, went into high gear following the money laundering probe, which embarrassed the Vatican and its bank chairman, economist Ettore Gotti Tedeschi.

Rome prosecutors in September seized €23m and placed Gotti Tedeschi and his deputy under investigation, alleging the bank broke the law by trying to transfer money without identifying the sender or recipient. The two men have not been charged.

Money-laundering a crime

The Vatican has insisted the probe resulted from a "misunderstanding" that it hoped to clarify quickly.

But Rome courts have twice refused to release the money, with a judge earlier this month saying nothing had changed in the way the Vatican guards the identity of its clients.

Asked on Thursday whether the bank, formally known as the Institute for Religious Works, would now be forced to identify its clients in transactions, Lombardi said the question of the seized account was a very particular case.

"But I maintain that this law creates a situation in which the type of problems that were verified or unsuitable are unthinkable," Lombardi said.

Gotti Tedeschi, who was named chairperson of the bank last year, has said he has been working since then to get the Vatican to come into compliance with the norms of the Financial Action Task Force - the Paris-based policymaking body that helps develop anti-money laundering and anti-terror financing legislation.

The task force 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.

Rick McDonell, the task force's executive secretary, said on Thursday the agency had not had time to study the Vatican norms in detail and in English.

"However on the strength of what has been released I can say it appears to be a significant step towards compliance with the global anti-money laundering standards," he told The Associated Press.

The norms also are designed to comply with EU norms on money-laundering and counterfeiting.

Gotti Tedeschi has also said he wanted to get the Vatican on the Organisation for Economic Cooperation and Development's "white list" of countries that share tax information to crack down on tax havens.

To do so, though, often can take years as the Vatican must enter into tax information sharing agreements with at least 12 other countries after making a formal commitment to transparency. 

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