Guest post from friend of Alhambra, Brian Cronin:
It’s déjà vu all over again, to quote Professor Yogi Berra.
May was a bloody month for investors and June is starting out in the red too. The less than stellar economic numbers here were exemplified by the horrible jobs numbers this past Friday wiping out the Dow’s gains for year. With all the market turmoil over Greece, Spain and Italy, their yields climbing as funding becomes more difficult for them, near half the eurozone in recession, unemployment at 11% and downgrades all over the place, you would conclude investors have every reason to be nervous. And there’s still two weeks to go before the second Greek election. But a little piece of news was overlooked which has wider implications for bank regulation and oversight.
The head of the Vatican Bank, officially known as Istituto per le Opere di Religione, the Institute for Religious Works or IOR, was dismissed very recently. Sr. Ettore Gotti Tedeschi (yes, Gotti really is his middle name) lost a vote of no confidence and the board of directors removed him for dereliction of duty and for failing to carry out “duties of primary importance”. He had previously been under investigation as part of a money laundering inquiry carried out by Italian authorities in 2010.
This most recent move comes as Moneyval, the Council of Europe entity charged with monitoring and investigating money laundering, is set to rule on whether the IOR is up to scratch on all its compliance. Moneyval, to give it its full name, is The Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism.
The Vatican Bank has had a troubled history. For veterans of the foreign exchange markets like me, this is the stuff of legend. Even though it was unfolding before our eyes, we couldn’t quite believe it was true. But it was. It is part of banking history and for those not old enough to remember, it is time for a short trip down Memory Lane. If any of this sounds too fantastic to be believed, you may be assured it is all true.
Founded by Pope Pius XII in 1942, the IOR’s mission was “to provide for the safekeeping and administration of movable and immovable property transferred or entrusted to it by physical or juridical persons and intended for works of religion or charity”. It is not technically part of the church’s hierachy nor is it the Vatican’s central bank and any profit garnered is used for charitable purposes.
The IOR was headed up by American born Archbishop Paul Marcinckus from 1971 to 1989. The larger than life Marcinckus had been a translator and a bodyguard for Popes John XXIII and Paul VI respectively. Because of his large frame, his nickname was “the Gorilla”. But the real power behind the throne was Michele Sindona.
In the 1970s, Sindona, who was known as “the Shark”, was associated with the Gambino crime family and was involved in heroin trafficking and money laundering. He bought banks, gained influence and the confidence of Giovanni Cardinal Montini, who later became Pope Paul VI. He found Sindona’s financial expertise invaluable, and thus began his association with the IOR. He was hailed as “the savior of the lira” by prime minister Giulio Andreotti in the seventies because of his huge trades in dollar/lira and “Man of the Year” in 1974 by American ambassador to Italy John Volpe.
But he was also associated with P-2 (Propaganda Due), a masonic lodge and the Frati Neri (Black Brothers) of which more later.
In 1972, Sindona bought a controlling interest in Long Island’s Franklin National Bank, which collapsed after fraudulent currency manipulation, mismanagement and fraud in 1974. It is a reminder, incidentally, how the international banking system was brought to the brink of disaster by the collapse of this bank and others, and how authorities handled the crisis back then. More on that later this month.
Anyway, back to the plot: in 1984, Sindona was finally convicted and jailed for the murder of crusading lawyer Giorgio Ambrosoli who had been appointed to investigate him. But the Shark got his come-uppance in 1986. He was murdered in prison when someone slipped cyanide into his coffee.
More scandal followed in the 1980s with Roberto Calvi. He was known as “God’s banker” since he was the chairman of Banco Ambrosiano in Milan. Ambrosiano was the second largest private bank in Italy with a controlling interest held by the IOR. Calvi was also part of P-2 and the Frati Neri.
P-2 was regarded as a “state within a state” running covert or black operations after its charter as a masonic lodge was withdrawn in 1976. Future prime minister Silvio Berlusconi was a member before he went into politics. Its clandestine activities came to light when the authorities started investigating Sindona and the nature of the lodge as a “shadow government” and its plans for a very different kind of Italy came to light. The members of the lodge referred to themselves as Frati Neri, Black Brothers. P-2 was even rumored by conspiracy theorists to have been responsible for the death of Pope John Paul 1 after only 33 days as pontiff in 1978.
Calvi was supposed to have committed suicide in June 1982 after the collapse of Banco Ambrosiano. He had apparently been getting ready to spill the beans about all the money laundering the bank was allegedly doing for the Mafia, but was found hanging from Blackfriars Bridge in the City of London with $15,000 and five bricks in his pockets. Now, if you’ve been to London and seen this particular bridge, you will know that it’s well nigh impossible to hang yourself from it without a lot of ‘help’.
The authorities have since concluded that it was murder and not suicide. The not so subtle irony is that Blackfriars could be translated into Italian as Frati Neri, so someone had a mordant sense of humor or was sending a very clear message: “never go against the family”. Though four people were indicted for the murder in 2005, all were acquitted in 2007.
In fact, the character of accountant Frederick Keinsig, played by Austrian actor Helmut Berger, in “The Godfather Part III”, is based on Calvi and he suffers a similar fate. In a nice nod to reality, Keinszig is (almost) the surname of Flavio Carbone’s girlfriend Manuela Kleinszig. Not exactly coincidence. Carbone was one of those finally indicted in 2005 as one of Calvi’s murderers.
As for Archbishop Marcinckus, he was implicated in the financial scandal surrounding the collapse of Banco Ambrosiano, but he was never charged with any wrongdoing because Italian judges ruled that as a church prelate, he had diplomatic immunity.
In light of the stringent regulations that banks now have to go through to conform to the PATRIOT Act, OFAC and the “Know Your Customer” requirements in the US, the news from Moneyval indicates that they are keeping a watchful eye on bank officials making sure that they live up to the same high standards they require from clients.
History doesn’t repeat itself said Mark Twain, but it does rhyme. The writer of the Bible Book of Ecclesiastes would disagree: “what has been will be again, what has been done will be done again; there is nothing new under the sun”. That’s good enough for me.