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What’s Underneath the Vatican Power Struggle Over Economic Reforms (119)

NEWS ANALYSIS: Cardinal George Pell’s Secretariat of the Economy has had its wings clipped in recent weeks, in terms of its authority to oversee the Vatican’s financial operations.

07/25/2016 Comment
Register file photo

Cardinal George Pell is the prefect of the Vatican's Secretariat for the Economy.

– Register file photo

VATICAN CITY — The Secretariat for the Economy has suffered two blows to its authority in the past few weeks in what inside sources say is a concerted effort to obstruct revealing financial information and possible misconduct in the Roman Curia.

However, some of the decisions have helped to clarify roles in the financial reform process and, together with new monitoring procedures, could significantly help to root out mismanagement and corruption in the long term. 

On June 10, the Vatican announced it was ending an external audit of the Holy See’s finances by the accountancy giant PricewaterhouseCoopers. The audit, which cost around €500,000 ($550,000) to complete, had already been suspended in April, just four months after it had begun, on the grounds that the Vatican wanted to obtain “clarifications.”

The Vatican said in its June 10 statement that the financial scrutiny would now be executed by the Vatican’s own auditor general, and that PwC would henceforth “play an assisting role” and be “available to those dicasteries that wish to avail themselves of its support and consulting services.” It argued that having an external audit carried out by its own auditor general is “normally the case for every sovereign state.”

Cardinal George Pell, prefect of the Secretariat for the Economy, and Cardinal Reinhard Marx, head of the Council for the Economy that monitors the work of the Secretariat, had authorized the PWC audit in an effort to bring accountability and transparency to the Vatican’s finances and make sure they matched international standards.

Pope Francis set up the secretariat in February 2014 to have authority over all economic activities of the Holy See and Vatican City State, exerting economic control and vigilance over Vatican entities, as well as policies and procedures relating to “purchasing” and “allocation of human resources.”

A second possible setback to the Secretariat for the Economy, but one which could eventually serve the reform process by creating more accountability, took place on July 9 when the Vatican announced that Pope Francis had approved a document, issued motu proprio (of his own accord), in which the Administration of the Patrimony of the Apostolic See (APSA) — a Vatican department that, more than the Vatican Bank, has historically been the focus of most allegations of financial malpractice — would be recovering much of its previous administrative responsibilities that had been delegated in 2014 to the Secretariat for the Economy (which known by its Italian acronym SPE).

Since 2014, many of APSA’s previous responsibilities, which then included handling Vatican real estate, investments and payrolls, had been transferred to the SPE on the recommendation of the Commission for Reference on the Organization of the Economic-Administrative Structure of the Holy See (COSEA), the forerunner to the SPE, leaving APSA as a kind of Vatican “Central Bank.”

 

‘Separation of Powers’ Justification

The Vatican said the papal document also served to delineate and clarify the roles of those departments engaged in “control and vigilance,” and those carrying out the “administration of Holy See assets.” The SPE is now to be in charge of simply monitoring APSA.

Those supportive of the move argue that a kind of “separation of powers” is appropriate and healthy, so that the Secretariat for the Economy is not in charge of both financial control and administration. The Vatican also stressed that the earlier statutes relating to the role of the Secretariat for the Economy and other financial bodies introduced in the reform process were approved ad experimentum — that is, subject to experimentation — and so were always provisional and subject to change.

Furthermore, with regard to the ending of the PwC audit, the Vatican insisted that the decision was not due to problems with the accountancy firm, nor was it because certain Vatican departments wanted to “hinder reforms.”

PwC declined to comment on the decision to the Register, citing established protocols, but Joseph Zahra, a lay member of the Council for the Economy, stressed it was “never the intention” to have a complete external audit completed in a year and that a “great deal of work still needs to be done.”

The developments nevertheless reduce the authority of the Secretariat for the Economy which, when it was created in 2014, was colloquially described as a “super-dicastery” and more powerful than the Secretariat of State on account of its sweeping powers to enact financial reform.

Ever since, many of those powers have been steadily stripped away, first through statutes that authorized the creation of bodies overseeing the SPE, then the ending of the PwC audit, and finally the restoring of many key responsibilities to APSA.

 

SPE Not Consulted

Although many of these decisions appear reasonable in theory, the way they were actually handled tells a different story. The Register has learned that for both the suspension and then ending of the PwC audit, as well as the motu proprio, there was little or no consultation with the SPE, highlighting a severe lack of unity of purpose and cooperation.

News of the PWC suspension, for example, came as a surprise to Cardinal Pell. The first he knew of it was when the Secretariat of State mailed the news to all Vatican entities. Nor were he and his office involved in the decision to end the PWC audit in June, which was announced when both the cardinal and his most senior financial adviser were out of Rome.  

Concerning the July 9 papal document, Cardinal Pietro Parolin, the Vatican secretary of state, sent a draft of it to the SPE on July 6, just 72 hours before it was published. The staff also noticed after its release that Pope Francis had in fact already signed the document on July 4.

The SPE lost a large amount of responsibility  along with many of its employees to APSA, but — without any prior consultation with the SPE — APSA’s president, Cardinal Domenico Calcagno, sent a letter to all those employees on July 11, saying they now work under his direction.

Poor internal communication is by no means unknown in the Vatican, but the extent of it in this case points to the resistance that Cardinal Pell’s office has run into since it began its work. It also reveals increasing obstruction as financial probing and efforts to improve transparency have increased.

“Various entities have been obstructive from the word go,” said a source involved in the reform. “They’ve not provided documents, or they have met letters asking for access with letters asking ‘What are your grounds for asking for it?’ They have not cooperated, which you don’t do if you don’t have something to hide.”

 

Cardinal Pell’s Continued Commitment

In spite of this, sources close to Cardinal Pell say the straightforward Australian remains committed to uncovering corruption wherever it may have been practiced, to bring prosecutions no matter what the pressures or the consequences, and most importantly, recover stolen property.

But in a Roman Curia used to a lack of scrutiny of its finances (previous auditors never had access to all the information), such an approach has come at a price and he has become something of a pariah to the so-called “old guard.”

“There’s a certain fearlessness in these people who feel impervious to scrutiny,” the source involved in the reform told the Register. “They’re very confident they can get away with it. It’s a sleazy, courtier mentality in which all depends on who has the ear of the throne.”

Others, meanwhile, resent the intrusion of outside agencies and their imposition of international standards as they see such action as compromising the Holy See’s sovereignty, although that argument was only seriously raised after the first four months of the PwC audit when auditors began to ask searching questions of APSA. “That’s really when opposition to the audit began,” said the informed source.

 

The COSEA Raid

Even prior to Cardinal Pell’s arrival, both the Secretariat of State and APSA proved to be “less than forthcoming” in December 2013 when requests began being made for financial documentation from COSEA, according to Gianluigi Nuzzi’s book Merchants of the Temple. Sources say corrupt practices and thefts were also taking place.

Although some passages of Nuzzi’s book have been questioned, no one has yet refuted his account of the raiding of COSEA’s offices on March 30, 2014, just weeks after the Pope’s creating the Secretariat for the Economy which replaced the papal commission. The burglars, who did not break in but had keys to the front door, knew exactly what they were looking for, Nuzzi wrote, and made off with some of COSEA’s “secret archives.” The raid, he added, was a “serious act that risked compromising the commission’s efforts.”

Despite police investigations, it’s still not yet publicly known who was behind the crime although according to Nuzzi, both the Pope and Cardinal Pell believe the most likely motive was to send a thinly veiled warning to those in charge of financial reform.

Nuzzi and fellow journalist Emilio Fittipaldi, who also wrote a book about financial corruption in the Vatican, were acquitted earlier this month of conspiring to leak Vatican documents after an eight-month trial because the Vatican conceded it didn’t have the necessary jurisdiction to convict them. By contrast, while the “Vatileaks 2” trial was taking place, the Vatican’s Financial Information Authority, which seeks to root out money laundering has uncovered several dozen corruption cases but the suspects have yet to be tried.

On top of the avoidance and resistance, which the informed source says now comes mainly from the office the auditor general, those doing the probing and uncovering of malpractice suspect they are being monitored, and have noticed certain figures in the Vatican are averse to publicity about lack of cooperation.

One example took place soon after the end of the PwC audit when The Wall Street Journal interviewed Cardinal Pell. The cardinal had agreed to the interview but, as is standard practice, did not inform the papal household that he had done so. The next day, he received a call saying the Pope wanted to speak with him in order to know what he told the newspaper. SPE staff wondered how the Pope could have known when the interview had still yet to appear.

One source pointed out that when it comes to how things are perceived in the media, Cardinal Pell is quick to be contacted, but when it comes to major decisions on scrutiny of Vatican finances, the opposite is the case. The Secretariat of State has since ordered those involved in financial reform not to give any interviews.

 

Progress

But in spite of this resistance and the nervous reaction, genuine progress is being made. In a statement issued after the ending of the PWC audit, the SPE said “a lot has been achieved and the reforms are irreversible,” although it stressed the implementation of changes “will take time.” The main achievement, it said, was that the Vatican “now knows where it is financially” and there is now “much more complete and accurate financial information.”

It said its main challenge now “is to diminish and eliminate annual deficits” and to ensure that the auditor general “identify any earlier corruption and reduce inefficiency.”

The SPE is trying to have Vatican entities comply with three levels of controls: improvement of “front line,” day-to-day transactions; control and vigilance by the SPE to advise, monitor and analyze the Vatican entities; and external audits, which are now going through the Vatican’s auditor general rather than PWC.

The dicastery is focusing primarily on the first of these because it feels if those daily operations are correct procedurally, then the other two areas will be eventually too. For this reason, it does not believe the July 4 motu proprio necessarily undermines its work, but helps to clarify roles.

For the SPE, what is most important is that the right procedures and people are put in place or all the reforms will be “built on sand,” according to one of the informed Vatican sources. For his part, Cardinal Pell is said to be “not particularly upset” by the latest events, so long as the most important procedures are welcomed and followed and the people in charge are honest. But for as long as various entities remain uncooperative and fail to consult the SPE, proper implementation looks to be in peril.

“This is a long process,” said Zahra, who also stressed much relies on “culture change” and altering “the way we do things”. He added that with the control and vigilance section of the SPE, the auditor general, and the Financial Information Authority “there have never been so many layers of control within the Holy See on matters related to finance and administration.

“I am confident that if these go on operating with the efficiency with which they are now operating, this will be more than enough as a serious and functioning impediment to any temptation of wrong-doing,” he said.

Aside from the obstructions, other signs are fairly encouraging. Some dicasteries are said to be “very anxious” to adopt the new procedures, and the Pontifical Council Cor Unum praised the SPE for its “outstanding example of collaboration” among Vatican departments to “improve efficiency and controls.” The response to the SPE’s invitations to implement better checks is understood to have been, as a Vatican source said, “overwhelmingly positive,” and that around half of six or seven Vatican entities want to move ahead immediately. Even APSA now seems open to stricter controls, although it remains unclear if it is prepared to implement them.

 

No Comment

The Register sought comment from the Secretariat of State but it has not been responding to requests related to financial reforms.

On July 14, the Register put a series of questions to Archbishop Giovanni Becciu, the “substitute” in the Secretariat of State, in charge of the day-to-day administration of the Roman Curia. The questions asked for a response to criticism that APSA and other departments were trying to hide financial information, and to the claims that SPE was not being properly notified of major decisions.

The archbishop declined to answer them, saying he would not give interviews while on vacation. His office also chose not to field anyone else to respond.

Edward Pentin is the Register’s Rome correspondent.

Filed under cardinal george pell, edward pentin, financial transparency, pope francis, secretariat for the economy