by Paul Lewis
Special to the New York
July 28, 1982
ROME, July 27
The apparent suicide last month
of an Italian financier known as "God's
Banker," who was found hanged beneath London's
Blackfriars Bridge, has added to the mystery of a major Italian
financial scandal in which the Vatican appears heavily involved.
The cost to the Roman Catholic Church could amount to several
hundred million dollars.
The scandal centers on some $1.4 billion
in unsecured loans made in Latin America by
Banco Ambrosiano, Italy's largest
privately owned banking group, and endorsed by
the Vatican bank.
It is sending shock waves through the
world of international finance and raising questions about current
efforts to regulate the foreign operations of multinational banks.
It has also strained Italy's relations with
the Vatican, an autonomous governing unit in Rome.
Under pressure from the Italian
Government and concerned church leaders, Pope John Paul II has
ordered an unusual outside investigation into the Vatican's finances
by three Roman Catholic lay bankers. But the Italian Government
wants the Vatican to accept a measure of financial responsibility
for Ambrosiano's expected losses.
As usual in such scandals in Italy, there are also unverifiable
reports that organized-crime figures and a recently discovered,
anti-Government secret Masonic lodge are somehow involved.
There are also reports that Banco Ambrosiano may have been a target
of the British secret service, which is said to suspect it of
financing Argentine arms purchases during the war over the Falkland
The Bank of Italy first became suspicious about Banco Ambrosiano in
1978 during a general crackdown on bank fraud, but immediately ran
into a heavy political opposition.
Paulo Baffi, then the governor of the central bank, was
arrested and eased out of his job. Mario Sarcinelli, the
central bank's chief bank regulator, was imprisoned for a while, but
now has reclaimed a place in the Government as the chief civil
servant in the Finance Ministry, helping to coordinate Treasury and
central bank policies.
It was Mr. Baffi's successor, Carlo Ciampi, who finally
succeeded in bringing the Ambrosiano scandal out into the open in
what is widely perceived in Rome as a triumph for the Bank of
Italy's political independence.
The hanged banker was Roberto Calvi, 61 years old. He had
joined Milan's Banco Ambrosiano as a clerk, worked his way up to
become its president and, along the way, through a series of
spectacular deals, transformed what had been a modest regional bank
into a major financial power, with assets of $18.7 billion in 1981.
Mr. Calvi, who was appealing a four-year jail sentence for illegal
currency dealings, disappeared from his Rome apartment on June 10,
after failing to block an inquiry by the Italian central bank into
some $1.4 billion of loans that banks he controlled had made to
obscure companies, most of them Panamanian.
Five days after he vanished, his secretary jumped to her death from
a window of the Milan bank. Mr. Calvi's body was found on June 18.
Collapse of an Empire
The financial panic caused by news of Mr. Calvi's death and the Bank
of Italy's investigation provoked the collapse of his financial
Shares of companies his group had
interests in fell 30 and 40 percent on the Milan stock exchange.
After depositors rushed to withdraw their funds, Banco Ambrosiano
itself had to be bailed out by a consortium of six major Italian
banks hurriedly put together by the Bank of Italy.
Earlier this month, Banco Ambrosiano Holdings S.A., a Luxembourg
subsidiary two-thirds of which is owned by Banco Ambrosiano,
defaulted on some $400 million of foreign loans it had received . It
is now in receivership. The Bank of Italy has scheduled a meeting of
Ambrosiano creditors in London on Thursday .
Last week, banking authorities in the Bahamas suspended for 30 days
the license of Ambrosiano's Bahamas operation, Banco Ambrosiano
Overseas Ltd., in order to "restore satisfactory liquidity to its
operations," the Bahamian central bank said.
"The Ambrosiano affair makes
everyone wonder about the Vatican's finances, but it really
illustrates the fragility of the international banking system
that we are all trying to preserve," said Guido Carli, a former
governor of the Bank of Italy and now a prominent industrialist.
"It's partly the normal pathology of finance - a failure of
controls," said Luigi Sparventa, an independent Italian
parliamentarian and economics professor. "But Calvi's death -
that suggests more sinister forces," he added.
Earlier this year, Carlo de Beneditti,
head of Olivetti, the big Italian office machinery manufacturer and
one of the country's leading businessmen, bought a significant stake
in Banco Ambrosiano but sold it again within a few months saying
that he was "appalled" by what he had found.
Close Vatican Ties
According to senior officials investigating the scandal who do not
wish to be identified, the Banco Ambrosiano affair centers on the
close but ambiguous relationship between Mr. Calvi and Archbishop
Paul C. Marcinkus, a 60-year-old native of Cicero, Ill., who for
the last 10 years has run the Vatican's free-wheeling but extremely
The bank's formal name is
Istituto per le Opere di Religione, the
Institute for Religious Works,
and it is commonly referred to as I.O.R.
Archbishop Marcinkus, a former chief of papal security, has been a
controversial figure in financial circles because, as head of the
Vatican bank, he was responsible for the Vatican's losing a reported
$30 million in the collapse in 1974 of the business empire of
Michele Sindona, the Sicilian financier.
Mr. Sindona, 62, is now serving a 25-year jail sentence in New York
in connection with the failure of the Franklin National Bank. Last
week, an Italian magistrate ordered that Luigi Mennini, a
layman who was second in command to Archbishop Marcinkus at the
Vatican bank, should stand trial for his role in the Sindona
scandal. Extensive Lending
During 1980 and 1981, investigating officials say, the late Mr.
Calvi mounted an extensive lending program to the Peruvian,
Nicaraguan and Nassau subsidiaries of the Banco Ambrosiano group,
using funds borrowed in the Eurodollar market that eventually
totaled some $1.2 billion to $1.4 billion.
Most of this money was then lent to a series of Panamanian companies
with names such as,
...most of which are thought to have no more than mail addresses.
The loans were granted roughly evenly by
Banco Ambrosiano in Milan and by its Luxembourg subsidiary, Banco
But Mr. Calvi lent these funds, investigators say, only after
receiving what bankers call "letters of comfort" from the Vatican
bank. These letters, though vaguely worded, implied that the Vatican
had an interest in the companies and was aware of their borrowing
Although such letters do not constitute a legal guarantee
that the signatory will repay the loans, they are often issued to
reassure lenders that a borrowing company has reputable backing.
But the Vatican bank also demanded and received last August what
investigators call a "counter letter" signed by Mr. Calvi and
absolving it from all legal and financial responsibility for the
loans to the Panamanian companies.
Investigating officials believe the Vatican did have an interest in
the Panamanian companies and probably controlled a number of them.
But they are convinced that Mr. Calvi was also part owner and
effective manager of most of the companies and used the money they
borrowed to buy shares in Banco Ambrosiano and probably in other
companies as well.
By now, one senior official involved in
the investigation estimates, the Panamanian companies own around 20
percent of Banco Ambrosiano.
'A House of Cards'
As interest rates soared last year and the dollar strengthened, the
investigators surmise that Mr. Calvi found it increasingly difficult
to service his dollar-denominated borrowings with the dividends from
his shares, often paid in weak Italian lire.
To remain solvent he was forced to
"It was a house of cards that was
bound to fall down," one official said.
As his financial difficulties mounted,
the investigators assume Mr. Calvi needed the Vatican letters of
comfort to reassure skeptical directors of his own bank that the
lending program was sound and also to satisfy foreign lenders.
The real mystery, these sources say, is why Archbishop Marcinkus
agreed to provide the letters of comfort that he knew could be used
to make lenders think the Panamanian companies enjoyed Vatican
backing, while at the same time demanding a secret letter from Mr.
Calvi absolving the Vatican of any financial responsibility for what
must have been looking by then like an increasingly risky operation.
"The Vatican must have known that
the two letters could not be genuine at the same time; the deal
was intended to defraud and to lead people astray," argued one
senior Italian financial official.
There is speculation that the Archbishop
may have agreed to the deal to help out an old colleague and
financial adviser since Banco Ambrosiano is regarded as one of
Italy's "Catholic" banks with longstanding links to the Vatican.
He may also have wished to protect the
Vatican's own stake in Banco Ambrosiano, which is assumed to be far
more than the 1.8 percent shown by the latest official figures.
There is also evidence, officials say, that Archbishop Marcinkus
became alarmed by the arrangements he had made and refused to extend
the letters of comfort, which expired in June. Mr. Calvi is believed
to have asked him to do so at a meeting on June 8 or 9, just after
the Banco Ambrosiano directors voted down their president by 11 to 3
and agreed to cooperate with the Bank of Italy's investigation.
On this occasion, officials say, the Vatican bank also turned down a
Calvi plan to ease the Banco Ambrosiano group's mounting liquidity
problems by buying a package of bank shares well above the market
The Archbishop, according to the Vatican press office, is not
available for interviews or comment.
In the view of the Italian Treasury Minister, Nino Andreatta,
and of Mr. Campi, the central bank's governor, the Vatican acted
improperly in issuing letters of comfort to Banco Ambrosiano at the
same time as it asked the bank to absolve it from any responsibility
for the Panamian companies.
They believe it must therefore bear at
least a moral responsibility for any losses incurred, according to
Addressing Parliament earlier this month, Mr. Andreatta said that,
"the Government is expecting a clear
acceptance of responsibility on the part of" the Vatican bank,
"which in some operations with Banco Ambrosiano appears in the
role of an effective partner."
In fact, the threefold aim of the
Italian authorities, senior officials say, is to use the Banco
Ambrosiano scandal to force Pope John Paul II to tighten financial
controls in the Vatican, which is now experiencing its second major
money scandal in eight years, to end the Vatican bank's ambiguous
role under Italian law, and to make the Vatican pay part of any
losses incurred by Banco Ambrosiano's Luxembourg holding company.
The six-bank rescue consortium is expected to cover foreign losses
by the Milan-based parent bank.
Representatives of the banks involved,
Banca Nazionale del Lavoro
Banca Popolare di Milano
Instituto Bancario San Paolo di
Instituto Mobiliare Italiano
Banca San Paolo-Brescia
Banca Agricola Commerciale di
...met today in Rome, but issued no
statement. Commission Named
The Pope has already appointed a three-member lay commission to
investigate the Vatican bank.
It is made up of,
an American Roman Catholic,
Joseph Brennan, a former chairman of the Emigrant Savings
Bank of New York
Phillipe de Wech, a former
president of Switzerland's Union Bank
Carlo Cirutti, an Italian civil
servant with strong ties to the Vatican
Since the commission members will be
reporting directly to Cardinal Agostino Casaroli, the Vatican
Secretary of State who is often referred to as the Pope's Prime
Minister, the Pope's move has been widely seen as a sign that
Archbishop Marcinkus may lose his post.
However, some Italian bankers and
officials feel that, with the exception of Mr. de Wech, the
commission is an ineffective group that may not make much of an
impact on the Vatican's ponderous administrative machinery.
Many qualified observers feel that the basic reason the Vatican bank
became involved in the Ambrosiano scandal is that the Vatican, which
has admitted running budget deficits of $20 million to $30 million a
year in recent years, came to rely on its bank's profits to fill the
"I.O.R. was under pressure to
perform and that can lead to mistakes," said Mr. Carli, the
former Bank of Italy governor.
In recent years the cloak of secrecy
that traditionally surrounds Vatican finances has been lifted a bit
with the admission that the Holy See faces regular deficits, largely
as a result of the falloff in the annual "Peter's pence" collections
made in all churches for the personal use of the Pope.
However, little is known about the Vatican bank, except that in the
1970's it began to diversify its investment portfolio outside Italy,
selling off major shareholdings in many Italian companies. It was
this policy that brought it into contact with Mr. Sindona, who
handled the tricky problem of selling large shareholdings profitably
on Italy's thinly capitalized stock exchange.
The bank is thought to make most of its profits from managing the
funds of religious orders and churches around the world.
A senior Italian official estimated
that, with between $1 billion and $2 billion in deposits, the
Vatican bank probably turns in profits of about $20 million, or
enough to make up for the Vatican's budget deficit.
"Being essential has allowed I.O.R.
to keep too much freedom," he said.
The bank, which is not subject to
Italy's exchange controls and banking regulations, is also thought
to have been used by Italian financiers as a conduit for smuggling
money out of the country, officials said.
And the Italian Finance Ministry and central bank, besides wanting
tighter discipline over Vatican finances, would also like to see the
Vatican bank's legal position changed, as a further way of keeping
it under control.
"The aim is one bank under Italian
regulation for the Vatican's lire assets, and another offshore
bank to handle foreign currency balances, with no leakage," a
senior official explained.
Rough estimates by the Italian central
bank suggest that losses by Banco Ambrosiano's Luxembourg holding
company might run as high as $400 million to $500 million.
So far, officials say, the Vatican has
declined to accept any responsibility. But they hope that the lay
commission may recommend that it do so in order to safeguard the
Vatican bank's financial reputation.
And the Chase Manhattan Bank, while denying in New York that any
agreement has been reached, has expressed interest, officials here
said, in arranging a $500 million credit for the Vatican bank, once
its finances are overhauled. In case the Vatican does provide some
assistance, Italian officials hint that the Italian central bank may
also offer help.
However, the Bank of Italy has already come under attack from
private bankers in Britain and the United States for what they see
as a wanton endangering of the international banking system by the
central bank's refusal to bail out Banco Ambrosiano's Luxembourg
holding company under the central bankers' concordat of 1974.
This agreement was reached by major
central banks, after the failure of West Germany's Herstatt Bank, at
a meeting in Basel, Switzerland, and basically commits them to meet
any liquidity shortage in national banks as well as in their
But the Italian central bank argues that Banco Ambrosiano Holdings
is not a bank and is not even supervised by Luxembourg's banking
It also maintains that the holding
company is not facing a temporary liquidity shortage that can be
cleared up with a little help, but is fundamentally insolvent.
"We are not bound to bail out
insolvent banks," an official said.
Abundance of Rumors
On the darker side of the Banco Ambrosiano scandal, rumors abound
but facts are scarce.
Mr. Calvi was named last May as a member
the P-2 Masonic lodge, which was
accused of trying to undermine Italy's parliamentary system. He
denied belonging to the group, but it was inevitable that, when his
body was found beneath the Blackfriars Bridge in London, the
connection to the Masons - whose members wore black robes - set off
Toward the end of his life, Mr. Calvi is said to have become
increasingly involved with suspected underworld figures as his needs
for ready cash increased.
There are also rumors that he lent Peru
$200 million to buy Exocet missiles for the Argentine forces during
the Falkland war and thus became a target for the British secret
In light of the rumors, officials at the normally staid Bank of
Italy and Finance Ministry expressed amazement at last week's
finding by a London coroner that Mr. Calvi did indeed commit suicide
by hanging himself under the bridge.
The common reaction was:
"Why bother to go to London to do