By Paul Lewis, Special To the New York Times
- July 28, 1982
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. Unusual Outside Inquiry
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.
here 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 Islands.
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 suceeded 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 empire. 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 consourtium 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 ambiguious 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 secretive bank. The bank’s formal name is Instituto per le Opere de 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 Bellatrix Inc., Manic Inc. and Astrolfine Inc., 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 Ambrosiano Holdings.
But Mr. Calvi lent these funds, investigators say, only after receving 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 plans. 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 borrow more. ”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. PU FIRST & LAST ADD VATICAN
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 price.
The Archbishop, according to the Vatican press office, is not available for interviews or comment. Moral Responsibility
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 senior officials.
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 Torino, Instituto Mobiliare Italiano, Banca San Paolo-Brescia and Banca Agricola Commerciale di Reggio Emilia – 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, and Carlo Cirutti, an Italian civil servant with strong ties to the Vatican.
Since the commission members will be reporting directly to Agostino Cardinal 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 gap. ”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 overseas branches.
But the Italian central bank argues that Banco Ambrosiano Holdings is not a bank and is not even supervised by Luxembourg’s banking authority. 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 of 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 further speculation.
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 service.
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 that?
”A version of this article appears in print on July 28, 1982, Section A, Page 1 of the National edition with the headline: ITALY’S MYSTERIOUS, DEEPENING BANK SCANDAL.