Vatican Bank Tied to Mafia Front?

This is no ordinary bank: The ATMs are in Latin. Priests use a private entrance. A life-size portrait of Pope Benedict XVI hangs on the wall. Nevertheless, the Institute for Religious Works is a bank, and it's under harsh new scrutiny in a case involving money-laundering allegations that led police to seize —23 million ($30 million) in Vatican assets in September. Critics say the case shows that the "Vatican Bank" has never shed its penchant for secrecy and scandal.

The Vatican calls the seizure of assets a "misunderstanding" and expresses optimism it will be quickly cleared up. But court documents show that prosecutors say the Vatican Bank deliberately flouted anti-laundering laws "with the aim of hiding the ownership, destination and origin of the capital." The documents also reveal investigators' suspicions that clergy may have acted as fronts for corrupt businessmen and Mafia.

The documents pinpoint two transactions that have not been reported: one in 2009 involving the use of a false name, and another in 2010 in which the Vatican Bank withdrew —650,000 ($860 million) from an Italian bank account but ignored bank requests to disclose where the money was headed.

The new allegations of financial impropriety could not come at a worse time for the Vatican, already hit by revelations that it sheltered pedophile priests. The corruption probe has given new hope to Holocaust survivors who tried unsuccessfully to sue in the United States, alleging that Nazi loot was stored in the Vatican Bank. Yet the scandal is hardly the first for the centuries-old bank. In 1986, a Vatican financial adviser died after drinking cyanide-laced coffee in prison. Another was found dangling from a rope under London's Blackfriars Bridge in 1982, his pockets stuffed with money and stones. The incidents blackened the bank's reputation, raised suspicions of ties with the Mafia, and cost the Vatican hundreds of millions of dollars in legal clashes with Italian authorities.

On Sept. 21, financial police seized assets from a Vatican Bank account at the Rome branch of Credito Artigiano SpA. Investigators said the Vatican had failed to furnish information on the origin or destination of the funds as required by Italian law.

The bulk of the money, —20 million ($26 million), was destined for JP Morgan in Frankfurt, with the remainder going to Banca del Fucino.

Prosecutors alleged the Vatican ignored regulations that foreign banks must communicate to Italian financial authorities where their money has come from. All banks have declined to comment.

In another case, financial police in Sicily said in late October that they uncovered money laundering involving the use of a Vatican Bank account by a priest in Rome whose uncle was convicted of Mafia association.

Authorities say some —250,000 euros, illegally obtained from the regional government of Sicily for a fish breeding company, was sent to the priest by his father as a "charitable donation," then sent back to Sicily from a Vatican Bank account using a series of home banking operations to make it difficult to trace.

The prosecutors' office stated in court papers last month that while the bank has expressed a "generic and stated will" to conform to international standards, "there is no sign that the institutions of the Catholic church are moving in that direction." It said its investigation had found "exactly the opposite."

Legal waters are murky because of the Vatican's special status as an independent state within Italy. This time, Italian investigators were able to move against the Vatican Bank because the Bank of Italy classifies it as a foreign financial institution operating in Italy. However, in one of the 1980s scandals, prosecutors could not arrest then-bank head Paul Marcinkus, an American archbishop, because Italy's highest court ruled he had immunity.

Marcinkus, who died in 2006 and always proclaimed his innocence, was the inspiration for Francis Ford Coppola's character Archbishop Gilday in "Godfather III."

The Vatican has pledged to comply with EU financial standards and create a watchdog authority. Gianluigi Nuzzi, author of "Vatican SpA," a 2009 book outlining the bank's shady dealings, said it's possible the Vatican is serious about coming clean, but he isn't optimistic.

"I don't trust them," he said. "After the previous big scandals, they said 'we'll change' and they didn't. It's happened too many times."

He said the structure and culture of the institution is such that powerful account-holders can exert pressure on management, and some managers are simply resistant to change.

The list of account-holders is secret, though bank officials say there are some 40,000-45,000 among religious congregations, clergy, Vatican officials and lay people with Vatican connections.

The bank chairman is Ettore Gotti Tedeschi, also chairman of Banco Santander's Italian operations, who was brought in last year to bring the Vatican Bank in line with Italian and international regulations. Gotti Tedeschi has been on a very public speaking tour extolling the benefits of a morality-based financial system.

"He went to sell the new image ... not knowing that inside, the same things were still happening," Nuzzi said. "They continued to do these transfers without the names, not necessarily in bad faith, but out of habit."

It doesn't help that Gotti Tedeschi himself and the bank's No. 2 official, Paolo Cipriani, are under investigation for alleged violations of money-laundering laws. They were both questioned by Rome prosecutors on Sept. 30, although no charges have been filed.

In his testimony, Gotti Tedeschi said he knew next to nothing about the bank's day-to-day operations, noting that he had been on the job less than a year and only works at the bank two full days a week.

According to the prosecutors' interrogation transcripts obtained by AP, Gotti Tedeschi deflected most questions about the suspect transactions to Cipriani. Cipriani in turn said that when the Holy See transferred money without identifying the sender, it was the Vatican's own money, not a client's.

Gotti Tedeschi declined a request for an interview but said by e-mail that he questioned the motivations of prosecutors. In a speech in October, he described a wider plot against the church, decrying "personal attacks on the pope, the facts linked to pedophilia (that) still continue now with the issues that have seen myself involved."

As the Vatican proclaims its innocence, the courts are holding firm. An Italian court has rejected a Vatican appeal to lift the order to seize assets.

The Vatican Bank was founded in 1942 by Pope Pius XII to manage assets destined for religious or charitable works. The bank, located in the tower of Niccolo V, is not open to the public, but people who use it described the layout to the AP.

Top prelates have a special entrance manned by security guards. There are about 100 staffers, 10 bank windows, a basement vault for safe deposit boxes, and ATMs that open in Latin but can be accessed in modern languages. In another concession to modern times, the bank recently began issuing credit cards.

In the scandals two decades ago, Sicilian financier Michele Sindona was appointed by the pope to manage the Vatican's foreign investments. He also brought in Roberto Calvi, a Catholic banker in northern Italy.

Sindona's banking empire collapsed in the mid-1970s and his links to the mob were exposed, sending him to prison and his eventual death from poisoned coffee. Calvi then inherited his role.

Calvi headed the Banco Ambrosiano, which collapsed in 1982 after the disappearance of $1.3 billion in loans made to dummy companies in Latin America. The Vatican had provided letters of credit for the loans.

Calvi was found a short time later hanging from scaffolding on Blackfriars Bridge, his pockets loaded with 11 pounds of bricks and $11,700 in various currencies. After an initial ruling of suicide, murder charges were filed against five people, including a major Mafia figure, but all were acquitted after trial.

While denying wrongdoing, the Vatican Bank paid $250 million to Ambrosiano's creditors.

Both the Calvi and Sindona cases remain unsolved.

Thanks to Nicole Winfield and Victor L. Simpson

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Ex-Berwyn Patrolman James Formato Testifies about His Role in a Mob-connected Burglary Ring

A one-time crooked cop swore to tell the truth in federal court Thursday. Ex-Berwyn Patrolman James Formato testified about his role in a mob-connected burglary ring.

The golden rule of the Chicago Outfit is that you do unto others before the police can undo you, and having the police in your back pocket had been the most efficient way mob bosses have accomplished that for almost a century.

Formato was paid to serve and protect the 54,000 residents of west suburban Berwyn. Unknown to them, Formato was also being paid to protect a multi-million dollar Outfit burglary crew.

Even while in uniform, Formato couriered mob cash. He has told federal authorities that he faked police reports and provided inside law enforcement information to west suburban rackets boss Michael "the Large Guy" Sarno, who is currently on trial in federal court with four accused associates.

Formato, no longer a Berwyn policeman, has pleaded guilty in the case and could face almost four years in prison as part of his deal with prosecutors.

During Thursday's testimony, ex-officer Formato provided a play-by-play of his moonlighting for the mob, a crew that is accused of bombing of a rival video poker business, committing home invasions and jewelry heists netting nearly $2 million.

In 2007, after Formato began cooperating with the FBI, he secretly recorded conversations with members of the gang, including Outlaw biker Mark Polchan, who is on trial.

The former Berwyn policeman will be back on the stand Friday. The government is close to wrapping up its case.

Thanks to Chuck Goudie

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Defense Cross-Examination of Key Witness at Sarno Trial

Defense lawyers began cross-examining a key government witness in the federal racketeering case against Chicago Outfit boss Michael "The Large Guy" Sarno.

In New York and in the movies, the code of silence is called "omerta." In the Chicago Outfit, wiseguys play by their own rules, and they don't have a fancy Italian nickname for keeping quiet. They're just supposed to do it.

For suburban mob boss Mike Sarno, the top defendant in the current Outfit prosecution, it is clear that the code of silence is sometimes tough to enforce.

When the I-Team showed up at Sarno's Westchester home a few years ago, he had no problem clamming up in front of the camera. But about that same time, the FBI was listening in on Sarno's phone calls, as agents investigated the mob bombing of a Berwyn video poker company and links between the Outfit and the Outlaws biker gang.

In one secretly recorded phone call with a longtime family friend, Sarno could almost be heard cringing.

KANTOWSKI : Mike, how are you doing?
SARNO: How you doin', buddy?
KANTOWSKI: Good, I'm sitting here with, ah, Frank Caruso, um,
Dominick Montagna and Frank Depollo.
SARNO: Oooh, oh you, oh boy.
KANTOWSKI: Trying to work this out.
SARNO: Alright.
KANTOWSKI: Uh oh, I'm in trouble.
SARNO: Talk to you later.

Caruso, a South Side Outfit boss, and the other names were unwelcome subjects of that phone call between Mike Sarno and his friend David Kantowski, who says he was a 25-year friend of Sarno's. An hour later, they talked again.

SARNO: Ok, well, listen, I, I, I just got to, I want to tell you something. I appreciate everything you are doing for me, buddy, but please stop with the names on my phone. Please.
KANTOWSKI: Ok.
SARNO: I know I'm paranoid, but I got good reason to be.
KANTOWSKI: I wasn't even thinking, Mike I, I apologize, I wasn't even thinking about that, God d------t.
SARNO: Well, listen ...
KANTOWSKI: Sorry buddy.
SARNO: I'll do the thinking for us with that stuff because, ah ... Believe me, it's a shame we got to be like that, but we do.

Kantowski is a Chicago real estate agent and is related to two of the defendants in the case, Sam and Anthony Volpendesto.

Mr. Kantowski told the I-Team late Thursday that he may be called as a rebuttal witness during the trial.

All day Thursday, prime government witness Kyle Knight was on the stand. He provided the bomb components for that Berwyn attack.

Thanks to Chuck Goudie

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