VATICAN CITY — Dozens and perhaps hundreds of widows and Vatican pensioners recently came in for a rude surprise: The Vatican bank told them they had to close their accounts or risk losing access to their money – all in the name of Pope Francis’ reform efforts.

The bank now says it was all a “technical error” and that the widows and pensioners are being kept on as clients. That reversal came despite the bank’s highly publicized plan to close so-called “lay accounts” as it tries to mend relations with Italian authorities who have suspected that Italians were using the bank as a tax haven.

It’s all come as a big embarrassment for an institution that is trying to fend off accusations of mismanagement and corruption.

“In some cases old ladies got nasty letters,” said Max Hohenberg, spokesman for the Institute for Religious Works – or IOR. “The fact that a few dozen people were categorized in the wrong way and hence got a letter which was incorrect is a mistake which we have apologized for.”

Bank President Ernst Von Freyberg penned a terse letter to these clients Sept. 19, telling them to come to the bank before Nov. 30 to transfer their money out because they no longer fit the criteria of account-holders set by the board. He warned somewhat ominously that if they didn’t meet the deadline, their money would become subject to the “internal dispositions” of the bank. He didn’t say what those “internal dispositions” were.

But somehow some former Vatican employees and their widows got caught up in the sweep, apparently because of the way their accounts were classified by the bank internally. Their accounts have now been reclassified after they pleaded their cases to the bank.


The bank’s board issued new guidelines for who could have an account in July as part of efforts to end decades of scandal that had tarnished the Holy See’s reputation – and were in part responsible for bringing the reform-minded Francis into the papacy.

The new criteria for determining account holders was also aimed at responding to recommendations by European experts who have been evaluating the Holy See’s anti-money laundering efforts. In its 2012 inaugural evaluation, the Council of Europe’s Moneyval committee urged the Vatican bank to put into law regulations about who can and cannot hold an account since the existing norms were vague.

The issue has been of particular interest in Italy, where regulators have long suspected that the IOR was being used by well-connected Italian civilians to avoid paying taxes. The institute, which has just one office inside a tower in the sovereign Vatican City State, is considered a foreign bank by Italian standards and as such not subject to Italian regulatory control.

In truth, many lay Italian citizens held legitimate accounts there because they worked for the Vatican: art historians from the famous Vatican Museums, gendarmes who protect the pope, as well as administrators, legal and financial experts working in the Holy See bureaucracy.

When they retired, these former employees could receive their Vatican pensions into these accounts and benefit from the IOR’s investment services. Whether they or their widows informed the Italian taxman of the existence of the accounts or paid taxes to Italy on any interest income earned is another matter.

Vatican retirees who live in Italy must declare the existence of a foreign bank account on their Italian tax returns, even if the Vatican pension itself is exempt, noted Benedetto Santacroce, a tax lawyer and expert in international taxation. He said any interest earned on that pension is taxable income as far as the Italian taxman is concerned.


Failure to declare the account or pay taxes on any income generated by it could result in significant back taxes and sanctions, though the Italian government recently reduced the penalty in a bid to encourage “voluntary” disclosures to curb tax evasion.

Italian news reports have said that as many as 900 accounts were marked for closure and that some 300 million euros were expected to exit the IOR as the bank transferred the money to clients’ accounts elsewhere.

Hohenberg stressed that the IOR had never confirmed or denied the number of accounts marked for closure, saying only that “a significant amount of customers” had been notified that their accounts were to be closed. Hohenberg said the termination process is now proceeding on a case-by-case basis and stressed that the account closure problem was a minor glitch in the bank’s mammoth reform undertaking.

“While the board decision exactly defines the clientele to be serviced by the IOR, we are seeking to handle the whole process in a responsible and sensitive way and under close supervision of AIF,” the Vatican’s financial watchdog agency, he said. “Whenever an affected client can reasonably argue that the IOR’s classification has not been accurate, the case will be looked at thoroughly.”

Monsignor Fernando Vergez, the No. 2 in the Vatican’s governorate, which administers the Vatican City State, said in recent weeks he had compiled and signed “well over 100” personnel records and sent them to the bank at the IOR’s request, attesting that these former employees were indeed receiving either partial or full Vatican pensions. The implication was that they should be entitled to keep their Vatican bank accounts to receive their Vatican retirement benefits. “Some worked here for 40 years!” he said.

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