God and Mammon

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Within the guarded privacy of the Vatican, there are no better kept secrets than those concerning the workings of the Holy See's bank, the Institute per le Opere di Religione (Institute for Religious Works). In a church that is nearly 2,000 years old, the Vatican bank is a relative newcomer. Its main holdings go back to 1929, when the Italian government under Benito Mussolini paid $83 million to the Holy See as compensation for the loss of papal territory seized from the church in 1870 by the Italian republic. Much of that money was eventually invested in real estate and Italian companies like Societa Generate Immobiliare, the giant international construction firm that later built Washington's Watergate apartment and hotel complex.

As the Vatican's assets began to grow, Francis Spellman, an American bishop then living in Rome, urged Eugenic Pacelli, the Vatican Secretary of State and later Pope Pius XII, to set up a modern stock portfolio to manage the funds better. After Pacelli became Pope, he decided to set up a bank. The IOR, established in 1942, served to shield some Vatican money from war-torn Europe.

The bank now operates much like a normal financial institution. It takes in deposits and invests its portfolio. Until last week's appointment of three outsiders only the Pope and two top bank officers knew the details of its operations.

Even a to council of 15 Cardinals appointed last year to find ways to make up the Vatican's operating deficit was given only scant information about the bank.

Secrecy breeds suspicion, and the Vatican's investments have caused serious questions over the years. In the mid-1960s, the IOR was discovered to have invested in firearms dubious concerns for a church. Examples: an Italian firearms factory and a Canadian pharmaceutical company that manufactured contraceptives.

These change prompted Pope Paul VI in 1969 to make the first major change in the interest investment policy. He liquidated its controlling interest in many Italian firms and shifted several million dollars in proceeds into the IOR.

To seek advice on ways to invest this new cash, the IOR called on its lay financiers, like Michele Sindona, who urged the Pope's bank to invest in many of his deals. When Sindona's empire collapsed in 1974 with the failure of New York's Sin National Bank, the Vatican lost an estimated $70 million. Sin dona is serving a 25-year prison sentence in the U.S.

Last year Pope John Paul II said that he wanted to make the Vatican's financial affairs "clear and in the light of the sun." But for now, they remain shrouded in clouds.