Banco Ambrosiano In a great bookGreat “ Financial Scandals”, the author, Sam Jaffa, writes on the collapse of Banco Ambrosiano in 1982, which rocked the financial world. “The Banco Ambrosiano collapsed in 1982 with debts of more than $1.3 billion, and in June of that year its Chairman, Roberto Calvi, was found dead in rather macabre circumstances, hanging beneath < ?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />London‘s Blackfriars Bridge. His demise has never been fully explained – was it suicide or murder? What would become clear, however, was that the VaticanBank – the Istituto per le Opere di Religione (IOR) – which was a shareholder in Banco Ambrosiano, was to lose heavily when the latter collapsed. The Vatican made a ‘voluntary’ contribution to creditors of Banco Ambrosiano amounting to $244 million, and altogether the scandal probably cost it a further $160 million in losses. However, the extent of the Vatican’s dealings have never fully come to light, because Archbishop Paul Marcinkus, the American who headed IOR from 1971 until his retirement in 1990, was deemed to be outside the jurisdiction of the Italian courts. In February 1987 a Milan court issued a warrant for his arrest and that of two of his associates, Luigi Mennini and Pellegrino de Strobel, on charges of fraudulent bankruptcy (which carried a penalty of up to fifteen years in prison). With this hanging over his head, the Archbishop was for a time confined to his state rooms in the Vatican, which was tough for the sports-loving cleric, who particularly enjoyed a round of golf. (Marcinkus, who was always contemptuous of the Roman siesta, often used to creep out of his carpeted office for a few quick holes at the Aquassanta Golf Club whilst the rest of the Vatican slept.) But at the Ambrosiano bankrupcty trial – Italy‘s largest – which ended in April 1992, neither he nor the IOR’s senior officials were defendants. Long prison sentences were handed down to thirty-five accused – including Licio Gelli and Umberto Ortolani, heads of the P2 Masonic Lodge, and the men who had been able to obtain crucial permits for Calvi from the Italian Ministry of Foreign Trade because a high official there was a member of P2. It appeared that the IOR had been used by some Italian businessmen to recycle part of the $100 million paid in bribes by the Montedision chemical conglomerate in an unsavoury financial deal back in 1989. Calvi, it transpired, had allowed the bank to export lire illegally from Italy; over a five-year period some 50 billion lire was moved in this fashion. The Vatican Bank became involved with the Banco Ambrosiano in the early 1970s, at which time it bought shares and made large deposits. In the latter part of that decade the Banco Ambrosiano, through its Luxembourg subsidiary, then set up ten shell companies in Panama. These companies were nominally controlled by the Vatican Bank, but whether the bank really owned them is still not clear. Calvi ran them. At the outset he lent $1.3 billion – $600 million of it borrowed from 120 foreign banks – to the shell companies, which then used the money to manipulate the share price of the Banco Ambrosiano. This rise in the latter’s share www.capitalideasonline.com Page - 1 Banco Ambrosiano prices was in turn used to borrow more money with which to fund various investments in other companies. Much of the $1.3 billion vanished when the stock collapsed. The IOR – which is tucked away in a medieval tower in the Vatican that once housed a dungeon – has no branches, and in the late 1980s only had thirteen employees. It maintains, too, a certain ecclesiastical, if occasionally eccentric, manner of doing things; before the Second World War, for instance, it demanded that prospective depositors present their baptismal certificates as proof that they were Catholics. It is a holy Savings and Loan, a type of building society, which takes in money from religious orders and Vatican employees, paying them paltry interest. The bank in turn lent money to diocese and religious orders all over the world at bargain rates, enabling them to obtain funding for schools and church construction. At the time at which the bank had had links with Roberto Calvi it was headed by Archbishop Paul Marcinkus, a 6-foot-4-inch native of Cicero, Illinois, who had once served as a papal bodyguard. A man known for his flamboyant wielding of an oversized Prince tennis racquet on the Vatican courts, this former American football player was well thought of by Pope John Paul II, who was particularly vigorous in his defence of Marcinkus when the accusations started to fly about the Archbishop’s involvement with Calvi and Banco Ambrosiano. When, in 1988, the regulators began to close in on Calvi, he asked the Vatican Bank to help him out and supply proof that it had backed the ten Panamanian companies. Marcinkus has always maintained that it was only then that the bank knew of the loans to these shell companies. The Vatican decided to give Calvi a year in which to resolve the tangle. Officials in the Holy See wrote ‘letters of patronage’ stating that, directly or indirectly, the Vatican Bank controlled the ten shell companies. In return, Calvi furnished a letter acknowledging that Banco Ambrosiano, not the Vatican Bank, owed the $1.3 billion. But the episode ruined Calvi, who probably took his own life. In the subsequent collapse, creditor banks seized on the opportunity that the letters of patronage gave them to demand that the IOR reimburse them, and even threatened to drag the Vatican to court. Under pressure from the Italian Government, in 1984 the Vatican Bank coughed up that $244 million ‘voluntary’ contribution, but without admitting any wrongdoing. An arrest warrant for Archbishop Marcinkus was nullified by the Italian Supreme Court, on the grounds that Italy had no jurisdiction on Vatican soil. It prompted Archbishop Marcinkus, this son of a Chicago window cleaner who had climbed a religious ladder to the top, to quip, ‘I may be a lousy banker, but at least I’m not in gaol.’” www.capitalideasonline.com Page - 2.