No one is perfect.  That’s why it shouldn’t come as a surprise to you that early this morning Italian authorities seized $30.18 million from a Vatican bank account for possible ties to money laundering.  It should also not come as a surprise to you that the Vatican bank’s chairman and director general are now under investigation for failure to meet Italy’s anti-money laundering laws.

Surprised anyway?  You shouldn’t be.  Here’s why.

In the morning of June 21^st, 1982 in London, a postal clerk on his way to work was crossing the Blackfriars Bridge when he noticed a length of orange rope hanging from under the scaffolding. Glancing over the edge, to his horror, the clerk discovered the besuited body of a hanged man.  The man’s name was Roberto Calvi, nicknamed “God’s Banker” for his close ties to the Vatican bank and the Pope, and he was also the chairman of the Banco Ambrosiano in Milan.  At the time Banco Ambrosiano’s largest shareholder was the Vatican bank that has recently come under investigation.  More on that later.

The deceased Calvi wasn’t just a loyal banker for holy men.  He was also a loyal banker for the Sicilian Mafia. Calvi exploited his influence to set up a network of offshore shell companies, which the Mafia exploited to launder the proceeds of their heroin business.

Roberto Calvi, God's Banker

But Calvi wasn’t just a loyal banker for the Vatican and the Mafia.  He was also a loyal banker for the Propaganda Due (P2), a clandestine Masonic lodge, which operated illegally after the Grand Orient of Italy revoked its charter in 1976.  Many prominent Italian officials were members of P2.  Referring to themselves as “black friars,” they operated a “state within a state” whose main objective was to undermine communism domestically and abroad.  On behalf of the P2, Calvi enabled the illicit sale of arms to Iran, financed weapon sales to dictators in Latin America, and provided channels for illicit funding of the Contras in Nicaragua.  In addition he, allegedly, diverted secret channels of money from the Vatican to the Solidarity movement in Poland.

Three years before his death, the Bank of Italy discovered one of Calvi’s illegal transactions and Italy opened a criminal investigation. Two years later Banco Ambrosiano found itself hundreds of millions of dollars in debt after $1.4 billion in loans the bank had made to ten shell corporations in Latin America disappeared.  In June 1982, with his reputation and livelihood in shambles, Roberto Calvi went on the run.  A postal clerk discovered his body hanging from an orange nylon rope nine days later.

Banco Ambrosiano collapsed that year. As it would turn out, the Vatican bank, which owned a large share of Ambrosiano, also owned the Latin American shell corporations with the disappearing billions.  Though it did not have a legal obligation to do so, the cornered bank agreed to pay $250 million to Ambrosiano’s creditors “in recognition of moral involvement.”

It is true irony that the man with the moniker “God’s Banker” was involved in so many illicit affairs.  Pope Benedict himself has spoken out against tax havens and has even blamed the financial crisis on offshore centers. Yet the Vatican bank, which reports to a committee of cardinals and ultimately to the Pope, remains mired in scandals involving money laundering, corruption, and other illicit activities.  But that’s what the offshore industry so often represents: corruption, irony, and often hypocrisy, too.  The sooner we understand this basic dynamic and reality of the industry, the sooner we will be able to effectively tackle the problem.  God’s Banker, indeed.

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