(Vatican Radio) The IOR – Istituto per le Opere di Religione, or the Vatican Bank, released its Annual Report for the 2015 fiscal year on Thursday, indicating its commitment to assisting the Holy Father in his universal mission of pastoral care.
The extended Annual Report was accompanied by a Press Release detailing the more salient points of IOR's 2015 activities.
Jean-Baptiste Douville de Franssu, President of the IOR, and the Director General, Gian Franco Mammì, participated in a roundtable event with Vatican Radio and Osservatore Romano to discuss the report.
The full transcription of the roundtable is below:
Q: Why does the Vatican, and the Church, need the IOR, and what are the services the IOR offers?
Jean-Baptiste Douville de Franssu: Let me say how pleased I am to be here today and to be given the opportunity to report on 2015 which was a very important year for the IOR, and I am sure with Dr. Mammi we will have many opportunities in the course of this interview to tell you a little bit about some of those activities of 2015.
Why does the Vatican and the Church need the IOR? I think it’s very simple. First of all, we should remember that the Vatican, being a sovereign state, it has a small economy and like any sovereign state that has an economy, it needs an institution that we would refer to traditionally as a financial institution that allows for transfer of payments to occur and allow the different agents in the economy to function. So that’s the primary role of IOR.
IOR first and foremost, offers payments, services to the various institutions and the various dicasteries of the Holy See here in the Vatican City State. It’s an historic role, and it’s a very important role that IOR has today. In addition, IOR has also developed over the years a service that I would qualify along the line of wealth-management – although it may be a bit of an ambiguous term given what is it we are talking about.
We certainly help congregations, dioceses and institutions of the Holy See and the Vatican City State to manage their assets, to manage their money. We do it in different ways. I am sure we will have some occasion this afternoon to describe the different ways, but it’s essentially providing short term interest bearing cash accounts , or asset management products. That’s essentially the basis. So two main activities: transfer payment and wealth management services. And I think fundamentally, the role that it plays for the Holy See, for the Vatican City State, is one of great importance because it allows for, again, all the various elements of the economy of the Vatican to function in addition of course to supporting the Holy Father in his mission.
Q: Can we say that the IOR today is completely transparent? “Clean” if we can use this term? And how could the abuses of the past have happened?
Gian Franco Mammì: How was it possible? It is in any case a community of human beings, and certainly the absence of rules, of a system and a series of strict norms, permitted this.
I would certainly say that today the IOR is absolutely “clean”, if we want to use this term. Major work in reorganising all the clientele has been carried out -- based on regulation that is very precise today, regulation that has determined well-defined procedures and rules, with normative and procedural frameworks that are absolutely effective. We can say that finally a sure defence has been built up, from which it will be impossible to retreat.
Q: Mr. President, a question for you related to this issue and you know how it’s important for the credibility of the Institute. The IOR has been linked to a number of scandals, and there have been reports of the Mafia using it to launder money. What did you find in your internal investigations?
Jean-Baptiste Douville de Franssu: I think first and foremost, it’s important to remember what are the core values of the institute. What is the fundamental purpose of the institute and this is really to help the Holy Father, to help the Church in its work. So most of the points that you’ve just touched base upon, which are by essence negative, have nothing to do with IOR. The focus that we have in place over the last few years, and we have increased it even further since the arrival of Gianfranco Mammi as Director General, is of course to be as rigorous and clean an institution as we can.
It is not possible for us to go into the details of some of the legacy issues facing IOR but in the past, IOR has been affected by a series of abuses. Some of them have been in the real estate sector, others have been more in the securities sector. We have taken a very diligent and thorough approach. We have done a significant amount of work to understand what has happened and why and to seek justice so that whatever was taken away from the institute – therefore, away from the Holy Father – is given back to the Church. I will certainly not comment on one particular case, but I would say, any financial institution that does not have strong governance, strong controls, strong discipline and organization, is by essence, exposed to potential abuse, because you cannot serve two masters, and money is tempting. So what we have done, certainly, over the last years, is to put in place a framework that will allow going forward, that some of the things that may have happened in the past, will never reoccur again. And I want to say that proportionately, we are not any different from any other financial institution. Look at big banks and financial institutions around the world. Many of them have had these sort of problems and they also had to react. So that’s what IOR has done knowing that integrity is probably expected even more from us. That’s what IOR will continue to do and certainly, as you were just asking Dr. Mammi a minute ago, you have today with IOR a financial institution that can hardly be more transparent and efficient as much as it is now.
In the world of finance, you can never say never. There is always a risk that an accident happens either internally or for external resasons. But I think we have now reached at IOR a level which is as good as any international financial or banking institution outside in the world.
Q: There have been reports that IOR has investments in fossil fuel companies. Isn’t that a bit strange after the publication of Laudato Si'?
Jean-Baptiste Douville de Franssu: I will take this question if you don’t mind. I just have a couple of background points to say before I give you an answer. First of all, currently the percentage of equities in IOR’s proprietary portfolio is very limited: 1.7%. And in this 1.7% there is no such company as a company that would go against the teaching of Laudato si'. The bulk of this portfolio is in fact invested in fixed income. And here, again, it’s essentially sovereign fixed income. And therefore, we are not exposed directly to any of those types of companies that you have mentioned. But that’s not the full answer to your question. Because the full answer to your question should also look forward: what is going to happen in the future if we start increasing the level of equity? You know that the markets are very volatile. It has been over the last twelve months a very difficult period for financial markets. So at IOR we had reduced very early on (at the end of 2014) the equity portion in our portfolio. But we may reinvest in the future and build again this equity exposure. And then we will need to put in place very clear sets of socially responsible investment criteria to ensure that when we will be reinvesting in equities we do not fall in the category of stock that would go against the teaching of the Holy Father.
Q: Another question for you Mr. President. What happened to the plan for a centrally run ‘Vatican Asset Management’? (VAM)
Jean-Baptiste Douville de Franssu: Let’s take a step back. You remember that the Holy Father, Pope Francis had set up a commission called ‘COSEA’ and he had asked that commission back in August 2013 to provide him with a certain number of recommendations regarding the administrative and financial organization of the Holy See. As part of the work at ‘COSEA’ we came up with such recommendations. A number of them have been put in place. Some have not yet been put in place and some may never be put in place. That of course is the decision of the Holy Father.
This concept of Vatican Asset Management was one of ‘COSEA’ recommendations. So it is completely separate from ‘IOR’. They’re two separate issues. I have heard comments that tend to mix the two but this is incorrect.
Q: This year wasn’t particularly profitable for the IOR. Why not?
Gian Franco Mammì: Firstly, I would not say that it has not been profitable: it has been compatibly profitable, considering the objective difficulties of the market, its volatility, and the crises that have occurred, such as Greece. We can say that, for our part, however, efficient and dignified work has been done. It will be possible to confirm the numbers on our financial statements. The profit of this year is compatible with the economic and political scenario of the time, and also considering that we have just finished an important transition phase.
Regarding the yield for our clients, this is something that respects their wishes. This is another important concept: an absolute formula for the management of our customers’ patrimony or savings does not exist; there exists what our clients ask of us, also keeping in mind the limits that imposes on us. From the point of view of the proprietary assets, everything that could be done was done. Profits were made. And the task of consigning them to the Cardinals’ Commission was completed. That which we will surely continue to do – and this is the primary objective – will be to make the IOR system ever more efficient. And that is what we are already doing both in terms of internal professionalism and in terms of tools, and technological platforms. Looking to the future, the idea that moves us is of development, not of survival.
Q: Mr. President, let’s speak of the future. What still needs to be done in your opinion to change the reputation the IOR as a place to launder money or hide it from tax authorities? And what is the future of IOR? Can you give us an idea of the direction of IOR?
Jean-Baptiste Douville de Franssu: Thank you for this important question. I think it’s an important question because we need to reflect positively on the reality of what IOR is today.
But before I speak about IOR and the evolution process that we have gone through I want to thank all IOR’s staff because it has not always been easy for them; these are people who have suffered from reputational challenges that the Institute has been exposed to. We have lots of loyal and very hard working people in the Institute who are proud to do what they do every day, and if it was not for them IOR would probably not be what it is today So, today is for me an opportunity to say thank you to all those people for their dedication and their hard work.
It’s impossible to launder money at IOR. It may have happened in the past as it may have happened in many, many financial and banking institutions across the world. But once we have very strict definitions as to which client can have an account at IOR – and we, under Canon Law, have got a very strict definition – anyone can not just open an account. The rules are extremely strict and all the team at IOR have been trained to know, to understand, to respect and follow these rules. Second – which we are now currently doing – when you are putting in place a certain number of tax agreements with various countries in the world where your customers are domiciled, anyone who would be tempted to use an account in an institution to launder money, the last place he would want to come to is IOR. So, I hope if anything, in this conversation that we are having with yourselves and Dr. Mammì, we can start progressing the idea that money laundering is not something that is impacting IOR in any shape or form and certainly hasn’t now for a couple of years. We are now a strong institution fighting against money laundering, ensuring that we know our customer, as well as - again – many financial institutions around the world do. In addition and at the risk of repeating myself, we don’t hide information from tax authorities, but rather seek full transparency regarding client information. You also referred to the future of IOR, and whether IOR has a clear direction. I’d like to go back to my earlier statement. We are here to provide two services to the Holy See: services of transfer payments -- we have done this historically we will continue to do this -- and second: we provide wealth management – or gestione patrimoniale – for our clients, and we will continue to do this.
That is very much what the Holy Father has confirmed, and very much the direction that Gianfranco Mammì, and myself as the President of the Board, with the support of the Board, are working towards achieving.
Q: How many accounts have been closed since 2012 and why have they been closed? Are there accounts still not closed because they are under investigation? How many?
Gian Franco Mammì: I can confirm that the number of accounts closed as of 31 December 2015 is 4,935. But here it is necessary to be careful, because at a first glance it could appear that all the closed accounts (4,935) were “suspicious” accounts according to AML norms: nothing could be further from the truth. Suspicious accounts were all reported by the IOR to the competent Authorities. The closure of thousands of accounts happened primarily for other reasons: either because the accounts didn’t enter into the new categories of customers safeguarding the system, or because they were “sleeper” accounts, that is, inactive for decades, or because they were accounts with tiny amounts in them. The closure of accounts that are currently “frozen” because they are being checked by the competent Authorities, will happen as soon as the IOR is notified of the outcome of the case.
Q: Has the IOR lost clients? For what reason? The tax agreement with Italy, or the lack of services, such as Internet banking?
Gian Franco Mammì: In the great majority of cases, the closure of accounts was decided by the Institute, following a new course being taken with criteria of greater severity and attention. On the other hand, many other accounts were opened. But in the case of those customers who decided to close their accounts, there may have been someone who lost trust, but let’s not forget that the years we’ve just been through were particularly difficult. It’s just as true, however, that now we see a return, and we’re particularly satisfied by that. Our customers have a great relationship of trust with the Institute and with the people they’ve known for many years. This relationship of trust hasn’t essentially changed. This remains for us one more stimulus to continue along the path that’s been drawn out, above all regarding the fiscal questions and transparency. That only increases the authority of the Institute, and our customers’ trust in us. I’ll say something more: under this profile, we’ve probably been able to offer one more service to our customers. The tax agreement is not a reason for crisis, but rather a strong point for the “new” IOR.
Jean-Baptiste Douville de Franssu: If I may I should like to add something. One should always remember that all our clients have a choice, they can go and bank somewhere else. So if they come to ‘IOR’ it’s first and foremost as Gianfranco Mammi has said by ‘fiducia’ (trust) vis à vis the Holy Father and to help the Catholic Church and the Vatican City State. So there is a very strong rapport, we share the same values and the same faith and therefore our duty is even greater vis à vis of those clients. Also, many of them have been very, very loyal for many, many years. And therefore all the efforts that we are now undertaking are really with a view to first of all say thank you to all those clients but also to increase the quality and the robustness of the services that we are offering them.
Q: How is the relationship between IOR and the Cardinals’ Commission and is there any relationship between IOR and the Secretariat for the Economy or between IOR and the Council for the Economy?
Jean-Baptiste Douville de Franssu: So maybe to start with the latter part of your question. There is no relationship between IOR and the Secretariat for the Economy. We have to provide information however to the Consiglio per l’Economia on a yearly basis which is effectively what we will soon be doing -- what his Eminence Cardinal Santos y Abril will be doing when he informs, through the annual report, the Consiglio of the results of the institute activities for 2015.
But our reporting line at IOR is to the Cardinals’ Commission which is the ultimate supervisory body of the institution. The relationship between the Board of Superintendence and the Cardinals’ Commission is a good relationship. Of course, we are very diverse. On the one hand, we have a group of lay people with significant expertise in financial markets and regulatory matters. And we are here to bring that expertise and make that expertise available to the institution. On the other hand, you have the cardinals who bring a different perspective and whose pastoral role is essential. And we have over the last two years, in our frequent and various meetings learned to work together and we have built trust.
And I would like to take this opportunity to thank their Eminences for their support, the close coordination, and rapport that we have.
Q: A final question on the contribution of the Institute to the Holy See, to the activities of the Holy See…
Gian Franco Mammì: Yes, so, this year too the Institute has given its profits to the Cardinals’ Commission and, through this Commission, made sure they are available to the Holy Father, for his pastoral mission. The novelty this year – and for me it is a great pleasure to be able to communicate this – is that the contribution has come only from the actual profits, and not the capital. This is significant not only in purely budgetary terms but also as a great sign of the strength of the Institute, which has guaranteed its capitalisation. This is important news, because it is a moment of trust both for the financial community and for our customers, because not drawing upon our capital means our work has been carried out in an extremely correct manner. The question that could arise is this: Why a smaller amount this year? The answer is very simple: the smaller amount given this year, absolutely compatible with the general direction of the markets, respects the desire not to erode the available reserves, and at the same time complies with the mission of the Institute as indicated in Article 2 of the Statute. The IOR, as a foundation of canonical and civil Vatican law, has the task above all of serving its own customers, spread through the world, assuring them contained costs and efficient services. Profit made is destined for the Cardinals’ Commission, which makes it available to the Holy Father. This is our mission, and we carried it out.
Jean-Baptiste Douville de Franssu: I can add also here that what has just been described is also a demonstration of the evolution of IOR and the professionalization, the rigor that now exists. All the elements that Gianfranco Mammì has just put forward, are very important to demonstrate the way in which we now operate at IOR, within the context of the Statutes. It reflects the evolution of the governance, of the discipline, of the controls, and certainly – at the end of the day – the very close cooperation and the relationship between the Directorate, the Board of Superintendence, and the Cardinals’ Commission.