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Interview with IOR President, Ernst von Freyberg


(Vatican Radio) The Vatican’s Institute for Religious Works, known by the acronym of its Italian title IOR, is not a bank. It neither lends money nor makes direct investments and all of its clients are named.


The mission of its newly appointed president, Ernst von Freyberg, is to restore its reputation as a transparent financial institution in line with international norms at the service of the Holy Father and its 19 thousand customers worldwide, most of whom are nuns and clergy. He believes communication is a key part of this mission and members of the Church and the society at large must be informed of the IOR’s activities.


In an interview with Vatican Radio’s Fr. Bernd Hagenkord S.J., von Freyberg dispels some myths about the IOR and reveals the challenges facing the institute, which has attracted keen media attention in recent years. And he confesses to having a ‘dream’: “My dream is a very clear one. My dream is that our reputation is such that people don’t think of us any more, when they think about the Vatican, but that they listen to what the Pope says.”



My first question: Do you like your job, coming from Frankfurt down to Rome, working inside the Vatican?

“It is a great privilege to work here; it is the most inspiring environment you can imagine: working at the Vatican. And it is a great challenge to serve the pope in re-establishing the reputation of this institute.”

What did you imagine your work to be, prior to starting here?

“Different from what it is. When I came here I thought I would need to focus on what is normally described as cleaning out and dealing with improper deposits. There is – until now – nothing I can detect. That doesn’t mean that there isn’t anything, but it means that it is not our biggest issue.
Our biggest issue is our reputation. Our work – my work – is much more communication than originally thought. And it is much more communication inside the Church. We haven’t done enough of that in the past. It starts a home, with our own employees, with those who work for the Church in Rome, with those in the Church around the world. To them we owe first of all transparency and a good explication of what we do and how we try to serve.”

How come someone like yourself with that kind of experience wants to work for the Vatican, after all the stories that the IOR went through?

“You don’t want to. It is not something you sit at home and dream of. Even when you interview you don’t say to yourself ‘I really want this job’. When you are called, you are very happy to accept that call, and that is I think also true for the other candidates who were interviewed for this position.
Once you are here you find, that it is actually a good experience, that it is much less fraught with complications and with internal problems than one would expect from the outside.”

What would a normal day at the office be like? Looking out of your window you see Saint Peter’s Square, so this is a completely different work-environment to what most people are used to. Is it like a day in the office in Frankfurt?

“A normal day starts in the most extraordinary way, because I have the privilege to live in Santa Marta, and I am allowed to occasionally attend mass with the pope. That itself is a privilege, to be there at seven o’clock in the morning and to listen to his short and always very poignant sermons.
In the office my day will be structured along projects. I am a great fan of tackling tasks in a systematic project-managing way. Our great tasks here we have split up in projects and sub-projects and I would sit in the committees that drive this project forward.
I spend some time every day with the director and the deputy director to go through daily business, I prepare board meetings, and I communicate. I speak inside the Church, I speak with journalists, today [Tuesday] I had lunch with the ambassador of one of the large countries in the world to explain, what we are doing.
You will find me between project management, daily business and communication.”

Thank you for also talking to us. There have been stories about you being a sort of part-time director. You are not full time living in Rome, is that manageable?

“When you look at our statutes they say that we [the board] meet every three months as a committee and once a month I review the economic result with the general director. That’s what the founding fathers envisioned for my position.
When I was interviewed I was told ‘one to two days a week’, it now is three days at Rome and another one or two days when I work from other parts of the world for the institute. I actually believe that over time I should move closer to our statutes.”

But for the moment it is appropriate for your job.

“When I look at the challenges we have we need every hour on this.”

Your position is working under a commission of cardinals. How does that work in practice?

“We have a commission of five cardinals, which is the highest instance of our institute. We meet with them every two to three months, usually in the context of a board meeting. The general director and I meet on a monthly basis with the head of the cardinals commission to report but also to coordinate what we are doing.”

Are there also other agencies like consulting firms included in your work?

“There is one principal agency, which is not a consulting firm but our supervisor, AIF. They are the financial authority that supervises all financial institutions of the Vatican. To them I report regularly and with them I work closely.
About outside advisors: I have hired a number of them. I’ve hired probably the world-leading anti money laundering consultancy to review every single one of our accounts and to review our structures and processes for detecting money laundering.
We have hired communication specialists and we have hired one of the leading global law firms to assist us in better understanding our legal framework and being compliant with the laws.”

Talking about money laundering: I suppose there are standards you want to apply.

“The Holy See has committed to international standards. I apply the law and also the standards which are the highest standards required our correspondent banks. I personally have every week all the suspicious cases on my desk and have weekly meeting with the one responsible for the ante money laundering efforts. We also have a zero tolerance policy towards customers as well as employees who are involved in money laundering activities.”

Let us talk about the bank. “The Vatican Bank” although not being the right term your institute is known as such. It is connected to a lot of myths. Apart from all these myths: What exactly is the IOR?

“The IOR is the same as it was set up in 1942. It only does two things: It takes deposits from its customers and it safeguards them. First of all we are something like a family office, which protects the funds of the members of the family. These members of the family are the Holy See, it is entities related to the Holy See, it is most of all congregations with worldwide activities, its members of the clergy and it is employees of the Vatican.
The second service we provide next to protection and safekeeping is payment services which means particularly for the Vatican-entities and for the congregations with worldwide activities, that we provide for them the service of transferring funds wherever their activities are.”

So you are strictly speaking not a bank?

“We are not a bank. We do not lend money, we do not make direct investments, we do not act as financial counterparts so you cannot get a swatch or a hedge from us. We do not speculate in currency or commodities, our core is we receive money as deposits and we then invest it in government bonds, some corporate bonds and in the inter-banking market where we deposit with other banks, for a slightly higher interest rate than we receive in order to be able to give it back to our customers whenever they want it.”

What do have in common with banks is you gain money, at the end of the day there is some surplus. Is that intended or is that something that happens?

“Our mission is to serve. If we do our job well we can expect to gain a surplus. We contribute on average 55 Million Euro to the budget of the Vatican and are one of the important economic pillars. Now you may well ask how we earn 55 Million Euro: When you look at our income statement, it has three basic elements: One is the interest we pay to those who deposit. Then the interest income we gain from that. And that is our most important part of the income and that in any year would be between 50 and 70 Million Euro, from that you deduct our costs.
Then we have some gains on bond prices which move up and down an so you arrive at our profit. So it is interest margin, it is changes in values of bonds we own, and you deduct from that the operating cost of roughly 25 Million Euro.”

And that goes directly to I imagine an account in your own bank for the purpose of the Vatican, no?

“It goes into an account which is for the Vatican.”

Hypothetically speaking: I come to you, I just founded a religions congregation, what service could you provide for me and my congregation?

“Only two: You could deposit your funds which you have received just from whoever supports you, we keep them safe, pay you interest on it and pay you back whenever you need it. When you tell me that you have set up three provinces, one in Asia, one in Africa, and one in Latinamerica, I could assure you the transfer to your funds to your brothers who are out, doing charitable work, and make sure the money reaches them even in the odd places of the world.”

What kind of service is unique to the IOR, what kind, that a normal huge or middle-sized bank couldn’t provide?

“What is really unique is that we really understand the world of the Church and the mission of the Church. There are 112 people in the IOR who have 19.000 customers. By far the largest amount of them are nuns or clergy and very often they know the person who deals with them at the IOR for 20 or 30 years. We know exactly what they need, they have a trusted person here and it is this personal relationship which makes them come here.
We are in competition like any other financial institution around the world. Every single one of our clients is constantly solicited by banks to go to them. They stay with us because the want to stay with us.
You know, if we ask the question ‘should we close the IOR’, our clients have voted 99.99 % against it. They want to stay here, they want to put there money here. They have personal service and experience also shows that it is very safe. The IOR is highly capitalized, it has an equity of roughly 800 Million on a balance sheet of 5 Billion. That is double of what you would get at banks outside the Vatican.
During the financial crisis we were never in trouble. No government had to bail us out, we are very, very safe.”

Your special service is your people know customers and Church, but over time another institution could also provide that kind of service. There are other banks, church-banks for example, which could provide equal services, couldn’t they?

“They also could provide a very good service. I would not say equal because every service is different. Many of our customers probably also use other banks and compare our service to their service.”

And why should the Vatican have a bank? That is a question often asked, especially now after the election of pope Francis. What is your answer: Why should the Vatican have or why does the Vatican need a bank?

“I would look at it from two perspectives. One is our customers. They want us to be there. That is why 19.000 customers have voted to put their money here. The other way to look at it is to ask whether we render a good service to the Holy Father. And we haven’t rendered a good service to the Holy Father with the reputation we have and this reputation obscures the message.
And that I consider my first and most important task to address.”

To get out of the corner?

“To get out of the limelight and into a corner [laughs]: to do humbly our service and don’t stand in the limelight all the time.”

You mentioned the number of customers: In comparison to other banks, is that big, small, middle-sized ..

“It’s tiny. There are few smaller banks than our institute.”

The report by your oversight authority AIF you mentioned before last week indicated wrongdoing in six cases. Does that mean that the IOR is involved in behaviour not appropriate for a Vatican bank or what do these numbers tell us?

“The number first of all tells us how rumours start. It is not wrongdoing, it is suspicion and it proves that our internal monitoring system starts to work. That means that we are diligent and have identified six transactions, where we thought they might be inappropriate and reported them to our supervisor. When we identify such a transaction, we immediately report it to our supervisor AIF.”

That is the method of transparency on the part of AIF and also on your part.

“That is the reporting system, in place within in the Holy See applicable to all financial institutions. It is what you would expect in a modern financial system: To have a system that screens every transaction. We are not a bank, but as a financial institution the same system applies to us. We screen every transaction if we detect any suspicious behaviour a so-called Suspicious Transaction Report is filed with AIF. Such a system is designed to prevent money laundering and financing of terrorism.”

A lot has been talked about the white list of OECD, the Vatican wants to be accepted as a member of that white list, how does your institute contribute to that?

“There is no white list. The purpose of the Moneyval process is to identify countries and jurisdictions that might cause a risk to the global financial system. This is done by carrying out assessments of the legal framework of each country and jurisdiction. Countries and Jurisdictions that are called critical are listed. The Holy See has been evaluated last year and according to the Moneyval report published last year, the Holy See has a functional system in place and is NOT considered to be a critical jurisdiction. Having said that we are one aspect of that system. We are in particular called to have stronger procedures and stronger structures in order to detect suspicious transactions and in order to detect suspicious customers. I have now taken the leading consultancy in the world for these questions to rewrite our manual how we detect transactions and suspicious customers and to review all our accounts. Structures and procedures will be ready by the end of the summer and then we will have fulfilled that part of the process.
We will go beyond that and review every single deposit and that we will have done by the end of the year.”

Are there any numbered accounts in your institute? There are always rumours about allegedly huge sums of money without a name to it?

“That is another good example. That is pure fiction. There are no numbered accounts. Since 1996 it is technically impossible in our system to set up a numbered deposit. It would also be against Vatican law. I have looked myself into the system and have done random checks, I haven’t found any trace of numbered accounts.”

Not even from the past?

“They would not work in the system.”

Us sitting here in the interview, the report of the oversight authority AIF last week: Is ‘transparency’ the new watchword at the IOR?

“Transparency is a key, but not only transparency but also what you look at in the end, once you are transparent: That we are completely clean as you need to be when you want to be accepted in the international financial system.
Transparency is nothing which the world always had and then the Vatican needs to be dragged to it. When you go back 15 years we were probably very normal in the way that all private financial institutions in the world and also the public ones operated on banking secrecy. Today it is still a big issue in the EU, how far banking secrecy should go.
Then three things happened. The first was 9/11 and the Americans were massively reaching out afterwards to identify terrorist funding. That process started naturally with the biggest banks in the world and now has reached the tiniest bank or institute in the tiniest state - that took a couple of years.
Then came social media and with social media came a completely new concept in the mind of the public about secrecy, also in the area of finance.
Then came the financial crisis and the need and desire of tax authorities to treat all taxpayers fairly by calling those to responsibility who evade taxes. That again required financial institutions to shed part of the banking secrecy.
These three movements transformed the finance environment in the world and we were late in adapting to this new world. Now we are running to catch up and to be where we were 15 years ago: relatively normal compared to other financial institutions.”

But as you have mentioned: At the moment it is kind of a shadow over the Vatican, it taints the image of the papacy and the Vatican. Obviously there is something wrong or not yet put into practice?

“Yes. Now we are coming back to our reputation. That is the most important thing I need to do, to get this shadow away.”

And that is possible?

“Yes. I believe we are a well managed, clean financial institution. We can improve on all areas as can everybody else and we are trying to be as good as the comparable institutes are.
Then we need to communicate. In the past we haven’t spoken with anyone, beginning with our own closest constituents. We haven’t spoken to the cardinals in a systematic way, we haven’t spoken to the curia, we haven’t spoken to the Church.
It is the right of every member of the Catholic Church around the world to be well informed about this institution.
What do we do now? We start speaking to the media, we speak inside the Church and inform in a systematic way our key constituencies, and we will publish an annual report as any other financial institution would do and we will put that on the internet on the 1st of October, on our own website.”

It is a five year term, isn’t it, ..

“To be precise, I stepped in in the middle of a term, my term ends in 2015.”

In 2015, what would you consider a success?

“My dream is a very clear one. My dream is that our reputation is such that people don’t think of us any more, when they think about the Vatican, but that they listen to what the pope says.”

Thank you very much for the interview.