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Exclusive Interview with Cardinal George Pell on Financial Reform at the Vatican

In All Things

Gerard O'Connell | Jul 11 2014 - 9:28am | 1 comment

Pope Francis is well on the way to achieving a total and radical reform of the Vatican’s finances. That become abundantly clear on July 9 when the Australian cardinal George Pell, the man he appointed to spearhead that reform, presented the New Economic Framework for the Holy See at a crowded press conference in the Vatican.
Speaking in English, he announced a restructuring and downsizing of the scandal-hit Vatican Bank, whose proper name is The Institute for the Works of Religion (IOR), the replacement of its entire governing board, and the appointment of a French business executive, Jean-Baptiste de Franssu, as the bank’s new president.  A Vatican Asset Management unit will be established, he said, and the Pension Fund will be reviewed to ensure a safe future for some 5,000 Vatican employees.
 Cardinal Pell, whom the Pope appointed as Prefect of the newly created Secretariat for the Economy earlier this year, also announced a restructuring of the Administration of the Patrimony of the Apostolic See, which brings this whole operation under the control of his Secretariat.  
While significant progress has already been made in Vatican finances, it is still a work in progress. Thus, for example, the Holy See’s accounts for 2014, like those of 2013, are being prepared under the old norms by the Prefecture for the Economic Affairs of the Holy See, a body that is destined to disappear, whereas those for 2015 will be done by the new Secretariat.

At the press conference, the cardinal also announced the setting up of a committee under the British Lord, Christopher Patten, former chairman of the BBC Trust, to propose forms for the Vatican Media.
A day later, on July 10, Cardinal Pell, gave me the following exclusive interview for America, in his office in the Tower of St John on Vatican hill.  He spoke freely about what has already been achieved and what still needs to be done before he can say the reform is complete.  This is what he said:
Q.  Yesterday you presented the New Economic Framework for the Holy See and spoke of these far-reaching changes as a watershed in the history of Vatican finances. You said, “Our ambition is to become something of a model for financial management rather than cause for occasional scandal”.  Could you pinpoint what is the real novelty here, where is the break with the past?
A. First of all, there is a significant top level, expert, international, lay involvement with voting rights.  That’s a very significant new development. Another very explicit aim is to have not just checks and balances but multiple focuses of authority. So the Secretariat for the Economy is no longer under the Secretariat of State. That’s the first big change.  The Council for the Economy is in charge of the Secretariat for the Economy, not an advisory body.  That represents something of a change too. And there will be significant mixed groups of cardinals and lay people in charge of the different entities in the Vatican and substantially there won’t be the same overlap – though there might be some overlap of membership – but it won’t be the same three or four people running every different institution. Nor any one particular person!

Q.  The creation of the Secretariat for the Economy is effectively a structural change in the Roman Curia because up to now you have had the Vatican Bank (IOR), the Administration of the Patrimony of the Apostolic See (APSA), and the Prefecture for the Economic Affairs of the Holy See.

A.  Yes, but importantly too there is the Council for Economy which has oversight with significant powers to act and to direct, as well as oversight through the Secretariat for the Economy. That is also part of the structural change.

Q.  Do you respond directly to the Council or to the Pope?

A.  No, I answer to the Council.  They make the policy recommendations.

Q.  Do you choose the people who are appointed to the different commissions?

A.  I have input but other entities have input too.  The Commission for the Economic-Administrative Structure of the Holy See (COOSEA, recently dissolved) had significant input, the Secretariat of State has significant input, and in the different areas we take input from experts.  Thus, for example, in the pension area we heard what some of the experts say.  As regards the media, we worked closely with the Pontifical Council for Social Communications in putting the committee together.  So many of these people I do not know personally.

Q.  Who calls the shots at the end of the day?  

A. We make recommendations to the Holy Father, and in some cases we might put two or three alternative candidates in a certain category.  The Holy Father approves all of them. He sometimes choses between alternatives and sometimes suggests a new one.

Q.  Do you now control the budget of the Secretariat of State?

A.  Ultimately we will.  The way we will do that is by working with the Secretariat of State and all the other dicasteries (offices) in the Vatican.  They will do the basic preliminary work, putting together their budgets.  It will be a little bit like in a government, someone has got to say at the end how much money we can spend and we will then match the different departments to the amount of money available. We will control the expenditure against the budget of each dicastery during the year and they will be expected to remain within their budget.

Q.  In the past – and this has been a bone of contention - in the different Vatican offices you may have had a prefect or a president who has got some pet projects and he may have found some friendly sponsors, either linked to the Catholic Church or outside of it, and that has brought these bodies a certain amount of leverage in the Vatican. Will that kind of thing continue?

A.  We will have to look at that very carefully.  We haven’t taken any official positions on that yet. I am open to individual dicasteries receiving donations, but we will have to have rules for this and we will have to be clear that such donations don’t come from interested parties and they cannot be used as leverage for projects or for any other purposes.

Q. So they cannot be used for leverage projects, to influence nominations, or such like?

A.   Yes, that’s right. 

Q.  The ordinary section of APSA is now under the control of the Secretariat for the Economy. What exactly is involved here?

A.   The day-to-day administration of the Holy See, not of the Governatorate of the Vatican City State, and of the properties of the Holy See.

Q.  Does this include the properties of Propaganda Fide  (The Congregation for the Evangelization of Peoples)?

A. No, they now administer these themselves.  I anticipate that will continue but I also I anticipate with all our dicasteries that if they have investments, they have to meet certain criteria.  And if they have property portfolios they will be expected to work within certain parameters and if they are not receiving recognized commercial rents for the properties we will very much want to know why.

Q.  The extraordinary section of APSA will become like a Treasury. What does this mean?

A.  It will have some of the functions of a central bank.  The Vatican Institutes will have their wealth with APSA.  Already many of the properties of these institutes are with APSA rather than with the IOR.

Q.  As regards the employment policy in the Vatican: will you be involved in the recruitment of personnel?

A. Not so much in the recruitment, and in some areas certainly not. I mean the Secretariat for the Economy has no competence or capacity to say who should be the theological experts or liturgical experts working in different congregations. But I think it is highly likely that we will suggest what is an appropriate number of workers in a particular area, and it’s also possible that we will say "you have a budget, we recommend this number of workers, but if you want to rearrange the projects say, for example, having one less member of staff and liberating the funds then we will look at that." In that way we will attempt through collaboration and mutual discussion to agree on the appropriate amount for the year and then the particular dicastery will have to manage their program within that particular amount.  So please God they won’t have to wait three weeks to buy a dozen pens!

Q.  You are introducing what in the Anglo-Saxon world would be considered normal accounting and administrative procedures in all Vatican offices.

A.  I wouldn’t like to say they are Anglo-Saxon standards, I prefer to call them international business practices. 

Q.  Will you have an office for Human Resources?

A.  There will be an office for Human Resources down the track.  Obviously part of their work will be very much related to finances.

Q. Let’s talk about the Vatican Bank, the IOR.  You said that Phase 1 of the reform has been achieved successfully.

A. Generally speaking, yes.

Q.  Why was it necessary then to change the head of the IOR after only 17 months and bring in a new chief?

A. I don’t know that it was necessary but it was considered appropriate and Ernst Von Freyberg (the head since February 2013) was totally in agreement with that.  He gave two reasons: one, he could not devote himself full time to the job and, secondly, part of the future (of the IOR) will be asset management and he’s not an expert in that area.    

Q.  Did you propose the new head of the IOR?

A.  I don’t know if I had proposed him, but I certainly supported his nomination.  Jean-Baptise de Franssu was recommended by a headhunting company and he had worked with COSEA

Q.  He will be involved in asset management.  What does this mean?

A.  To get the best return available on your assets – that is on your properties, shares and investments – according to ethical norms.  Within those general principles, monies which belong to those different entities will be pulled together because I believe that as a larger sum they will get a better return.

Q. As regards ethical norms, I take it the Vatican will ensure that it is not investing in arms or in areas where child labor is used.

A.  That’s exactly right.  We’re already doing that but in this area we will make sure that everything is done right.

Q. In the past the Vatican has had a board of cardinals and a board of laypeople overseeing the IOR (the Vatican bank), and we got a lot of disasters. What is to prevent this new combination of [prelates] and lay experts from sliding down that same road?

A. Nobody can give you absolute guarantees, but since Von Freyberg’s appointment the situation has worked basically well.  The exact relationship between the international expert lay people and the cardinals in this area has yet to be completely worked out. But we can be sure of two things: a group of cardinals with very limited knowledge of banking will not be running the bank, and a group of exclusively lay people won’t be running the Church, so there will be some effective forms of cooperation. We will be attempting to devise a system so we cannot fall back in the old ways.

There’s another very important consideration here too: it is the office of the Financial Information Authority (AIF). The AIF investigates the background of all the clergy and lay people who are appointed to senior financial positions, so they won’t be appointed if they don’t get a clearance from AIF. This is a big insurance against the introduction of people like (Roberto) Calvi and (Michele) Sindona (Editorial note: two Italian bankers whose involvement with the Vatican bank led to major financial problems and scandal).

Q.  So the case of Scarano is very unlikely to happen again? (Editorial note: Mgr. Nunzio Scarano, a former employee and accountant at APSA, has been accused by the Italian authorities of money laundering and a plot to smuggle cash into Italy.)  

A.  Who knows? In any case, I’m talking about the senior levels in terms of policy making. The AIF is there to monitor and ensure that there is no recycling. And with an Auditor General the ambition is that we will never again have a Scarano case.  

Q.  What will be the role of the Auditor General? Will it be that of a trouble shooter?  How would you describe it?

A.   We are looking at a number of models from different countries and I gather that it’s organized slightly differently in different places. The Auditor General will descend on or approach the different dicasteries unexpectedly and audit their work quite independently from the normal auditors.  If I or the Council for the Economy or a member of staff feels something is seriously wrong in a dicastery then we can go to the Auditor General and if he finds that there is a prima-facie case then he will investigate and, if necessary, report to the judicial authorities.

Q.  Will the Auditor General be responsible to you?

A. No! The Auditor General will be an independent figure, and will not be responsible to the Secretary of State or to me, but will have the capacity to go directly to the Holy Father.

Q.  You have appointed a committee to study the Pension Fund. Why?

A.  The Council recognized that the pensions being paid today and for the next generation are safe, but we need to ensure there are sufficient funds for future generations in a changing economic environment. And that will have financial consequences.

Q.  You brought in Lord Christopher Patten to head a committee to propose reforms for the Vatican media. But originally you had received a consultancy report through COSEA on this. Why was that report not enough?

A. Well I suppose because it was sponsored by and involved COSEA.  I am not sure how much initial input there was from the Vatican and the different agencies in that report and, moreover, any report that goes forward has to generate a level of support. It’s one thing to have a report from a business group, but it’s quite another thing to have a set of proposals from senior Vatican employees and an international body of experts that’s got real weight.  It’s much more difficult to ignore proposals from such a body.

Q.  The Committee, led by Lord Patten, has been asked to come up with a reform plan for the Vatican media within 12 months, taking into account the COSEA report. Its goal is to adapt the Holy See media to changing media consumption trends, enhance coordination and achieve progressively and sensitively substantial financial savings.

A.  Yes. The aim is to maintain and improve the coverage, to better coordinate Vatican media, and to ensure that sufficient resources are put into the digital and the new media and also to gradually, sensitively, save money and diminish expenditure.  At the moment, in my humble view, a disproportionate amount of money is going [to] forms of media that are being used by a decreasing number of people.

Q.  Where do you hope to be in two or three years?

A.   Well I hope in two to three years we’ll have our basic organization in place in the financial area, certainly, and I hope in the media area too.  I hope that by then we will be generating not just efficiency and coordination but also transparency, and following best-practice international standards in our administration.

Q.  Many people have said to me: It’s great that we are having this reform but without identifying the mistakes of the past, and that may be a painful operation. How can we have confidence that these mistakes will not be repeated?

A.  Well two very serious "mistakes" are nominated in the report of the IOR:  Lux Vide and Optimum ad majorem investments (200 million euros). These are there in the report.  The other thing to be said is that AIF is investigating around 200 infractions.  That should provide significant security that we are serious.

Q.  How closely is Pope Francis tracking all this?

A.  He’s very interested in these reforms. He’s committed to best practice. He explicitly endorsed the reform package and wants me to implement it.  I know we have his full backing.  I see him once a fortnight. I can approach him any time I need to.   I think he’s got a good understanding of economics, and I think his activities with the banks in Buenos Aires shows that he knows which way is up. 

Gerard O'Connell serves as Rome correspondent for America.