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1982 07 26 * Time * Scandal at the Pope's Bank * Alexander L. Taylor III

Outside experts are called in to investigate some shady financial dealings

A billion-dollar Italian bank fraud has reached into the heart of one of the world's most respected institutions, the Vatican. So far, two people involved in the affair have died, $1.4 billion is unaccounted for, and the financial stability of several European banks is in danger.

At the very center of the scandal is Archbishop Paul C. Marcinkus, the American-born president of the Institute for Religious Works, the so-called Vatican Bank. Investigators now know that Marcinkus played a part, perhaps unwittingly, in a huge loan scheme that could bring down the Milan-based Banco Ambrosiano, Italy's eleventh largest bank.

Last week the Vatican took the unprecedented step of appointing three international financial experts to examine the dealings between the Vatican Bank and the Banco Ambrosiano. They were Joseph Brennan, 71, chairman of the executive committee of New York City's Emigrant Savings Bank; Phillippe de Week, former president of the Union Bank of Switzerland; and Carlo Cerutti, vice president of the Italian national telecommunications holding company. The appointment of the committee is the Vatican equivalent of naming a special prosecutor in the case, and it marked the first time that the Roman Catholic Church had ever opened up the books of the Holy See's bank to outsiders.

The scandal began to unfold in May, when a special audit at the Banco Ambrosiano uncovered $1.4 billion in questionable loans that had been made to paper corporations based in Panama. The companies, it appears, were controlled by Roberto Calvi, the bank's president.

Calvi was known in Rome as "God's banker" because of his close ties to the Vatican Bank. But in financial circles, his reputation was a little less heavenly. A year ago, he was sentenced to four years in prison and fined $11.7 million for exporting $26.4 million to Switzerland in violation of Italian currency laws; he appealed the conviction. Moreover, his name had been connected with the P2 Lodge, a clandestine Masonic group that was suspected of plotting to undermine the Italian government.

Just after the Banco Ambrosiano audit was completed last month, Calvi fled to England. Several days later, his body was found suspended by a rope from Blackfriars Bridge over the Thames River. In the pockets of his expensive gray suit was $20,000 in foreign currencies. Italians quickly noted the symbolism of the location: members of the P2 Lodge dress in black and call one another friar.

Although British authorities believe Calvi's death was a suicide, there is still lingering suspicion that he was murdered. Said a leading Vienna banker: "Too many people were relieved to have him out of the way. Anyway, you would have to credit the totally unathletic banker with acrobatic talents to believe that he hanged himself the way he was found."

Just one day before Calvi's body was discovered, his personal secretary jumped to her death from a fourth-floor window in the bank's headquarters in Milan. She left behind a note that said Calvi should be "twice cursed for the damage he caused to the bank and all its employees."

As investigators unraveled Calvi's tangled financial affairs, they kept running across the name of Archbishop Marcinkus. The Vatican Bank has long owned 1.58% of the Banco Ambrosiano, but now there is suspicion that it actually holds much more. In addition, Marcinkus until very recently had sat on the board of the bank's Nassau-based subsidiary, Banco Ambrosiano Overseas Ltd., which helped arrange the questionable overseas loans.

The most damaging of the disclosures were documents that directly implicated Marcinkus in the loan scheme. The archbishop had signed "letters of patronage" for the dozen Panamanian ghost companies that received the loan money from the Banco Ambrosiano. The letters stated that the companies were controlled by the Vatican Bank and were apparently intended to serve as references or guarantees for the lender. Investigators are not sure at this point where the $1.4 billion went or what it was used for. It is believed that some of the money, perhaps as much as 10%, was used to buy stock in Banco Ambrosiano.

At the same time that the letters were signed, Calvi secretly absolved the Vatican Bank from any responsibility in the transaction. The effect was to render the letters legally worthless. This has bewildered police investigators.

Marcinkus has not yet publicly explained how the transaction was arranged or even why he was involved in the first place. In his only statement on the affair to date, the archbishop said simply, "I have never done anything that can be considered fraud."

Two weeks ago, three officials appointed by the Bank of Italy to take over Banco Ambrosiano's affairs after Calvi's death visited Marcinkus at his Vatican Bank headquarters. The archbishop told them that he had only done what Calvi had requested. He then showed the officials out the door, saying that he was not required to answer questions by Italian authorities, who have no jurisdiction over the bank because it is located in Vatican City.

The archbishop-banker had previously enjoyed an unusually successful career in the Catholic Church. Born in Cicero, Ill., he attended a Chicago seminary and was a parish priest before going to Rome in 1950 to study canon law. Once there, he started working his way up the Vatican hierarchy by serving as a diplomat. His administrative skill, as well as his commanding height (6 ft. 3 in.) helped him land a job as bodyguard and advance man for Pope Paul VI.

Even though he had no background in finance, he was appointed secretary of the Vatican Bank in 1968 and became its president three years later. Said he at the time: "I have no banking experience, but I think I was chosen because of the organizational ability I showed when it was needed during the Pope's travels." Last October, Marcinkus was named to an additional job as chief administrator of Vatican City. He has been considered a sure bet to be elevated to Cardinal later this year.

Even before the Banco Ambrosiano affair, though, Marcinkus had been touched by financial scandal. In 1973 Italian-American Financier Michele Sindona sold two companies to Calvi for what was considered the greatly inflated price of $100 million. According to Giorgio Ambrosoli, the court-appointed liquidator of the Sindona empire at the time, Sindona paid a $5.6 million commission as part of the deal to "an American bishop and a Milanese banker." Official Italian sources have confirmed that Ambrosoli was refer ring to Marcinkus and Calvi. It is still not clear why the two allegedly received this money.

The investigation of the Sindona payoffs has been stymied by Ambrosoli's murder. In 1979, only hours after talking to U.S. authorities about the commission deal, he was shot to death by three men in the street outside his home. One year ago, Sindona was charged with instigating Ambrosoli's murder, and an Italian American named William J. Arico, 46, was said to be one of the men who actually carried out the killing. Last month the FBI arrested Arico, who is reputed to be a hired Mafia gunman, in Philadelphia. Italy has asked for his extradition.

Effects of the Italian bank scandal have quickly rippled through the Western financial community. Last week the assets of Banco Ambrosiano's Luxembourg subsidiary were frozen after two British banks called loans totaling $125 million. That, in turn, has put in jeopardy up to $400 million in loans held by some 250 banks, including Bank of America and

Manufacturers Hanover. The Gotthard Bank, a small Swiss bank, was immediately endangered because 45% of its shares are held by the Luxembourg subsidiary of Banco Ambrosiano. Officials of the Gotthard Bank are now looking for someone to buy the Ambrosiano stock.

Whatever the outcome of the current investigation, international financiers hope the scandal will prompt the Vatican to reform and open up the operations of its bank. Italian Treasury Minister Beniamino Andreatta has long urged the Vatican to conduct its financial affairs in pub lic. Says he: "As a Catholic, I am against this strange, secret, uncontrolled, scandal-filled administration." Andreatta and many Italian moneymen do not think that the Vatican should even be in the banking business. Says he: "It is silly for the clergy to manage directly a financial institution." The peculiar relationship between the Vatican and international high finance may not survive the current scandal.

By Alexander L. Taylor III. Reported by Barry Kalb/Rome - With reporting by Barry Kalb