The Vatican, whose bank is the focus of a money laundering investigation, enacted laws today to bring it in line with international standards on financial transparency, terrorism prevention, and fraud.
It was the biggest single action ever taken by the Vatican to meet international demands for more financial transparency.
Pope Benedict signed a 'Motu Proprio', a form of executive order, in which the Vatican establishes a set of internal laws which promise that its bank and all other departments will adhere to regulations and cooperate with foreign authorities.
"As of today, all organisations associated with the government of the Catholic Church ... become part of that system of juridical principles and instruments which the international community is creating with the aim of guaranteeing just and honest coexistence in an increasingly globalised world," a Vatican statement said.
The new laws of Vatican City, a 108-acre sovereign state surrounded by Rome, aim to make it comply with the rules of the Financial Action Task Force, a Paris-based body that lists nations failing to comply with standards on money laundering and terrorism financing.
By adopting the new laws, including establishing a Financial Information Authority (FIA) along the lines of those in other countries, the Vatican commits to comply with the authority's standards and liaise with the group and law enforcement agencies.
The new laws, about 30 pages long and consisting of more than 50 articles, will take effect by April 1st, after the new FIA is set up and its members are chosen, the Vatican said.
Significantly, they affect not only the Vatican Bank but all departments. This means offices such as its missionary arm, which handles tens of millions of dollars a year, will also be subjected to stringent regulations and oversight.
Vatican employees suspected of violating the norms will be investigated by its authority, judged by Vatican tribunals but would serve any prison time in Italian jails, in accordance with standing agreements between Italy and the Vatican. Money laundering would be punishable by up to 12 years in prison.
The Vatican Bank was founded in 1942 by Pope Pius XII and is the successor of previous financial offices set up in the late 19th century to manage funds at the disposal of the pope after the loss of the Papal States in Italian unification in 1870.
The Vatican Bank was in the spotlight in September when Italian investigators froze €23 million of funds in Italian banks after they opened an investigation into suspicion of money laundering.
The bank, formally known as the Institute for Religious Works (IOR), says it did nothing wrong but was merely transferring its own funds from one back to another. The Italian investigation is continuing.
A statement said that the new laws, drafted with help from the European Union, Italy and the European Central Bank, underscored its bank's "firm intention to cooperate according to principles and criteria which are internationally recognised".
The Vatican hopes that the laws will secure its inclusion on the Organisation for Economic Cooperation and Development's 'White List' of states which comply with international standards of banking.
As many articles in the new laws are standard in European treaties, the Vatican also committed itself to combat terrorism, market rigging, insider trading, counterfeiting, and forgery.
The IOR primarily manages funds for the Vatican and religious institutions around the world, such as charity organisations, religious orders of priests and nuns, and Catholic hospitals.
In 1982 it was caught up in the fraudulent bankruptcy of Banco Ambrosiano, then Italy's largest private bank, whose president Roberto Calvi was found hanged under London's Blackfriars Bridge.
Several investigations failed to determine whether Calvi, known as God's Banker, had killed himself or been murdered. The Vatican denied any responsibility for the collapse of Banco Ambrosiano, in which it held a small stake, but made a "goodwill payment" of $250 million to Ambrosiano creditors.
Reuters