Is the Vatican bank irreformable?

The abrupt resignations of two top officials of the Vatican bank signaled a new chapter – and a new challenge – in Vatican financial reform.

Late Monday, the Vatican announced that the director, Paolo Cipriani, and the deputy director, Massimo Tulli, were resigning “in the best interest of the institute and the Holy See.”

The move was remarkable because it showed the Vatican reacting in real time to a breaking scandal. Three days earlier, Italian police arrested Msgr. Nunzio Scarano, an accountant in a Vatican investment office, on suspicion of smuggling tens of millions of euros into Italy from Switzerland.

Msgr. Scarano didn’t work at the Vatican bank, but he had at least one account there, and investigators believe he may have used the account to illegally move more than $700,000 between the Vatican and Italy. If that is true, it would appear to confirm widespread suspicions that the Vatican bank continues to be used as an offshore haven to circumvent Italian regulations – despite the Vatican’s insistence that strict controls are now in place.

Moreover, Italian investigators say they have wiretapped recordings of conversations in which Scarano discussed the movement of funds with both Cipriani and Tulli. That doesn’t mean they were in on an illegal scheme, but at the least it raises questions about lack of oversight.

Faced with a new wave of embarrassing headlines, rather than waiting for the waters to calm, the Vatican acted with unusual speed. That probably reflects the view from the top: Pope Francis has emphasized that there should be no room for personal gain or shady transactions in church finances. But it also may reflect the policies of the new Vatican bank president, Ernst von Freyberg, whose nomination in February was one of Pope Benedict’s last acts as pontiff.

Von Freyberg must realize that the Vatican bank, known officially as the Institute for the Works of Religion, is fighting for its life. Pope Francis’ recent remark that “St. Paul did not have a bank account” was a signal that radical measures – including suppression of the bank – have not been ruled out.

Last week the pope named a five-person commission to determine how, and if, the Vatican bank fits in with the church’s overall mission.

For his part, von Freyberg has announced steps toward greater transparency, including publication of an annual financial report. Many at the Vatican maintain that the church needs an institution like the Vatican bank in order to serve the interests of missionary territories, religious orders and charity projects around the world.

But there are others who argue that because the Vatican operates as a state surrounded by Italy, the bank and its 33,000 individual accounts will always provide opportunities for abuse – especially when most Vatican bank officials and many account holders come from Italy.

One year ago, Cipriani hosted a two-hour presentation at the Vatican bank for some 60 journalists, an unprecedented attempt to show how the institute was working toward greater transparency in compliance with international regulations.

Today, Cipriani’s departure is yet another sign that the Vatican bank may be irreformable.