The Vatican Bank, Christmas Cheer, And FATCA
For centuries the inner workings of the Vatican Bank have been cloaked in secrecy. That was before Pope Francis, who has pledged to restore public confidence in the administration of the Roman Catholic Church. This week we learned the United States and the Holy See have brokered a FATCA agreement for the automatic exchange of taxpayer information. The long arm of the U.S. tax code is nothing short of astonishing.
I don’t recall issues like offshore banking and tax evasion being discussed at Sunday school during my youth, but then I wasn’t an attentive pupil. I suppose it’s possible that bilateral exchange of taxpayer information was mentioned at some point in the Beatitudes, but I’d need to double-check. Probably not, since the Sermon on the Mount predates the drafting of article 26 of the OECD model tax convention.
These days, tax treaties aren’t the only way for nations to exchange bank data. We live in the age of FATCA and its progeny — the OECD’s common reporting standard — which are spreading around the world faster than the good word. From Zurich to Bethlehem, from the Cayman Islands to Galilee, FATCA is everywhere. And as of this week, we learned how Francis views the issue. The pontiff is cool with tax transparency. Depending on how one feels about the issue, this news could be either sweeter than sugar plums, or worse than a lump of coal in your stocking.
On December 22 a Treasury Department Web page noted that the Holy See and the U.S. government have reached an agreement in substance regarding FATCA. That informal accord, concluded November 30, adheres to the FATCA Model 1 intergovernmental agreement. There are no details yet on when a formal signing ceremony will be held. In the meantime, the Treasury Department now includes the Holy See on its expanding list of FATCA-compliant jurisdictions.
The Vatican Bank has always been opaque about its internal operations and financial dealings. Although surrounded by the city of Rome, the Holy See is technically not part of the European Union, and thus not subject to EU financial rules. In theory, the bank does not answer to any regulatory body.
In October 2013, only six months after Francis took office, the Vatican Bank released its first ever annual report. We know from that disclosure that the bank maintains about 33,000 accounts for 19,000 clients and claims €5 billion in assets. Roughly half the account holders are described as members of religious orders. The rest are Catholic dioceses, Vatican institutions, members of the clergy, and various people with an affiliation to the church.
Italian investigators have charged that the Vatican Bank uses a system of proxies, or nominee account ownership, that intentionally separates equitable title from beneficial title. As a result, the real ownership of the accounts remains concealed. If that sounds a bit like your typical Liechtenstein foundation or Panamanian trust, you’re on to something.
FATCA, of course, will change that — but only for Vatican accounts held by U.S. taxpayers. To achieve parallel treatment with non-U.S. account holders, the Holy See would need to participate in the OECD common reporting standard. (Insert your joke here about the tax collectors of the world making a list of who’s naughty and nice. It wouldn’t be too far off from reality.)
Just hours after announcement of the FATCA deal, the pope delivered his annual Christmas address to the Vatican’s cardinals, bishops, and priests. In it, he scolded the Vatican bureaucracy for succumbing to a “catalog of illnesses.” These include “spiritual Alzheimer’s,” “existential schizophrenia,” and “the terrorism of gossip.”
That’s some bold language for a Christmas wish. As suggested above, I am certainly no religious scholar. But this pope sounds like a man on a mission. First Cuba, now FATCA. What’s next?
