Pope Francis has apparently been running a hedge fund with the faithful’s donations

I’ve never been one to follow Vatican intrigue, but I do love forensic accounting and outing clever financial frauds. Pope Francis’ Vatican has been a “rich” source of material on both accounts lately.

When Pope Francis was inaugurated in 2013, he was widely celebrated for maintaining a modest lifestyle – like his namesake, my patron saint, St. Francis of Assisi – even behind the walls of the glitzy Vatican. He emphasizes helping the poor and has made the plight of refugees worldwide a special mission of the Church.

As Catholics have grown weary of personally bankrolling settlements for the victims of predatory priests – I wrote about the staggering cost of the abuse scandal and the dozens of US dioceses that have filed for bankruptcy – the Vatican seems to be in a state of financial free fall. This is partly because of the collapse in donations. But it is mostly because the socialist pope has been running a hedge fund.

We are learning many new details about how the Vatican invested $200 million in swanky London real estate in recent years. Money that parishioners globally sent to the Vatican for the purpose of helping the poor instead was funneled into a 183,000-square-foot luxury apartment building in Chelsea. And this isn’t even close to the only posh “cause” Francis’ Vatican has backed with the assistance of networks of investors and sleazy middlemen who are under investigation by financial regulators.

Of course, the faithful are only learning about these investments because they bombed financially as the property values for luxury flats sank after the Brexit vote and that has caused both strife and leaks at the highest levels of the Church.

The Vatican under Pope Francis’ leadership has not published a budget since 2015 and has been without an auditor for more than two years now.

Much of the information that has surfaced about how Francis & Co. have been looting the faithful has been the result of unauthorized leaks of thousands of confidential documents – a sort of Panama Papers for the Vatican, if you will.

These leaks come from two well-known Italian journalists, Emiliano Fittipaldi and Gianluigi Nuzzi. Francis tried to silence the journalists back in 2015 by pressing charges against them for leaking the information. They were eventually absolved for lack of jurisdiction and the Vatican decided to handle its finances completely in the dark.

This week, Fittipaldi and Nuzzi resumed blowing up Francis’ black budget, with a vengeance. The two leaks, taken together, present a very damning picture of the Church at present.

Fittipaldi explained the following scheme in the Italian magazine L’Espresso (summary by the Catholic newspaper Crux Now):

The Secretariat of State, the Vatican’s ultra-powerful coordinating department, controls roughly $725 million in funds off the books related to the annual “Peter’s Pence” collection, which is designed to allow individual Catholics to contribute to the pope’s charitable activities.

In fact, according to Fittipaldi’s report, most of those funds are instead diverted into “reckless speculative operations,” with 77 percent of the Peter’s Pence collections entrusted to Credit Suisse, the multinational financial services and investment company founded in Switzerland.

L’Espresso cites Vatican investigators charging that the use of those funds, roughly $560 million, has been marked by “garish irregularities” and “worrying scenarios.”

In addition, Fittipaldi’s report also suggests that an ongoing internal investigation of those irregularities may be motivated less by an honest desire to get to the truth and impose transparency, and more by a desire to settle accounts and alter the balance of power within the Vatican, especially with regard to the Financial Information Authority, an anti-money laundering watchdog unit created under Pope emeritus Benedict XVI. [For the uninitiated, this is the pope that was driven out of the Vatican, with no explanation, which brought us Francis.]

The director of the Financial Information Authority, Italian layman Tommaso di Ruzza, was one of five Vatican employees recently suspended amid the unfolding investigation that also led to the resignation of the powerful commander of the Vatican gendarmes, Domenico Giani, following a leak of a memorandum on the probe prepared by Giani to the Italian media.

Sunday’s report details the affair involving the London apartment building, which has its origins in 2012 when an Italian financier named Raffaele Mincione was approached about investing $200 million on behalf of the Vatican in an oil company in Angola. According to Fittipaldi’s account, the operation was the idea of then-Monsignor Angelo Becciu, at the time the number two official in the Secretariat of State and a former papal ambassador in Angola.

Becciu is today a cardinal and the prefect of the Vatican’s Congregation for the Causes of Saints.

Eventually, however, the Angola project fell apart, leading Mincione to propose investing the $200 million in a London real estate deal instead, involving the purchase of a former warehouse for Harrod’s and converting it into luxury apartments. Mincione, based on Italian media reports, is a well-known corporate raider whose 12-meter private sailboat is named Bottadiculo, which is idiomatic for “lucky break” but literally means “slap on the butt.”

The deal went ahead, with the Vatican purchasing 45 percent of the property. A Brexit-induced downturn in the London real estate market, however, resulted in returns being less than projected, and in 2018, under the Secretariat of State’s new number two, Venezuelan Monsignor Edgar Peña Parra, the Vatican decided to pull out of the Athena Capital Global fund administered by Mincione and based in Luxembourg.

The exit strategy, however, involved the Vatican purchasing the remaining 55 percent of the property, in a deal signed in November 2018 by Monsignor Alberto Perlasca, at the time a key official in the Secretariat of State who was appointed in July by Pope Francis as the Promoter of Justice, or prosecutor, in the Vatican’s highest court, the Apostolic Signatura.

Fittipaldi asserts that between the original 2012 investment and the 2018 purchase, Mincione cleared almost $170 million in income. According to Fittipaldi, he still defends the investment: “I didn’t want to pull out, they asked me to,” he said. “It’s still an optimal operation: All that has to be done is to get going on the renovations and sell the apartments,” Mincione said.

According to the report, it was the director general of the Institute for the Works of Religion, the so-called “Vatican bank,” Italian layman Gian Franco Mammì, who objected to the 2018 transaction and triggered an investigation. While that may seem to make Mammì a whistleblower, Fittipaldi quotes unnamed Vatican insiders claiming that his actual motive was to wrest control of the Peter’s Pence funds away from the Secretariat of State for the Vatican bank.

In any event, a formal complaint was lodged with the Vatican’s Promoter of Justice on July 2, leading to the suspension of the five employees and Giani’s ouster.

In the meantime, according to Fittipaldi, the Vatican gave control over its London investment to another Italian financier named Gianluigi Torzi, who is himself under investigation by Italian authorities for an incident in which he allegedly changed the locks on a property near his seaside villa without authorization.

In effect, the Vatican did not directly acquire the remaining share of the London property through the Administration of the Patrimony of the Apostolic See (APSA), the Vatican’s central financial clearinghouse that generally administers its real estate holdings, but worked through another Luxembourg financial company run by Torzi.

Also involved in the deal as an “absolute protagonist,” according to Fittipaldi, was Italian Monsignor Mauro Carlino, a longtime aide to Becciu who was promoted by Francis to become the head of information and documentation at the Secretariat of State over the summer.

Despite Di Ruzza’s suspension, Fittipaldi quotes unnamed sources suggesting that the Financial Information Authority actually signaled the London deal as a suspicious transaction to authorities both in the UK and Luxembourg and tried to block the transaction.

That background, according to Fittipaldi, has generated suspicions that the raid on Di Ruzza and his suspension is actually an attempt to neutralize the Financial Information Authority with regard to the Secretariat of State.

“Judicial papers risk being used to settle accounts within the sacred walls,” Fittipaldi wrote.

And that brings us to Nuzzi’s bombshell:

Worldwide donations to the Catholic Church have plunged in the wake of sex abuse scandals that have eroded faith in the Vatican, a new book claims.

The Church’s finances are in such a dire state – a result of a toxic mix of incompetence, internal wrangling and corruption – that the Vatican risks a default by 2023, according to the expose.

The amount of money donated by ordinary Catholics to the Church, known as Peter’s Pence, has plummeted from €101 million [$112 million] in 2006 to €70 million [$77 million] in 2016 and may now be less than €60 million [$67 million].

Only a fifth of the total goes to helping the poor and needy, with the rest held in bank accounts or used to plug gaps in the finances of the Curia, the Vatican’s governing body.

The revelations are based on scrutiny of 3,000 confidential documents obtained by an Italian investigative journalist, Gianluigi Nuzzi.

In his book, Universal Judgment, which was published on Monday, he portrays the Vatican as a viper’s nest of jealous cardinals, warring departments and avaricious officials who are adept at parallel book-keeping.

“If the pontificate of Frances fails, it won’t be because of the attacks of conservative Catholics or the crisis in vocations or because of the declining number of faithful,” Mr Nuzzi writes. “It will be because of the financial collapse that is coming ever closer.”

The Vatican deficit is “like a voracious and insatiable parasite, attacking wealth that was accumulated over the centuries from the pious offerings of the faithful.”

The precipitous decline in contributions has coincided with a crisis of faith for millions of Catholics, who have been appalled at the multiple sex scandals involving priests and cardinals.

Thousands of prelates have been accused of raping or molesting children and the Vatican’s former finance chief, Australian cardinal George Pell, is in prison after being convicted of sexually abusing teenage boys in the state of Victoria.

So not only are dioceses across America filing for bankruptcy, the Vatican itself appears to be a default risk.

Vatican officials quickly pushed back against these reports, but naturally they did not push back with any numbers on the financial health of the Church or by denying that they were buying up luxury real estate with charity funds. Instead they characterize the journalists’ work as part of some shadowy effort to discredit Francis.

I think one thing is clear about Francis at this point: Far from being a reformer, he is helping keep the worst actors in positions of authority in the Church. Some of his most trusted allies have been outed as rapists as he feigns ignorance. Altar boys were even getting assaulted at St Peter’s only two years ago. He had a cardinal who said global warming is more important than child abuse organizing his summit on abuse. And now all this. The decline of the Church under this one individual is beyond insane.

The staggering financial cost of predatory priests in the Catholic Church (and a do-nothing pope)

When I left graduate school to work at a major investment bank, I was surprised to learn that, from a financial standpoint, the Roman Catholic Church is essentially a franchise. But you learn that quickly when evaluating bond deals for improving Catholic facilities. Each diocese – and really, each parish – is an independent financial entity. This is also true for the myriad social service organizations and educational institutions that Catholics support.

Many folks – even practicing Catholics – assume that the Vatican stands behind the financial decisions of every church in the Catholic faith. When they hear about churches falling on difficult times, they make comments like “eh, just go sell a Michelangelo.” Their impression is that the church as a whole is really, really rich.

But the Catholic Church does not work that way. Much like a Chick-Fil-A or McDonald’s, money flows from tithes and other financial support at individual parishes to the keeper of the brand, the Vatican, and from there to the church’s overall religious priorities as the Vatican dictates. Money does not flow in the opposite direction. When a diocese fails financially, it fails alone. Its creditors cannot seize any Michelangelos. Instead they seize income from donations from ordinary people. This is mechanically how the Vatican has sheltered its wealth across the centuries.

This is important to know in order to understand the toll that the clergy abuse scandal and a controversial pope have had on the church in the United States. The aggregate cost of ongoing leadership failures in the church is immense. The opportunity cost to religious activity in individual parishes is even more immense.

This is why conservative US Catholics can’t stand the pope and want him to go away so someone new can clean house throughout the church. His remaining in place is jeopardizing the very survival of the church.

The cumulative cost of the abuse scandal to dioceses vs the Vatican budget

In the past 20 years, Catholic orders in the United States have spent $4 billion to investigate and litigate abuse claims and pay settlements to victims. That’s $4 billion from collection plates that is going into the black hole of the church’s problem with pedophilia. And most of that expense has accrued in only the last few years, meaning the increased cost is probably going to be exponential from this point on.

It’s not coming from the pope, who in many cases now has acted to shelter and even promote deviant clergy. Heck, altar boys were even getting abused in St. Peter’s Basilica. That’s how unserious the Vatican is about abuse.

The Vatican itself has a budget deficit of $71 million, out of a budget of $332 million, thanks to many years of wasteful spending and corruption that Francis has been unable – or unwilling – to control. Nearly half of the Vatican’s budget goes to pay salaries to over 3,000 employees. Many of the pope’s critics suggest that the Vatican could eliminate thousands of redundant employees to balance its budget, but firing tons of people does not mesh well with the pope’s socialist worldview. And so the Vatican’s own financial crisis persists.

In the 2018 fiscal year alone, Catholic dioceses in the US spent $302 million on abuse investigations, settlement, and “treatment” for predator priests. The Archdiocese of Chicago paid out $80 million to victims through just one of its law firms. Cardinal archbishop of Chicago, and BFF of Pope Francis, Blase Cupich has said that global warming is a bigger concern for the church than the abuse scandal. The pope put him on a council for determining the Vatican’s response to abuse claims.

US dioceses are filing for bankruptcy protection en masse

Dozens of Catholic dioceses in the United States have filed for chapter 11 bankruptcy protection, mostly due to abuse claims. A week ago, the Diocese of Rochester in New York – which is facing several dozen lawsuits under the state’s Child Victims Act – became the latest. Many more will likely follow. I’m sure most people had no idea that a diocese could even file for bankruptcy, as these events get almost no attention from a media that is singularly obsessed with playing gotcha with President Trump. (There can be no other “news” anymore, which is why almost everyone I know has stopped watching/reading it.)

Filing for bankruptcy usually means that the assets of a diocese are sold off to create a fund for abuse victims:

Jerry Topczewski, chief of staff for the Archdiocese of Milwaukee, which filed for Chapter 11 protection in 2011 and emerged from the process in 2015, said the archdiocese over the years sold its pastoral center, liquidated property that had been set aside for a cemetery and future parish sites, and cut its staff by more than 45 percent.

“You start cutting things when you can, and when you are a service organization, like a central office of a diocese is, it’s people who are the bulk of our budget,” said Topczewski. He told CNS the Chapter 11 process enabled the archdiocese to maintain day-to-day operations while creating an equitable system that distributed $21 million to 355 priest-abuse survivors and established a $500,000 fund to cover victims’ personal therapy expenses.

The diocese still maintains some funds to allow for the continued operation of its parishes, but they are operating at significantly lower funding levels.

Younger generations refuse to support the church financially

These are just the direct costs, however. More than a quarter of Catholics told the Pew Research Center in a recent study that they have stopped donating money to the church. Partly this is to send a message to the Vatican that they want the abuse problems to be taken seriously. And partly this is because they don’t want to take money away from their own household to pay for the sins of a priest, who in many cases have been shopped from one diocese to another by the Vatican or its representatives to avoid public disclosure of their assaults.

In terms of the long-term debts occurred by the church, the financial risk is very real. Many of the people who continue to donate to their dioceses despite the abuse scandals are older generations. Will younger generations step up to fill the void when they can no longer support the church?

In the US, dioceses have formed a mutual insurance corporation to handle new claims of abuse. This organization now polices background checks on clergy, church employees, and even volunteers. But it seems to be more about collecting data on people in the parish than actually managing risk.

It strikes me that the Vatican’s strategy on abuse is concealing and redirecting claims 2.0. Instead of shopping around predator priests, the pope focuses on distracting the media through ongoing challenges to church orthodoxy. He changes the format of the Mass, the catechism on the death penalty, mints pro-LGBTQ cardinals. This sucks him into opposition with the conservatives that the media despises and further diverts attention from the fact that the church is going bankrupt and can no longer fulfill its real mission. This holding pattern is going to continue until the Vatican changes, but the pope is stacking the bench, so to speak, to keep himself and his allies in power.

Francis says he does not fear a schism over his increasingly insane policies, which is good. Because he’s probably going to be responsible for the church finally splitting in half.