'It's like the end of the Berlin Wall," said a high-ranking Vatican official last week after an invisible financial barrier marking the legal separation between the Vatican and Italy was breached for the first time.
According to officials at the Bank of Italy, the Institute for Works of Religion – the Vatican's own offshore bank – has for years been allowing organised criminals, even terrorists, to launder money with impunity.
On Friday, Italian tax police arrested a high-ranking Italian prelate, Monsignor Nunzio Scarano, who until last month was working as a senior accountant inside the Vatican's financial administration. They also arrested a financial intermediary and an agent from Italy's secret services on charges of conspiring with Mgr Scarano to commit crimes of embezzlement and money laundering.
Msgr Scarano is alleged to have masterminded a plot that sounds like an airport novel. He attempted to bring €20m in cash belonging to a wealthy family of shipowners from a Swiss bank to Rome in a private plane, thereby evading customs and tax controls.
Italian prosecutors have had their eye on the Vatican bank for several years but have had great difficulty in obtaining any information from the Holy See, which has pleaded diplomatic immunity and exemption from normal international banking rules on the grounds that the Institute for Works of Religion "is not a bank in the normal sense of the word".
After the arrest of Msgr Scarano, however, the Vatican spokesman, Father Federico Lombardi, promised "full collaboration" with Italian justice authorities.
Under previous popes, the Vatican has taken refuge behind the Lateran Pacts signed with Italy in 1929 that provide for the complete independence of the Vatican City State and of the institutions of the Holy See under international law.
The American prelate Msgr Paul Marcinkus was in charge of the Vatican bank in the 80s during the time of its association with dodgy Italian financiers such as Roberto Calvi, the chairman of Banco Ambrosiano, who was found hanging from Blackfriars Bridge in London in 1982. It is believed that he was a victim of a Mafia hitman taking revenge for funds lost through the bank's collapse. The Vatican was the bank's main shareholder, and Calvi was dubbed 'God's banker' due to his close ties with the Holy See.
Msgr Marcinkus evaded the serving of court documents by Italian justice authorities by taking refuge inside Vatican City and claiming diplomatic immunity.
Msgr Scarano, who comes from Salerno, south of Naples, had a late vocation to the priesthood. He was employed by a big Italian commercial bank before taking Holy Orders, and was nicknamed 'Monsignor 500' inside the Vatican thanks to his habit of flashing his wallet to show colleagues that he only carried €500 banknotes.
Even before Msgr Scarano's arrest, Pope Francis revealed that he was determined to clean up the Vatican Bank and its highly secretive operations, which in recent decades had been engulfed in scandal. Only two days prior to the monsignor being hand-cuffed and taken away, the Pope announced the creation of an internal commission of inquiry into the running of the bank, set up in 1943 to hold the funds of cardinals, bishops, priests, Catholic charities and religious orders from around the world.
The five-member commission includes a Harvard law professor and only one Italian – Cardinal Renato Farina, the former head of the Vatican Library and Secret Archive. Pope Francis has given the commission powers to question anyone working inside the Vatican and ordered it to report back to him personally and "promptly".
The new Pope has already revealed himself as a person who can make quick decisions if necessary and is not easily impressed by the pomp and circumstance of time-honoured Vatican ceremony and protocol. He finds the court-like Vatican administration suffocating and failed to turn up to a symphony concert organised in his honour earlier in the month because he had more urgent business. "I'm not a Renaissance prince," he is reported to have said, somewhat snottily.
In 2010, former Pope Benedict set up a Financial Information Authority to monitor all the Vatican's international transactions and to ensure that international rules relating to money laundering and the financing of terrorism were being respected.
But inspectors from Moneyval, a Council of Europe banking watchdog authority based in France, went through the bank's books last year and reported that it sometimes failed to ensure "due diligence" in monitoring suspect transactions.
Another serious problem facing Pope Francis is what he referred to during a recent meeting with clerics from Latin America as the Vatican's 'gay lobby'. "It's true, it's there," he is reported to have said. "We need to see what we can do."
He has his work cut out. Last week, Patrizio Poggio, a former Catholic priest, claimed that he had evidence of misconduct by a group of Roman priests with young Romanian male prostitutes, informing the police that he had "grave information harming the integrity of the church" and giving them a list of alleged clients – all Roman clerics.
Poggio claimed they had used the services of the prostitutes, who frequented a club near Rome's main railway terminal. He alleges that a former policeman took the male escorts in a van marked "Medical emergency – blood transport" to an abandoned chapel in the suburbs, where they met with the clerics.
The priest, who served five years in jail for sexual crimes committed 15 years ago, was arrested on Friday on charges of criminal defamation. But the presence within the Vatican hierarchy of gay prelates is an open secret in Rome.
Pope Francis is quoted as saying: "In the Curia, there are also holy people, really, there are holy people. But there is also a stream of corruption, there is that as well, it is true."
The new more frugal Vatican of Pope Francis will shortly begin to take shape – and he doubtless hopes that the whiff of financial and sexual scandal that has besmirched the Vatican in recent years will begin to blow away. (© Daily Telegraph, London)