Vatican "perplexed and astonished" at investigation of Bank

Based in Vatican City, the Vatican Bank was set up by Pope Pius XII in 1942. It has no branches, and operates as an offshore institution outside EU rules. It is headed by a professional banker overseen by commission of five cardinals. The bank has no shareholders. All profits set aside for charitable or religious works.

The Vatican Bank was last mired in scandal in 1982 when its governor Archbishop Paul Marcinkus was indicted over his involvement with the collapse of what was then Italy's largest private bank, Banco Ambrosiano. I met the Archbishop in Mexico City, when he stayed at the Centro Cultural Interamericano of the Legionaries of Christ with some friends en route to a scuba diving vacation in Cozumel.  Later, he was accused of having links with organized crime groups. He died in Arizona four years ago. The fallout from that scandal took a darker turn when two of its top executives, one of them its chairman, Roberto Calvi, was found hanged under Blackfriars Bridge in London.

Now, the head of the Vatican Bank, Ettore Gotti Tedeschi, according to a report on Italian state television RAI, is under investigation as part of a money-laundering inquiry, police sources say. According to the RAI report, no proof of money-laundering had emerged in the inquiry, but investigators said the Vatican Bank had failed to disclose information about banking operations as mandated by Italy’s 2007 law against money-laundering.

The inquiry was launched after two suspicious transactions were reported to tax police in Rome. Prosecutors seized 23m euros ($30m; £19m) from the bank's accounts with another smaller institution.

The Vatican said it was "perplexed and astonished", and expressed full confidence in Mr Tedeschi.

Tedeschi, 65, is a father of five, a devout Catholic and member of Opus Dei. He teaches financial ethics at a Catholic university in Milan. He has been in charge of the bank for a year, appointed by Pope Benedict. He was formerly head of Spanish bank Santander's Italian operations  Tedeschi has strongly denied allegations the bank broke anti-money laundering rules and sees news of the investigation into him and the bank as an attack on him, the institution and the Vatican.