Italian authorities seized euro23 million ($30 million) from a Vatican bank account Tuesday and said they have begun investigating top officials of the Vatican bank in connection with a money-laundering probe.
The Vatican said it was "perplexed and surprised" by the investigation.
Italian financial police seized the money as a precaution and prosecutors placed the Vatican bank's chairman and director general under investigation for alleged mistakes linked to violations of Italy's anti-laundering laws, news reports said.
The investigation is not the first trouble for the bank - formally known as the Institute for Works of Religion. In the 1980s, it was involved in a major scandal that resulted in a banker, dubbed "God's Banker" because of his close ties to the Vatican, being found hanging from Blackfriars Bridge in London.
The Vatican expressed full trust in the chairman of the bank, Ettore Gotti Tedeschi, and his director-general, identified by the Vatican directory as Paolo Cipriani. It said the bank had been working for some time to make its finances more transparent to comply with anti-terrorism and anti-money-laundering regulations.
"The Holy see is perplexed and surprised by the initiatives of the Rome prosecutors, considering the data necessary is already available at the Bank of Italy," it said in a statement.
Gotti Tedeschi told state-run RAI television that he was "humiliated and mortified" by news of the probe, which he said had arrived just as he was implementing new transparency procedures at the bank.
News reports circulated more than a year ago that Italian investigators were scrutinizing millions of euros worth of Vatican bank transactions to see if they violated money-laundering regulations.
In Tuesday's case, police seized the money from a Vatican bank account at the Rome branch of Credito Artigiano Spa, according to news agencies ANSA and Apcom. The bulk of the money, euro20 million ($26 million), was destined for JP Morgan in Frankfurt, with the remainder going to Banca del Fucino.
According to the reports, the Vatican bank had neglected to communicate to financial authorities where the money had come from. The reports stressed that Gotti Tedeschi wasn't being investigated for laundering money himself but for a series of alleged omissions in financial transactions.
Prosecutors declined requests seeking confirmation of the reports.
Gotti Tedeschi was named chairman of the bank a year ago after serving as the head of Italian operations for Spain's Banco Santander. A member of the conservative religious movement Opus Dei, Gotti Tedeschi frequently speaks out on the need for more morality in financing and is a very public cheerleader of Pope Benedict XVI's finance-minded encyclical "Charity in Truth."
"It's not difficult to show that applied ethics produces more wealth," he wrote in a July piece for the Vatican newspaper L'Osservatore Romano. "Ethical behavior means lower costs - just thinking about control measures alone - and allows for more value thanks to transparency and trust, which alone produce more certainty and fewer risks."
News of the investigation came just after Benedict wrapped up a difficult trip to Britain and as the Vatican still reels from the fallout of the clergy sex abuse scandal.
The Vatican bank, located in a tower just inside the gates of Vatican City, isn't a typical bank. Its stated mission is to manage assets placed in its care that are destined for religious works or works of charity. But it also manages ATMs inside Vatican City and the pension system for the Vatican's thousands of employees.
The bank is not open to the public. Depositors are usually limited to Vatican employees, religious orders and people who transfer money for the pope's charities.
Its leadership is composed of five cardinals, one of whom is the Vatican's secretary of state. But the day-to-day operations are headed by Gotti Tedeschi and the bank's oversight council.
The Vatican bank was famously implicated in a scandal over the collapse of the Banco Ambrosiano in the 1980s in one of Italy's largest fraud cases.
Roberto Calvi, the head of Banco Ambrosiano, was found hanging from Blackfriars Bridge in London in 1982 in circumstances that still remain mysterious.
London investigators first ruled that Calvi committed suicide, but his family pressed for further investigation. Eventually murder charges were filed against five defendants, including a major Mafia figure, and they were tried in Rome and acquitted in 2007.
Banco Ambrosiano collapsed following the disappearance of $1.3 billion in loans the bank had made to several dummy companies in Latin America. The Vatican had provided letters of credit for the loans.
While denying any wrongdoing, the Vatican bank agreed to pay $250 million to Ambrosiano's creditors.
The late Archbishop Paul Marcinkus, an American prelate who headed the Vatican bank at the time, was charged as an accessory to fraudulent bankruptcy in the scandal.
He left a villa in Rome two hours before police arrived for the safety of the Vatican, an independent city-state. Italy's Constitutional Court eventually backed the Vatican in ruling that under Vatican-Italian treaties Marcinkus enjoyed immunity from Italian prosecution. Marcinkus long asserted his innocence and died in 2006.
Last year, a U.S. appeals court dismissed a lawsuit against the Vatican bank filed by Holocaust survivors from Croatia, Ukraine and Yugoslavia who alleged it had accepted millions of dollars of their valuables stolen by Nazi sympathizers.
The court said the bank was immune from such a lawsuit under the 1976 Foreign Sovereign Immunities Act, which generally protects foreign countries from being sued in U.S. courts.
In its statement Tuesday, the Vatican also said it was working to join the so-called "white list" of the Organization for Economic Cooperation and Development, which keeps tabs on financial openness on the exchange of tax information.
The OECD divides countries into three categories: those who comply with rules on sharing tax information (white list), those who say they will but have not acted yet (gray list), and nations which have not yet agreed to change banking secrecy practices (blacklist)
Currently the Vatican bank isn't on any OECD list.