Vatican Accountant Accused of Smuggling $26 Million in Private Jet With Ex-Italian Spy

LONDON. June 28, 2013— -- Is the world's holiest bank riddled with corruption?

Many are asking that question today after a senior Vatican accountant was accused of plotting to sneak $26 million in bags of cash into Italy by stashing them away on a private jet, with the help of a former Italian spy.

The accountant, the former spy and an Italian financial broker have all been arrested in a case that highlights the Vatican's continuing challenge to eliminate fraud within the famously secretive Vatican Bank.

Monsignor Nunzio Scarano, who was the head of analytic accounts at the Holy See's property-management agency, has been accused of fraud, corruption and slander. He was the middle-man in a complex plot that involved secretly flying his friends' money from Switzerland to Italy, evading customs and driving to his house in an armored convoy in order to avoid taxes, according to prosecutors.

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The arrests come only two days after Pope Francis created an unprecedented commission that will investigate the Vatican Bank and problems that have plagued it for decades and deeply damaged the Vatican's reputation.

The Vatican today said it would "fully" cooperate with the probe and that Scarano had been suspended from his job more than a month ago because of a separate allegation of laundering. In that inquiry, Scarano is accused of taking more than $700,000 donated for terminally ill patients and using it to pay off a personal mortgage. He did so, according to investigators, by withdrawing $16,000 at a time, giving it to 56 different friends, who then paid him back with checks so he could avoid detection.

In the arrest today, Scarano's friends approached him and asked him to bring the money back into Italy from Switzerland, according to prosecutors in Rome. Giovanni Maria Zito, a former intelligence agent and current member of the Italian military and secret service, then arranged for a private plane and plotted how to avoid customs agents and have the money driven back to Scarano's home with an armed export. Zito agreed to the plot in exchange for $520,000.

Zito hired the private plane while on sick leave and flew with Carenzio to Locarno, Switzerland, according to prosecutors. Carenzio was supposed to collect the money from a Swiss bank on behalf of his friends but never did because the broker called off the plot after deciding it was too complicated.

Pope Francis has made fighting corruption in the bank a priority. The bank has 114 employees, manages $9.3 billion in assets and handles funds for Vatican departments, Catholic charities and priests and nuns around the world. But the Italian media have long been filled with reports about bank accounts used by the Mafia and fraudsters. The most famous example is that of Banco Ambrosiano, in which the Holy See was the main shareholder before the bank collapsed with losses of more than $3 billion. The bank was accused laundering money for mobsters, and its former president -- dubbed "God's Banker" -- was found hanging from a London bridge in 1982. The death was originally ruled a suicide. He was exhumed in 1998 amid growing suspicion he had been murdered. Five people stood trial for his murder but were later acquitted.

To try to fight that reputation, Francis gave the new commission carte blanche, reporting directly to him and bypassing normal secrecy rules. He has told aides that he is considering radically restructuring the bank or even closing it, according to Reuters.

"Saint Peter," Pope Francis said recently, "did not have a bank account."

The Vatican Bank, which is called the Institute for Works of Religion, "must become an accepted member of the international financial system," the bank's new chief executive, Ernst von Freyberg, recently told Vatican reporters. "My role is to improve our reputation, so that the Church is no longer darkened by bad news from us. ... We have to be clean on all legal fronts."

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But the allegations of impropriety continue. The Vatican says it has caught seven attempts of money laundering already this year. Last year, it caught six attempts.

Police arrested Scarano on the outskirts of Rome and locked him up in the city's Queen of Heaven jail, said his lawyer, Silverio Sica.