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Vatican creates financial watchdog amid bank probe

world Updated: Dec 30, 2010 21:55 IST

The Vatican on Thursday created a financial watchdog agency and issued new laws to fight money laundering and terrorist financing in a major effort to shed its image as a tax haven that for years has been mired in scandal and secrecy.

The decrees, which go into effect April 1, were passed as Vatican's own bank remains implicated in a money-laundering investigation that resulted in 23 million euros (USD 31 million) being seized and its top two officials placed under investigation.

Pope Benedict XVI signed the documents today, saying the Vatican wanted to join other countries that have cracked down on legal loopholes that have allowed criminals to exploit the financial sector.

International financial organizations said today it appeared the Vatican had taken a step in the right direction.

The decree creates an independent Vatican compliance agency, the Financial Information Authority, that is tasked with ensuring all Vatican financial transactions, from the Vatican pharmacy to the Vatican bank, comply with the new laws.

It can freeze suspect transactions for up to five days and can conduct investigations which, if warranted, can be passed onto prosecutors at the Vatican tribunal. The agency is also tasked with sharing information with the EU and other organizations.

Its work is conducted in secret, but the statute creating the authority stresses that such secrecy won't get in the way of cooperating with law enforcement officials seeking information for investigations.