Vatican, U.S. Sign Agreement to Prevent Tax Evasion

The Vatican Bank

Pope Francis once said that a person who "puts his hand in his pocket to show that he helps the church while with the other hand steals from the state, from the poor" is not simply a sinner, but is corrupt.

While someone may think it is clever to find a way to avoid paying taxes, the Vatican insists it will not be a tax haven. In fact, on June 10, it signed a formal agreement with the United States government promising to send a report each year to the U.S. Internal Revenue Service listing U.S. citizens and permanent residents who have bank accounts or other financial interests at the Vatican.

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Under the U.S. Foreign Account Tax Compliance Act, the U.S. tax collector compares the names on those foreign reports to the lists of people filing their income tax reports. Those who fail to file are in trouble.

U.S. officials described the formal agreement with the Vatican as a further sign of the Vatican's commitment to financial transparency and the establishment of more ethical financial activity around the globe.

Ambassador Ken Hackett, U.S. envoy to the Holy See, signed the agreement on behalf of the United States. Archbishop Paul R. Gallagher, undersecretary for relations with states, signed on behalf of the Holy See. And it went into effect the day it was signed.

"As Pope Francis frequently reminds us, evading just taxes is stealing both from the state and from the poor," Archbishop Gallagher said at the signing ceremony. "Every person has, in fact, the duty to contribute, in charity and justice, to the common good, according to his own abilities and the needs of others, by promoting and assisting the public institutions dedicated to bettering the conditions of human life."

Hackett, retired former president of the U.S. bishops' Catholic Relief Services, told those gathered for the ceremony, "Of all the measures that could be taken to eliminate world poverty, stopping tax evasion may be one of the most effective options. Every year, tax evasion deprives governments of all sizes of much-needed resources to fund public services and investments."

In a joint statement issued after the signing ceremony, the U.S. and Vatican said the agreement "underscores the commitment of both parties to promote and ensure ethical behavior in the financial and economic fields."

"Ensuring the payment of taxes and preventing tax evasion are of crucial economic importance for every community since adequate tax revenues and public spending are indispensable for governments to become instruments of development and solidarity, to encourage employment growth, to sustain business and charitable activities, and to provide systems of social insurance and assistance designed to protect the weakest members of society," the statement said.

Speaking to reporters before the signing, Hackett said the agreement is "a type of stamp of approval" of the multiple steps the Vatican has taken since 2010 to update its financial laws, reform the so-called Vatican bank and institute steps to ensure no one can use its offices for money laundering or the financing of terrorism.

Marji Christian, political and economic officer at the U.S. Embassy to the Holy See, declined to say if the U.S. government knew how many of its citizens or permanent residents have Vatican bank accounts or other financial interests at the Vatican.

In 2013, the Vatican bank -- formally called the Institute for Religious Works -- tightened its rules for account holders and began closing the accounts of those who no longer qualified. Individuals holding accounts must be Vatican employees or retirees or diplomats accredited to the Holy See. Bishops' conferences, dioceses, religious orders and other official Catholic works also may have accounts.

Max Hohenberg, institute spokesman, told Catholic News Service June 10, "less than 1 percent or fewer than 150 clients" were U.S. citizens or U.S.-based Catholic entities.

The bank had been working toward the U.S. agreement for two years, he said, and "all the protocols are already in place and have been since late last year. This is just a formalization" of what was being done already.

The new agreement, which Hackett said is the first "formal intergovernmental agreement" between the U.S. and Vatican, was initiated by the U.S. under the terms of the Foreign Account Tax Compliance Act (FATCA), which is designed to prevent tax evasion by American citizens.

Some 62 countries already have signed formal FATCA agreements with the United States and another 50 countries have what are described as "agreements in substance," according to the U.S. Embassy.

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