Merchants in the Temple (15 page)

Another troublesome issue: the assets inevitably age and thus require renovations that can significantly drive up the costs of upkeep. In the 2014 fiscal year, APSA set aside 4.5 million euros for planned extraordinary maintenance and another 4.7 million for work on properties used for institutional purposes, such as the Palace of the Holy Office. In other words, a single administrative body earmarked at least 9.2 million euros for maintenance.

When the Governorate decides to do work on a building, it does not always hold the competitive bidding processes required in most European Union countries. The companies are often chosen by “direct call,” through which a private bid is tendered, leaving ample room for discretion. This means there is no effort to obtain the best estimate, and no way to keep costs under control.

Francis criticized this very practice in his remarks to the cardinals at the famous July 2013 meeting. The problem reappeared a few months later, during COSEA's audit of the rental income. One issue was extraordinary maintenance of APSA property, outfitted for institutional use and included in the 2014 budget. There was no price tag on much of the planned work, especially jobs listed under “miscellaneous building, installing, outfitting and refurbishing work required to meet fire safety standards.”

Two cases were scrutinized: the historic San Calisto Palace and the Palace of the Chancellery, a glorious Renaissance building that houses the Holy See's three tribunals: the Apostolic Penitentiary, the Apostolic Segnatura, and the Roman Rota. “Without a final project”—according to the internal documentation—“a provisional sum of 254,257 euros was earmarked for each job.”

Cardinals, bishops, and bureaucrats do care very much about the decorum of their apartments. They want everything to work perfectly; for the doors, windows, faucets, and radiators to be efficient, and the walls to receive a fresh coat of paint on a regular basis. APSA never forgets to earmark funds “for the appointment of quarters reserved for the Superiors of the Roman Curia,” not unlike other absolute monarchies in the world. As much as 700,000 euros in cash is kept ready, so that when a cardinal decides he needs to redo his home, there will be no delays and the work can be done promptly. Sometimes the tenants have renovations done at their own expense, for which they are reimbursed by the Holy See. To cover these out-of-pocket expenses, the Vatican administration earmarks 500,000 euros “to reimburse tenants for expenses incurred in the restructuring of their apartments.”

APSA was not the only administrative body guilty of such practices. The inspection by RB Audit turned up other instances of peculiar restructuring expenses. The ordinary and extraordinary maintenance expenses of the Congregation for the Evangelization of Peoples, formerly known as Propaganda Fide, raised more than a few questions:
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The Congregation does not have an actual roster of suppliers, i.e., a list of companies based on their meeting economical, organizational and technical requirements, which can be invited to participate in competitive bidding. The creation of a roster would be a valid tool for consulting the market divided up by service category. As matters currently stand, rather than have competitive bidding in the strict sense, the Congregation, on the basis of a specific project and specific technical requirements, approaches companies that meet the requirements, asking them to present their bid for a supply or service contract … It would be advisable for the Congregation to supervise more closely the assignment of contracts, by proposing, for example, a new method of awarding contracts with high price tags and for particularly complex projects.

One Hundred Square Meters for 20.67 Euros a Year

The sales and rental market was another delicate issue. In the past twenty years the Curia and religious entities have been periodically embroiled in scandals involving the sale to friends or friends of friends of property whose value had been drastically understated. Headlines were made by real estate property sold at cut-rate prices: from Propaganda Fide to the assets of the IOR, whose former President, Angelo Caloia, was accused by the Vatican judicial authorities of embezzlement; the homes purchased by Monsignor Scarano; and the former monasteries converted into clinics and luxury hotels. Caloia's trial is ongoing. The Promontory officials also sifted through APSA's sales records from the past fifteen years. Relatively few properties had been sold, only 6 percent of the total assets: “228 units were sold”—according to the special confidential—“and 79 were donated. These included 20 apartments, 23 churches, refectories and residences were gifted, while 119 homes were sold.”

The rental market was equally troubling. Church-owned apartments were almost never rented at market prices. The price reductions were astonishing—ranging from 30 to 100 percent less than average market rates. This meant a loss of tens of millions of euros in income, and in extreme cases the properties came to represent a liability, considering the huge gap between rental income and extraordinary maintenance expenses.

The Promontory and RB Audit consultants inspected APSA, Propaganda Fide, and the IOR to get a clear picture of the catastrophic general situation. They gave their report to the COSEA commissioners, who in turn forwarded it to Francis and his closest collaborators. The documents to which I had exclusive access for this book show numerous discrepancies and irregularities, as the Commission's report highlights:

Various Vatican institutions manage assets belonging to the institutions of the Holy See (valued at approximately 4 billion) and assets on behalf of third parties (approximately 6 billion) for a total of 10 billion euros, of which 9 is in securities and 1 is in real estate … Many Vatican institutions thus own real estate assets for a comprehensive value of about 1 billion euros. This estimate, based on about 70% of the portfolio, has a higher market value, however.
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With regard to the APSA assets (commercial, residential, and institutional units), the market value is estimated to be 7 times higher than that the amount entered into the balance sheets, for a total of 2.7 billion euros. With regard to Propaganda Fide, instead, the estimated market value is at least 5 times higher than the amount in the balance sheets, for a total of half a billion euros.

The rental income of Propaganda Fide's property could be 50% higher if rents were raised to market rates for all external lessees. This fact regards only 219 commercial and residential units out of the 470 total. No information is available on the surface area of the remaining units. Moreover, former employees continue to receive an employee discount (about 60–70% below market rates) for as many as 8 years after they have stopped working for the Vatican. If we compare the actual rent per square meter of Propaganda Fide properties to market potential, the former would be 21 euros per square meter while the latter would be 31 euros per square meter, with an annual loss of 3.4 million euros. [According to the audit] of management [there is] a lack of oversight, efficiency and an adequate strategy for the use [of the properties].

APSA's rental properties in Rome are divided into three categories: by type of contract (new or renewed); contracting party (employee, retiree, or external); and zone. Depending on the zone, prices can range from 5 euros per square meter in Castel Gandolfo and Ladispoli to 9.88 euros for a penthouse in the center of Rome.
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This means that a beautiful rooftop apartment in a historic palazzo facing Saint Peter's Square can cost as little as 1,000 euros a month—truly super-discounted prices. Not to mention that retirees receive an additional discount of 15 percent off the rent.

The discounts were inexplicable, however, with the so-called “external” tenants—private individuals or companies that are not employed by the Holy See. For each building, APSA has a chart indicating the rental fees to be charged. The maximum fee is 26 euros a square meter per month for a beautiful home on Via dei Coronari, in the city center, with breathtaking views of Rome. Here, too, prices are below market. In addition to being discounted, the amounts listed for rentals to external tenants rarely correspond to the actual payments made by the tenants. In 50 percent of cases, the rent collected was far lower than even the minimum amounts indicated in the charts, leading the task force consultants to ask a number of questions:

Discrepancies between the rental fees paid and the fixed rates in the charts, a failure to adjust rents to changes in the “status” of the tenant, too many late payments and too much information missing from the documents. The systematic analysis of the data shows a frequent discrepancy between actual rent and the fixed rates both at the properties in the same price zone and within the same building.

What appears particularly odd is that the rent indicated on the contracts for apartments leased to external applicants was lower than the minimum fee of reference in at least 259 cases out of 515 … Special mention should be made of the security deposit system to protect the solvency of the lessees. While there is virtually no risk for Vatican employees or retirees, the risks become concrete with the externals. In some cases the deposit was not commensurate to the value of the lease. I am referring in particular to the customer Banca Intesa, which for an annual lease of 163,369 euros, paid a security deposit of only 1,894 euros, the equivalent of 1.16% of a year's rent. The bank also seems to have a vague history of outstanding debts [as of October 9, 2013, the date of the RB report].

It is remarkable that the Vatican's external clients would include a bank, and that the bank's lease agreement was actually “facilitated,” allowing it to pay a ridiculously low security deposit, hardly necessary considering the bank's size and influence. There was also a paradoxical note referring to the “vague outstanding debt situation” of one of Italy's largest banks.

The late payments piled up exponentially. The Propaganda Fide Congregation was owed some 3.9 million euros in overdue rent, more than one third of which (1.6 million) was from the first nine months of the year.
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APSA, instead, had accumulated rental arrears of 2.9 million euros, a full 9 percent of total rental income.
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To make matters worse, an odd new practice was added to the mix. Some tenants, without consulting the landlord, had taken the initiative to lower their own rent, sometimes by as much as 50 percent.

Equally strange is the fact that approximately 18% of arrears consists of credits owed on expired leases … Credits owed by tenants with expired leases amounts to approximately 770,000 euros … Another issue is the self-applied discount, as a result of economic hardship, which was not formalized through a rider to the contract, and consequently the entering into the books of rental income that would never be collected and on which taxes had been paid … Emblematic of the practice is Borghi S.r.l., which for months had unilaterally reduced its rent, paying a monthly sum of 50,000 euros rather than the more than 93,000 established in the contract [with] arrears reaching 400,000 euros.

The investigation turned up even more outrageous stories, such as prestige addresses offered at zero rent for no apparent reason. The
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) or “zero-rent” properties were given not only to cardinals but also to laymen, bureaucrats, and private individuals. Properties were often given rent free as a form of compensation for individuals who deserved a higher salary than allowed by the Vatican pay scale because of their professionalism or educational background. But that was not always the case.

The hundreds of rent-free apartments were a coterie of preferential treatment, an expression of privilege at odds with the principles cherished by Francis. It was not clear why an asset that may have been purchased using the donations of the faithful should be granted free of charge, with an open-ended lease.

Many surprises were being uncovered in the contracts for the 5,050 properties that APSA leased in the city of Rome. The annual rent for 715 of the units (homes, offices, and stores)—almost 15 percent—was listed as “zero” in the income column. The apartments were often in luxury buildings in the heart of Rome, a few blocks away from St. Peter's, either in the Prati neighborhood or the historic center. Another 115 properties had ridiculously low rent, between 1.72 and 100 euros per month. One employee, whose initials are given as F.A., pays a monthly rent that is the equivalent of lunch at a pizzeria: for his 97-square-meter apartment on Via di Porta Cavalleggeri, he signed a lease on November 1, 2011, for a yearly rent of 20 euros and 67 cents. The contract does not indicate whether the utilities are included. This is almost half of what one of his neighbors pays: J.L. has a yearly rent that is almost twice as much, 51.65 euros a year, but for an apartment of 142.99 square meters.

Promontory reported these incidents of mismanagement in a confidential file that was delivered to the Holy See. The overall surface area of the APSA patrimony is 347,532 square meters, providing revenue of 23.4 million euros, but with the much higher market potential of 82.8 million. Increasing the rents to market level would raise the earnings rate from the current 1.14 to 4.02 percent. In other words, APSA derives very little income from its real estate holdings, also because 44 percent of its units, according to Promontory, appear to be unrented. If market rates were applied, the homes given to employees would generate income of 19.4 million euros rather than the current 6.2 million. The “institutional” buildings, which generate no revenue today, would guarantee another 30.4 million euros. The margin for the commercial units is smaller: it would increase from 14.6 to 17.5 million euros.

Backstabbing in the Curia Against the Friends of Francis

The story that will follow shines an important light on the infighting and envy that rules life in the Curia. The unwitting protagonist was Benedict XVI. Guzmán Carriquiry Lecour began his career at the Vatican under Wojtyła and Ratzinger and was later appointed to important posts by Bergoglio. Born in Montevideo, Uruguay, in 1944, he was a director of the Catholic Youth and University Student Movement, first in his native country and then for all of Latin America. A lawyer, he began his service to the Holy See in the 1970s. In 1991 Pope John Paul II appointed him Undersecretary of the Pontifical Council for the Laity, a post to which he was confirmed by Pope Benedict XVI, who in 2011 appointed him also as the Secretary of the Pontifical Commission for Latin America. Today he is considered perhaps the most influential and powerful layperson at the Vatican. He plays a strategic role that has only grown after the elevation of Francis to the throne of St. Peter. In fact, Guzmán is a personal friend of the Pope. The two men have known each other for years and have sincere affection and respect for each other. Married with four children, Guzmán lives in a rent-free home on Via delle Grazie in Rome, a 138-square-meter apartment. His home is not far from St. Peter's Square and St. Anne's Gate, the Vatican gateway closest to the Tower of Nicholas V, which houses the offices of the IOR.