The Vatican's financial watchdog, the Financial Information Authority, has signed a memorandum of understanding with its German counterpart, the Federal Criminal Police Office.

René Bruelhart, director of the Financial Information Authority, stressed in a Dec. 4 press release that "this memorandum strengthens the FIA's international reach and further integrates the Holy See and the Vatican City State with a coordinated global effort to fight money laundering and the financing of terrorism."

Bruelhart added that the "signing underlines our fruitful relationship, and will further facilitate our joint efforts."

The Financial Information Authority was established by Benedict XVI in 2010 to oversee the Vatican's monetary and commercial agencies, including the Institutes for the Works of Religion, the "Vatican Bank."

The agreement with Germany follows a series of similar bilateral agreements signed by the Financial Information Authority with the financial intelligence units of the U.S., Belgium, Italy, Spain, Slovenia, and the Netherlands.

The German memorandum of understanding is significant because of the increasing investments in Germany operated by the Vatican Bank. Since 2010, the Vatican Bank had moved investments from Italy to foreign countries, highlighting its international activities.

An Oct. 7, 2012 police report leaked to the Italian daily Il Fatto Quotidiano complained that "the IOR transferred its Italian accounts to the German Deutsche Bank AG," and lamented that the transfer started when the Bank of Italy "modified the position of the Vatican institute to fulfill anti-money laundering recommendations."

According to a source familiar with Vatican finances who spoke to CNA Dec. 4, "the memorandum signed with Germany clearly dispels the idea that the Vatican transferred its investments to Germany to avoid the Italian anti-money laundering law."

The source maintained that "the Holy See is an international subject, and moves investments according to convenience, not in consideration of any privileged bilateral relationship."

In 2010, Italy ruled the Vatican was a "non-equivalent extracommunitarian country," thus applying stricter anti-money laundering procedures and increasing the cost of international money transfers.

That year, Benedict XVI began financial reform in the Vatican, issuing an anti-money laundering law that came into effect in March, 2011.

Following an on-site visit of the evaluators of Moneyval – the Council of Europe committee that evaluates member states' adherence to the anti-money laundering standards – the Holy See improved and perfected its anti-money laundering law with a 2012 decree.

The decree was met favorably by the Moneyval committee, which issued a generally positive report on Vatican City in July 2012.

The Moneyval report underlined that the Holy See has "come a long way in a very short period of time." It gave a positive evaluation on nine out of 16 "key and core" anti-money laundering recommendations.

Moneyval will issue a progress report on Vatican City at its plenary assembly, to be held Dec. 9-13. The progress report will focus on the improvements of Vatican legislation regarding the committee's "key and core" recommendations.

It comes as part of a long-term strategy to meet international standards, and several improvements to the anti-money laundering law witness to Vatican City's strong commitment to financial transparency.