Senior Vatican sources have told CNA that a controversial Vatican investment in a London property development was financed with borrowed money, and not with Vatican funds, as has been reported. 

Separate high-ranking sources at both the Prefecture for the Economy and APSA, the Vatican's central reserve bank, told CNA that investments totalling $200 million in a luxury London apartment building were funded through a short-term loan package organized through Swiss banks, at the impetus of Vatican Cardinal Angelo Becciu.

The loan required the Vatican to make only interest payments for a period of three years, and was intended to fund real estate speculation on the London property market. The terms of the loans, including the rate of interest and what, if any, collateral was offered, are not clear.

The 2014 Vatican property investment, authorized by Cardinal Angelo Becciu during his tenure as sostituto at the Holy See's Secretariat of State, has been the source of media scrutiny since  Vatican police raided the Secretariat of State and the Vatican's financial watchdog office Oct. 1.

The raid is believed to have focused on the $200 million London property speculation authorized by Becciu. 

Media reports have indicated that that the investment was funded by Vatican funds held in Swiss bank accounts and delivered through a Luxembourg-based investment company. But two senior Vatican officials have told CNA the investment was funded through loans.

Senior sources in the Prefecture for the Economy told CNA that in 2015 Becciu attempted to disguise the loans on Vatican balance sheets by cancelling them out against the value of the property purchased in the London neighborhood of Chelsea, an accounting maneuver prohibited by new financial policies approved by Pope Francis in 2014. 

The attempt to hide the loans off-books was detected by the Prefecture for the Economy and raised at the Council for the Economy, an agency led by Cardinal Reinhard Marx of Münich and charged with final oversight of Vatican financial transactions. 

One senior curial source told CNA that the issue was "noted, but no action was taken" by the council, despite the highly irregular nature or the arrangement.

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In recent weeks, Cardinal Becciu has sought to defend the investment and his own reputation against what he called "slanderous charges" that he had "played with and tampered with the money of the poor."

"It is accepted practice for the Holy See to invest in property, it has always done so: in Rome, in Paris, in Switzerland and also in London," Becciu said, though it has not been previously reported that the transaction was financed with borrowed money. 

Responding to Becciu's characterization of the deal, one senior Vatican source said that "it may have been accepted, but that does not mean it is acceptable."

The investment was first reported by the Financial Times, which identified the amount and Athena Capital, the investment company that brokered the Vatican's deal to purchase a stake in the building.

On Nov. 2, the Financial Times reported that the previous owner of the Vatican's stake in the London building is Raffaele Mincione, the owner of Athena Capital. The newspaper reported that, through his company, the stake was sold to the Vatican at "a significantly higher price than [Mincione] had paid for it two years earlier."

Senior sources at the Prefecture for the Economy and APSA also told CNA that efforts to enforce transparency at the Vatican's central bank and Secretariat of State played a decisive part in the ouster of the first Auditor General, Libero Milone, in 2017. 

Milone has stated that he was forced to resign under threat of prosecution because he was pressing for information about hundreds of millions of euros held off-books in Swiss banks and elsewhere by the Secretariat of State and other Vatican dicastries.

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"Some people got worried that I was about to uncover something I shouldn't see," Milone told the Financial Times on November 2. "We were getting too close to information that they wanted to be secret, and they fabricated a situation for me to be thrown out."

At the time of his forced departure, Cardinal Becciu defended his part in removing Milone saying that the auditor, appointed by Pope Francis in 2015, had exceeded his mandate.

"He went against all the rules and was spying on the private lives of his superiors and staff, including me," Becciu said in 2017. "If he had not agreed to resign, we would have prosecuted him."

Sources at the Prefecture for the Economy and APSA, the Vatican's central bank, told CNA that among internal Vatican objections raised at the time of the deal was that the transaction fees incurred during the purchase of the building were "well above norms."

"It was certainly enough to raise serious questions about the wisdom of the deal," one offical told CNA. "Whether these fees were agreed out of naivete or complicity, I cannot say." 

Last week, Vatican Secretary of State Cardinal Pietro Parolin said the investment was a one-off, and the fund in question appeared to be "well managed." He said that he was working to clear up questions about the project.

"We are working to clear up everything. This deal was rather opaque and now we are trying to clear it up," Parolin said.

Becciu served as "sostituto," or second-ranking official at the Secretariat of State from 2011-2018, when Pope Francis named him a cardinal and moved him to the Congregation for the Causes of the Saints. 

Cardinal Becciu declined to respond to questions from CNA.