Vatican Bank Account Closed At JP Morgan, Image May Be Hurt

* Latest in series of image problems for Vatican bank

* Vatican bank trying to meet EU's transparency rules

By Philip Pullella and Lisa Jucca

VATICAN CITY/MILAN, March 19 (Reuters) - JP Morgan Chase is closing the Vatican bank's account with an Italian branch of the U.S. banking giant because of concerns about a lack of transparency at the Holy See's financial institution, Italian newspapers reported.

The move is a blow to the Vatican's drive to have its bank included in Europe's "white list" of states that comply with international standards against tax fraud and money-laundering.

The bank, formally known as the Institute for Works of Religion (IOR), enacted major reforms last year in an attempt to get Europe's seal of approval and put behind it scandals that have included accusations of money laundering and fraud.

Italy's leading financial daily Il Sole 24 Ore reported at the weekend that JP Morgan Chase in Milan had told the IOR of the closing of its account in a letter on Feb. 15.

The letter said the IOR's account in Italy's business capital would gradually be phased out starting on March 16 and closed on March 30.

In Milan, JP Morgan Chase declined to comment and the Vatican also had no comment. It was not possible to contact IOR officials because Monday was a holiday in the Vatican.

Il Sole said JP Morgan Chase informed the IOR that the account was being closed because the bank's Milan branch felt the IOR had failed to provide sufficient information on money transfers.

The financial newspaper, which gave the number of the IOR account, said some 1.5 billion euros passed through it in about 18 months. It said the account was a "sweeping facility," meaning that it was emptied out at the end of each day with funds transferred to another IOR account in Germany.

The closure move by JP Morgan Chase, which was also reported by two leading general newspapers on Monday - Corriere della Sera and La Stampa - was a further blow to the IOR, whose image has been tarnished by a string of scandals.

In September, 2010, Italian investigators froze 23 million euros ($33 million) in funds in two Italian banks after opening an investigation into possible money-laundering.

The bank said it did nothing wrong and was just transferring funds between its own accounts. The money was released in June 2011 but Rome magistrates are continuing their probe.


"VATILEAKS" SCANDAL

The public image of the bank has also been harmed by the so-called "Vatileaks" scandal, in which highly sensitive documents, including letters to Pope Benedict, were published in Italian media.

Some of the leaked documents appear to show a conflict among top Vatican officials about just how transparent the bank should be about dealings that took place before it enacted its new laws.

The IOR, founded in 1942 by Pope Pius XII, handles financial activities for the Vatican, for orders of priests and nuns, and for other Roman Catholic religious institutions.

Last year, the Vatican adapted internal laws to comply with international standards on financial crime.

The 108-acre sovereign state surrounded by Rome now complies with the rules of the Paris-based Financial Action Task Force (FATF).

It also established an internal Financial Information Authority (FIA) along the lines of other countries and has committed to comply with international anti-money laundering standards and liaise with the group and law enforcement agencies.

The IOR was entangled in the collapse 30 years ago of Banco Ambrosiano, with its lurid allegations about money-laundering, freemasons, mafiosi and the mysterious death of Ambrosiano chairman Roberto Calvi - "God's banker".

The IOR then held a small stake in the Ambrosiano, at the time Italy's largest private bank and investigators alleged that it was partly responsible for the Ambrosiano's fraudulent bankruptcy.

Several investigations have failed to determine whether Calvi, who was found hanging under Blackfriars Bridge near London's financial district, killed himself or was murdered.

The IOR denied any role in the Ambrosiano collapse but paid $250 million to creditors in what it called a "goodwill gesture".

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