The story was greeted by shock, hilarity, and discontent within the Curia—especially when the elderly priest, who had no intention of moving on to greener pastures, returned home. Imagine his astonishment! As soon as he opened the door he realized something was wrong: his apartment had been modified, and was missing one room, but he was too old to fight back and seek justice.

  Not so his brave and trustworthy housemate, the nun, who conferred with some other nuns, asking their advice. While they invited her to use caution, she found the injustice intolerable and decided to go all the way to the top and address the Pope himself. She wrote a passionate letter to Benedict XVI telling him the story and pleading for justice and mercy. But these were the last months of his papacy, and a few weeks later the situation changed irreversibly: the elderly priest died, Ratzinger resigned, and Francis became the new Pontiff. The tide was turning.

  Only five months into Francis’s papacy, he demoted Monsignor Sciacca, sending him notice of his transfer to a new assignment. In a matter of a few days he was to leave his office at the Governorate and assume a new post. Rather than wait for a coveted spot to open up on the Holy See’s roster of senior positions, a new position was tailor-made for Sciacca. On August 24, 2013, he was appointed as the Adjunct Secretary of the Supreme Tribunal of the Apostolic Signatura. This was the Tribunal that handles legal and administrative cases, and its Prefect was American Cardinal Raymond Leo Burke, who was not exactly in Francis’s good graces. Burke and Bergoglio had sharp theological differences. The Wisconsin prelate, born in 1948, continued to celebrate the Tridentine Mass despite the liturgical reforms almost sixty years earlier through the Second Vatican Council. His days were also numbered: in November he, too, was removed from office as part of the ongoing “soft revolution” of Francis, which would continue throughout 2014.

  Getting back to the matter of the enlarged apartment, the Monsignor was called upon to quickly evacuate the premises after losing his post at the Governorate, and the apartment was assigned to another prelate. Stories such as these went public for the first time, traveling all the way to Casa Santa Marta and Francis, who was left speechless. The incidents also revived old stories about misdeeds that had never been addressed with the necessary firmness. Cardinal Santo Abril y Castelló related to Francis and the priests and monsignors closest to him problems he had discovered upon his appointment as archpriest of the Santa Maria Maggiore. The treasurer of the Basilica, the Polish Monsignor Bronisław Morawiec, was convicted of embezzlement and misappropriation of Church funds and sentenced to three years imprisonment for withdrawing large sums from the rich Basilica’s account at the IOR. To understand what and how much had been misappropriated, the new archpriest wrote up an inventory of sorts.

  One of the missing items was a set of keys to an apartment in the adjacent building, one which houses priests and ecclesiastics. The front door of the apartment was locked and the entrance was clean and neat. Officially, the home did not appear to be rented, and it was ready for a new tenant when necessary. At least, this was the situation on paper—but as soon as the inspectors gained access, they were shocked to find that the apartment had been inhabited for quite some time. The priest in the apartment downstairs had cut a hole in the ceiling to connect the two units with a spiral staircase, which he bought at his own expense. This allowed him to double the square footage of his living space, convinced that no one would ever notice. Once the illegal expansion was discovered, his superiors were immediately notified.

  Cut-Rate Deals on Real Estate

  These two cases are not isolated. The immense real estate holdings of the Vatican are a challenge to Francis’s program and another thorn in the side of his Pontificate. The recent history of the Vatican’s management of its real estate has not exactly been happy. Under both John Paul II and Benedict XVI, the convents, buildings, and churches were administered without a common strategy, and management was characterized by waste, nepotism, and outright scandals. But these problems were never addressed, and passed along from pope to pope for decades. The status quo prevailed, enabling the more powerful or more astute to take advantage of the general state of neglect.

  Fundamental information was missing from the records, starting with the most important: the value of the real estate holdings, which no one knew. There was no comprehensive assessment of properties of all of the Vatican’s administrative bodies or of the Church’s entities and religious orders in the world, such as a general land registry that would provide a standardized list of all of the properties. The dicasteries’ data banks did have assessments, but their listings and descriptions were incomplete. Not all of the properties were listed, and the units that were listed did not always include the basic financials. This created the potential for many more stories like that of Monsignor Sciacca.

  I am not speaking of religious orders with properties in remote corners of Africa but rather about entities within the Holy See. I was able to see the internal database of APSA, which administers 5,050 assets in apartments, offices, stores, and land in the City of Rome. It’s a highly confidential database that I managed to access and make public. Until 2014 APSA’s financial statements were not even published. In combing through the data, a number of peculiarities crop up. First, no one within the Vatican walls has apparently updated photos of the assets, nor are they organized in any way. Even the square footage is often missing: for over 50 percent of the units—2,685 to be exact—there is no indication of the size of the apartment, shop, or office, making it impossible to assess the appropriateness of the rent. In many other cases the exact location within a building is missing or there is no indication of the rental fees. Taken as a whole, these factors prevent income optimization and the adoption of effective strategies when properties are being bought or sold.

  The fact that the Vatican’s real estate holdings outside the Holy See are subject to taxation, thereby greatly reducing its rental income, should not be underestimated. APSA President Cardinal Domenico Calcagno, a Bertone loyalist, addressed this uncomfortable issue in his July 30, 2013, letter to Zahra:

  It appears that a number of assets have not been recorded in the APSA patrimony, despite their belonging to various entities in the Roman Curia (as a by no means exhaustive example, there is real estate held by the Apostolic Camera, the College of Cardinals…), while, on the opposite side, there are properties [that appear] to be formally owned by the Holy See but have for some time been fully possessed and used, often without any form of contractual agreement, by parishes and religious institutions … As things currently stand, delicate issues relating to both the financial profile and more in general to the responsibilities stemming from ownership of these assets remain unsettled.… Although these assets are considered tax exempt because they are “formally” declared to be related to “needs of worship,” they are instead used for other purposes (even commercial) without any possible inspection or assessment by the current administration, which remains ignorant of the way the asset is actually used. The tax issue is a very serious one because exemption is strictly limited to use of these properties “for needs of worship,” while no exemption is granted for other uses, exposing APSA to the risk of a tax audit.

  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:2

  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.3 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.4 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.5 APSA, instead, had accumulated rental arrears of 2.9 million euros, a full 9 percent of total rental income.6 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.