By Philip Pullella
VATICAN CITY (Reuters) - Pope Francis has approved a reform proposal keeping the Vatican bank operative, ending a year of speculation over whether the pontiff would close the institution that has embarrassed the Church for decades.
The bank's stated purpose is to manage funds for Roman Catholic orders of priests and nuns, charitable institutions and Vatican employees and retirees. But it has been dogged by episodes of malpractice by people authorised to hold accounts there and murky dealings with Italian financial institutions.
"The IOR will continue to serve with prudence and provide specialized financial services to the Catholic Church worldwide," the Vatican said on Monday in a statement announcing that Francis had approved recommendations for the future of the bank, known as the Institute for Works of Religion (IOR).
Monsignor Nunzio Scarano, a former senior Vatican accountant
who had close ties to the IOR, is currently on trial accused of plotting to smuggle millions of dollars into Italy from Switzerland as part of a scheme to help rich friends avoid taxes.
Scarano has also been indicted on separate charges of laundering millions of euros through the IOR. Paolo Cipriani and
Massimo Tulli, the IOR's director and deputy director, who resigned last July after Scarano's arrest, have been ordered to stand trial on charges of violating anti-money laundering norms.
The most infamous scandal involving the IOR was in 1982, when it was caught up in the fraudulent bankruptcy of Italy's Banco Ambrosiano, whose president Roberto Calvi was found hanged under a bridge in London.
In the past year the IOR, which won plaudits from Italian magistrates for cooperating with them on the Scarano investigations, has been undergoing a massive transformation under its president Ernst von Freyberg.
Under von Freyberg, who was one of the last people appointed by former Pope Benedict before he resigned on February 28, 2013, the IOR has closed hundreds of accounts, instituted strict anti-money laundering regulations and launched several investigations into suspicious activities.
The IOR, whose origins date back to 1887, said in its own statement that the pope's decision to keep the bank open "represents a powerful endorsement of our very mission and of the hard work accomplished over the past 12 months".
It said its detailed client screening process, which has been carried out together with the Promontory Financial Group, would be completed by early summer.
Von Freyberg succeeded Italian Ettore Gotti Tedeschi, who was ousted in May, 2012 by the board of the bank which accused him of being an ineffective and divisive manager.
The proposal on the bank's future was formulated by various commissions and by Australian Cardinal George Pell, head of a new Vatican department known as the Secretariat for the Economy.
It said a "plan to ensure that the IOR can fulfil its mission as part of the new financial structures of Holy See" will be finalised and drawn up for the pope, who has stressed that the bank must be transparent.
It gave no details but said the IOR's activities would continue to fall under the regulatory supervision of the Vatican's Financial Information Authority (AIF), the Vatican said.
In the past two years, the Vatican has introduced changes to its legal and institutional framework to regulate its financial activities according to international standards.
Last December, Moneyval, a monitoring committee of the Council of Europe, said the Vatican had made significant progress in financial reforms since the committee's first report in 2012.
The Vatican said on Monday that "strict regulatory supervision and improvements in compliance, transparency and operations" would be "critical" for the future of the IOR.
(Reporting By Philip Pullella; Editing by Ralph Boulton)