Vatican creates financial regulator under shadow of laundering claims

The Vatican has created a financial watchdog agency and issued new laws to try to comply with rules to fight money-laundering and terrorist financing.

The decrees – which come into effect on April 1 – were passed as the Vatican's own bank remains implicated in a money-laundering operation that resulted in E23m (20m) being seized.

Two of the bank's top officials are now the subject of an official investigation.

Pope Benedict XVI signed the documents yesterday, saying that the Vatican wanted to join other countries in cracking down on legal loopholes that have allowed criminals to exploit the financial sector.

International financial organisations said it appeared the Vatican had taken a step in the right direction.

The Vatican spokesman, the Rev Federico Lomabardi, stressed that the new laws and creation of the compliance authority had nothing to do with the seizure of the Vatican account in September.

Rome prosecutors have alleged the bank broke the law by trying to transfer money without identifying the sender or recipient. The Vatican has insisted the probe resulted from a "misunderstanding" that it hoped to clarify quickly.

But Rome courts have twice refused to release the money.