Vatican bank in new controversy as incoming chief tapped from shipbuilder making warships

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Photo released by DC Advisory on Friday, Feb 15, 2013 shows the company's former CEO Ernst von Freyberg. Pope Benedict XVI signed off on one of the last major appointments of his papacy Friday, approving the German lawyer and financier to head the Vatican’s embattled bank. THE CANADIAN PRESS/AP, DC Advisory, HO

VATICAN CITY - The Vatican was drawn into a new controversy Friday after acknowledging that its bank's new president is also chairman of a shipbuilder making warships — a significant conflict for an institution that has long shunned ties to military manufacturing.

The Vatican announced to great fanfare that Pope Benedict XVI had signed off on one of the last major appointments of his papacy, approving Ernst von Freyberg as president of the Vatican's bank, officially known as the Institute for Religious Works.

The Vatican spokesman was caught off-guard, though, when a journalist noted that the German shipbuilder von Freyberg chairs, Blohm + Voss, is known for its military ship construction.

The Rev. Federico Lombardi demurred and defended the selection. He later issued a statement saying von Freyberg chairs a civilian branch of Blohm + Voss, which repairs and transforms cruise ships and builds yachts — but that the company is currently part of a consortium that is building four frigates for the German navy.

The Vatican and its bank have deep-rooted traditions of steering clear of investments in companies that manufacture weapons or contraceptives, in line with Catholic Church teaching.

Michael Brasse, spokesman for Blohm + Voss in Hamburg, said that von Freyberg is chairman of the executive board of Blohm + Voss Shipyards, a unit that concentrates on building civilian ships.

But before Blohm + Voss Shipyards and other non-military units of Blohm + Voss were sold in 2011 to Star Capital Partners, its military shipbuilding unit, Blohm + Voss Naval, had contracted with the German Defence Ministry for four new frigates. Blohm + Voss Naval subcontracted the actual construction of those vessels to Blohm + Voss Shipyards.

Though Blohm + Voss Naval is now known as ThyssenKrupp Marine Systems GmbH, and is entirely separate from the other Blohm + Voss units, the Shipyards unit is still constructing the frigates under the legacy contract.

After they are built, however, the company plans to concentrate entirely on non-military ships. Von Freyberg will remain its chairman while working for the Vatican.

"The focus of the business is for yachts, and on the repair side for cruise ships or the offshore oil and gas industry," Brasse said.

Lombardi pointed out that Blohm + Voss is not engineering or designing military equipment, just involved in steel welding and docking. Germany's navy has contributed frigates and other ships to the EU's anti-piracy patrols off the Horn of Africa.

The revelation dominated what was supposed to have been the Vatican's triumphant appointment of a new president for the bank after its last president, Italian banker Ettore Gotti Tedeschi, was fired nine months ago for incompetence.

Gotti Tedeschi's stunning ouster came just as the Vatican was submitting its finances to a review by the Council of Europe's Moneyval committee in a bid to join the list of financially transparent countries.

The Vatican last summer passed the test of the Moneyval committee, which seeks to prevent money laundering and terrorist financing. But the IOR and the Vatican's financial watchdog agency received failing grades.

The new president will be tasked with bringing the IOR into compliance by Moneyval's next review.

The Vatican stressed von Freyberg's Catholic credentials, noting that he was a member of the Sovereign Military Order of Malta, an ancient chivalrous military order drawn from European nobility. He himself is a member of one of Germany's aristocratic families.

The Vatican said he had been appointed by the bank's commission of cardinals and that the pope had "expressed his full consent."

The appointment may well be one of the last major decisions of Benedict's papacy given his planned retirement Feb. 28. On Friday, he held one of his last audiences, meeting with Romania's president.

While the appointment was seemingly curiously timed, Lombardi went to great lengths to stress that the selection process took its own path and was to some degree irrelevant to the change in governance of the church.

Lombardi said von Freyberg was selected after a "meticulous and articulate" seven-month search process from an initial list of about 40 candidates put forward by an international executive head-hunting firm. He had the full support of the bank's lay board, the five members of its cardinal's commission, and finally the pope, Lombardi said.

But he was completely thrown by the suggestion that the bank's new president may have links to Germany's military.

"I would say that if he is a competent person who works in the field of ship-building, this is not a reason not to take him," Lombardi said. "As we know, he also organizes pilgrimages to Lourdes, he is a member of the Order of Malta, he takes care of the sick, so certainly he is a person with a notable human and Christian sensibility."

It appeared that the IOR's board simply didn't know about the old frigate contract and that von Fryberg didn't think to mention it, given that the company's primary work is in civilian shipbuilding.

The Vatican bank's finances have long been shrouded in secrecy and scandal. Most famously, the bank was implicated in a scandal over the collapse of the Banco Ambrosiano in the 1980s in one of Italy's largest fraud cases. Roberto Calvi, the head of Banco Ambrosiano, was found hanging from Blackfriars Bridge in London in 1982 in circumstances that remain mysterious.

Banco Ambrosiano collapsed following the disappearance of $1.3 billion in loans the bank had made to several dummy companies in Latin America. The Vatican had provided letters of credit for the loans.

While denying any wrongdoing, the Vatican bank agreed to pay $250 million to Ambrosiano's creditors.

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David Rising and Juergen Baetz contributed from Berlin.

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