FORTUNE Exclusive Reveals That Vatican Has Plenty to Hide in Fugitive Marty Frankel's $200 Million+ Insurance and Money Laundering Scam

Business Wire, July 26, 1999

NEW YORK--(BUSINESS WIRE)--July 26, 1999--

In a tale of intrigue reminiscent of Vatican banking scandals in the not-too-distant past, a FORTUNE exclusive reveals how well known New York attorney Thomas Bolan, an ex-prosecutor and former Reagan Adviser, got caught up with several priests and Vatican officials in Martin Frankel's web of deceit and alleged fraud in may what be the biggest scandal in the history of the insurance industry. "Washing Money in the Holy See," by FORTUNE investigative reporter Richard Behar, appears in the Sept. 6 issue and will be available on www.fortune.com Monday, July 26, 1999 at 8:30 a.m. (ET).

The Vatican recently insisted that it does not have "any relationship" with Frankel's confidant, Father Peter Jacobs, a colorful New York priest, and has also disavowed any connection to the two foundations, Monitor Ecclesiasticus and Saint Francis of Assisi, at the heart of the scam. However, lengthy interviews conducted by Behar with Father Jacobs, who took extensive shorthand notes of meetings and of his hours-long, late-night conversations with Frankel, coupled with hundreds of documents, private letters, and even one of Frankel's computer disks obtained by the magazine, reveal facts to the contrary.

The Vatican portion of Frankel's money laundering efforts began in 1998, when Frankel, using the alias "David Rosse," and working through a lawyer, Thomas Bolan, contacted Father Jacobs to set up a Vatican foundation in order to give "hundreds of millions" to Catholic causes, knowing that Jacobs' close ties to the Holy See could help give him access to a safe haven for his money. According to a letter written by Frankel to Bolan on Aug. 22, 1998, a new foundation would have a "secret set of bylaws" spelling out that Frankel/Rosse would be the original grantor of $55 million in funds, $50 million of which would then be controlled exclusively by him and forwarded to a U.S. brokerage account in the foundation's name.

The Holy See's involvement centers on an additional $5 million that Frankel indicated would be diverted to an account controlled by the Vatican. "Our deal will include the Vatican's promise that the Vatican will aid me in my effort to acquire insurance companies," wrote Frankel/Rosse, by allowing a Vatican official "to certify to the authorities, if necessary, that the Vatican is the source of the funds." In return, the Vatican would be a "beneficiary" of that foundation. In short, Rosse appeared to be trying to arrange for the Vatican to front him as a money launderer in return for a 10% cut of the funds he was siphoning off from the U.S. insurance companies whose assets he was managing. (Bolan says he doesn't recall this particular letter from Frankel/Rosse. But things certainly moved forward as if he had received it.)

Eager to place a buffer between the Vatican and the deal, the Church let Frankel/Rosse establish his own charity, the Saint Francis of Assisi Foundation to Serve and Help the Poor and Alleviate Suffering, which was not connected to the Vatican proper, but which could be linked to a second entity that did have close ties to the Vatican--the Monitor Ecclesiasticus foundation (ME). The ME is a foundation run by Monsignor Emilio Colagiovanni, an emeritus judge of the Roman Rota, an important church tribunal. In his letter to Frankel/Rosse assuring him of the ME's discretion, Colagiovanni wrote: "any fund or donation given to the Monitor Ecclesiastical Foundation" falls under the protection of the "very strict confidentiality and secrecy" laws that apply to any entity linked to the Vatican bank. "Only the Pope personally," he continued, can disclose details of any deposits or donations. (Emphasis in the original.) Apparently, the ME would provide Frankel with protective cover while the Church could sit back at a distance and-eyes wide shut-gather in the promised hundreds skimmed from Frankel/Rosse's nascent insurance empire.

Keeping Frankel's scheme intact was contingent upon access to a ready supply of lies and false affidavits--not only from Frankel but from Rome as well. Monsignor Colagiovanni signed two false affidavits, which he parroted in verbal statements he made to Akin Gump, the law firm retained by St. Francis. In one declaration he stated that ME was the grantor of $1 billion into St. Francis, and that the funds came from Roman Catholic "tribunals" and charities. In a second false declaration, Colagiovanni stated that ME's funding to St. Francis originated with the "Holy See."

At one stage, Colagiovanni appears to have worried that his false statements might catch up with him. In a letter to Bolan, reproduced in FORTUNE, he states that his declaration is "really worrying us" and asks if it can be "partially remedied." By "us," Colagiovanni may be including Bolan--or other Vatican leaders. In the letter, Colagiovanni also asks that his fears be kept "confidential," even from Frankel/Rosse.

Ultimately, it was Frankel's Vatican dealings that brought him down. The scam began to unravel on April 28 when Frankel joined Bolan, Jacobs and Collavigiano at a meeting in Mississippi to prepare for the emergency hearing the next day called by the state's insurance commissioner to find out why $600 million had seemingly moved from a Vatican-linked foundation in Italy to a Catholic charity in the British Virgin Islands, and then into a trust that had long controlled a group of Mississippi insurance companies. "Don't use Bolan as a witness," exclaimed Frankel/Rosse to his attorney. "If you use him as a witness, it's all over." Frankel opted not to attend the insurance commissioner's hearing; instead he flew back to his Greenwhich, Conn. estate to prepare for his famously hasty departure from the country.