Vatican City - It is a message sent from on high to the world's financial and political elite. The Roman Catholic Church is calling for the effective closure of secretive tax havens as a 'necessary first step' to restore the global economy to health.
In a policy paper from the Holy See, Pope Benedict pins the blame for the international financial crisis largely on 'offshore centres', many of which, such as the Channel Islands, are British dependencies.
'They have given support to imprudent economic and financial practices and have also played a significant role in the imbalances of development, allowing a gigantic flight of capital linked to tax evasion,' says the report. 'Offshore markets could also be linked to the recycling of profits from illegal activities.'
The Pope points to estimates that the global fiscal deficit caused by offshore activities could amount to a staggering $255bn (£175bn) which is 'more than three times the entire sum of [global] development aid'.
The papal intervention comes as a growing and powerful coalition of civil society, unions and multi-faith groups, frustrated by the limited response to the economic crisis by western governments, are starting to construct a radical framework to rebuild the global financial system after the most calamitous destruction of value seen for 80 years.
In language that barely conceals the Vatican's anger at the effect of the credit crunch on the world's poorest people, the reflection paper argues that tax havens, which banks use to escape the gaze of international financial watchdogs, facilitate the transfer of wealth from poverty-stricken nations to the rich world.
The paper also attacks the short-term greed that created the crisis, which it says 'came about after a long period during which people succumbed to the pressure of the immediate objective of pursuing short-term financial results'.
John Chistensen, a former economic adviser to the Jersey government and an expert on tax havens, said: 'This shows that one of the world's most influential institutions realises that central to any attempt to reform the world's financial system must be a recognition that trust can only flow once radical steps to improve transparency and disclosure are taken.' But the Vatican paper will raise eyebrows among the Church's critics, who point to its history of hoarding gold, artwork and cash in Europe and beyond.
The Pope's stance on tax havens is part of a growing trend. President-elect Barack Obama has vowed to close loopholes that see US citizens avoid an estimated $100bn in taxes each year. And last month Alistair Darling announced a fundamental review of 'offshore centres' under UK jurisdiction.
Intriguingly, the Vatican Bank, officially known as the Institute for the Works of Religion, is one of few financial institutions to have emerged unscathed from the global bank crisis. Its president, Angelo Caloia, claimed in October that it has 'no uncollectible losses' and steered clear of some of the more arcane financial instruments, such as credit default swaps, that have helped to bring about the destruction of the banking system. It is understood that 80 per cent of Vatican investments are in safe government bonds, with 20 per cent in shares.
The bank makes very limited financial disclosures, but the Rev Thomas Resse in his book Inside the Vatican claimed a cardinal told him in 1994 that it had $4bn in deposits and an annual income of $40m. Many experts believe this to be a spectacular underestimate.
The Vatican deals with its financial affairs separately and has a deficit of $14m. It has been hit by a weak dollar, which has markedly reduced the value of contributions from the US, which make up the bulk of the church's donations.
Caloia headed the bank after the scandalous collapse of Banco Ambrosiano triggered the death of Roberto Calvi, found hanging under Blackfriars Bridge in London, weighed down by bricks. Calvi, known as God's Banker, was at the helm of Banco Ambrosiano when it lost £800m in a corruption scandal implicating senior members of the Vatican, the mafia and a Masonic sect whose members included senior Italian politicians.