07/15/04
VATICAN INSURANCE FRAUD UPDATE
Suing the Vatican
Insurance Official Charges Racketeering
Lynda Edwards
The Associated Press
J A C K S O N, Miss., July 6, 2004— The
torching of financier Martin Frankel's $3 million mansion in Greenwich, Conn.,
was meant to destroy evidence of an insurance scam that cost Mississippi and
other states millions, police said. But not everything went up in flames.
Firefighters searching the rubble found
Frankel's pornographic videos, jewel-encrusted mobile phones, Ouija board and
"Things to Do List." No. 1 was:
"Launder more money NOW."
The financier, who initially fled to Europe,
was extradited and pleaded guilty in 2002 in Mississippi to stealing $208
million in five states.
But that did not end the case for Mississippi
Insurance Commissioner George Dale.
Trail Leads to Vatican
While unraveling Frankel's web of trickery,
Dale found a thread that led into the secretive halls of the Vatican. And he is
determined to follow it, even though, as he says, "This step meant some
soul searching."
In a lawsuit Dale filed, which is moving
toward a jury trial in U.S. District Court in Jackson, he claims Vatican
officials violated the federal Racketeer Influenced and Corrupt Organizations
(RICO) Act. Damages, if Dale prevails, could be more than $600 million.
A Vatican spokesman denies the Roman Catholic
church profited from business dealings with Frankel or accepted funds he stole.
The church has filed a motion to dismiss the suit for lack of jurisdiction, and
a ruling is expected this summer.
Dale remains determined to pursue his suit
against "The Holy See aka Vatican City State" and others.
"The evidence of wrongdoing my
investigators accumulated was so clear," he says. "State officials are always slammed as
paper pushers. But two federal agencies fumbled the ball with Frankel. The
Internal Revenue Service approved Frankel's taxes. The FBI had suspicions but
made no moves. In the end, insurance commissioners brought this guy down."
Just days before Frankel's mansion burned in
1999, he and his associates were summoned by Dale to Jackson to discuss a
possible tie between Vatican officials and the insurance scam. Frankel didn't
show. Those who did appear and were questioned included Thomas Bolan, a former
New York prosecutor and powerhouse fund-raiser for the Republican party and the
Catholic church; Monsignor Emilio Colagiovanni, a member of the board that
provides the pope's legal counsel; and the Rev. Peter Jacobs, a New York priest
who was also a Vatican insider.
"He showed me his ring and said it was a
gift from Pope Paul or Pope John, some pope," Dale said of Jacobs.
"He said, `The pope blessed this ring — do you want to kiss it?"'
"No, not particularly," replied
Dale, a Baptist deacon whose wife was raised Catholic.
A Bogus Charity
The scam that threw these unlikely
antagonists together began in 1998 when Frankel formed a bogus Catholic
charity, the St. Francis of Assisi Foundation, with $55 million.
The Vatican got $5 million of the seed money,
according to court documents. Colagiovanni
agreed to oversee St. Francis and vouch for it with investors.
Frankel would control the remainder of St.
Francis funds. He used the money to buy financially desperate insurance
companies, then spent policyholders' money on drugs, diamonds, sex clubs,
vacations, cars, call girls and Concorde tickets, prosecutors said.
The Vatican became involved with Frankel
after he had been banned by the U.S. Securities
and Exchange Commission from doing deals with brokers and investment advisers.
The 1992 ban forced Frankel on a quest for new partners with prestige and deep
pockets.
By 1998, Frankel had an entree to the
Vatican: Bolan. A fervent Catholic and Roy Cohn's ex-law partner, Bolan, now
79, had raised millions for Vatican charities and Ronald Reagan's re-election
campaign.
Frankel paid Bolan more than $75,000 in legal
fees, court documents show. In return, Bolan introduced Frankel to influential
priests like Jacobs and the Vatican equivalent of Fed chairman Alan Greenspan —
economic affairs prefect Bishop Francesco Salerno. Bolan's attorney, Maurice
Nessen, did not return calls for this story.
Pitching the St. Francis project to Salerno,
Jacobs and Bolan allegedly said Frankel would control the bulk of the money,
but his involvement would remain hidden. A Vatican official would head St.
Francis, and the Vatican would get a cut of the proceeds for its trouble.
Colagiovanni, 83, supervised St. Francis on
Frankel's behalf. In response to Associated Press requests for comment,
spokesman Joaquin Navarro-Valls said that at the time Colagiovanni was already
retired from the Vatican board that provides the pope's legal counsel.
Still, Colagiovanni wore a papal ring and
clerical robes. He used Vatican stationery, telephone lines and fax machines on
Frankel's behalf.
Colagiovanni also supervised Monitor
Ecclesiasticus, a canon law review distributed globally to bishops and
cardinals. The publication offered a special advantage for Frankel. As a
non-Catholic, he could not open a Vatican Bank account, but Monitor
Ecclesiasticus did have an account. When Frankel had money he didn't want the
Internal Revenue Service to count, he would wire it to the law review's
account.
Frankel flew Vatican officials by Concorde to
his Connecticut mansion to complete details. Dale claims that Salerno approved
the arrangement. Salerno went on to oversee the Vatican supreme court. Responding
to requests for comment from Salerno, the Vatican Press Office said,
"There is a trial under way. The trial continues and we are not
interfering."
Insurance company officials in Tennessee,
Mississippi, Arkansas, Missouri and Oklahoma were targeted by Frankel. When
some of the firms' executives got jumpy about their prospective new owner,
Colagiovanni reassured them, the complaint says, and sometimes gave them
personal, behind-the-scenes tours of Vatican City complete with photo ops.
By the end of 1998, Frankel was funneling
$434 million in bogus insurance company policies through St. Francis.
Dale said that Frankel's companies sold
"small face policies, meaning the most a claim would ever pay off would be
$10,000." Frankel kept enough money in insurance company coffers to pay
the few claims filed during his tenure. But insurance companies are legally
required to keep millions in reserve. The millions are acquired through sound
investments like blue chip stocks.
Spent the Money 'On Himself'
Reserves protect the company and
policyholders in case catastrophe — like tornadoes or an epidemic — strikes a
state and launches an avalanche of claims.
"But Frankel spent the reserve money on
himself," Dale said.
When an insurance company is purchased by another
entity "change of control"
forms must be submitted to the state. But
Dale's deputy, Lee Harrell, noticed that three floundering insurers were part
of a trust purchased by St. Francis but had never filed the forms.
"We called the insurance company executives
to find out where their assets were invested and got weird, panicky, evasive
answers," Dale said. He did glean names of St. Francis trustees and
supporters, and he summoned them to Mississippi.
Following the 1999 session with Frankel's
trustees in Jackson, Dale demanded that the St. Francis representatives return
$200 million worth of reserve assets to the Mississippi insurance companies.
The insurance companies went bankrupt days later. Mississippi's guaranty fund
picked up the tab for claims filed by Frankel's policyholders.
Ignoring Dale's summons, Frankel skipped the
meeting. "We know that Frankel made it as far as the Hilton lobby but we
never met him face to face," Dale said.
In 2002, both Frankel and Colagiovanni
pleaded guilty to fraud in Mississippi court.
At his trial, the elderly priest admitted
that he lied to insurance company honchos, telling them that the Vatican
transferred $1.2 billion to St. Francis for investments. No such sum ever made
it to insurance company reserves.
Meanwhile, Dale and Harrell continued tracing
the paper trail that led them to sue the Vatican in 2001. Insurance
commissioners from Missouri, Tennessee, Oklahoma and Arkansas have joined the
Mississippi suit.
Dale traces knowledge of a criminal scene
almost to the pope by showing the third highest ranking Vatican official,
Salerno, approved a very suspect business deal with Frankel, said attorney
Jonathan Levy, who represents concentration camp survivors claiming the Vatican
laundered money that the Nazis stole from them.
Though the church insists it did not profit
from St. Francis, that may be beside the point.
"We are not claiming that the Vatican
profited," said attorney Charles Copeland, local counsel for the
Mississippi Insurance Commission. "If a party should have reasonably been
aware that those involved in a conspiracy were committing illegal acts in the
party's name, that party can be held responsible for the amount stolen,"
he explained.
Historically, the Vatican has fought U.S.
lawsuits by claiming sovereign immunity, the legal concept that courts in this
country lack jurisdiction over foreign countries.
But the Mississippi lawsuit "very
shrewdly focuses on the Vatican Bank's involvement," said Pepperdine
University law professor Lee Boyd. "As a commercial entity, the Vatican
Bank can be sued by Americans in U.S. courts." "I cannot recall a
single legal case where the Vatican Bank gave any records to an American
plaintiff during the discovery period," Boyd said. "The Vatican normally
settles to avoid the discovery."
That's fine with Dale — as long as the
millions lost through Frankel's fraudulent insurance policies are repaid.