Insurance commissioners in five US states are suing the Vatican in a federal court in Mississippi in an attempt to recoup some of the $215 million (€235.8 million) allegedly embezzled by financier Mr Martin Frankel. The extraordinary suit alleges that Mr Frankel, currently in jail awaiting trial on racketeering, fraud and money laundering charges, used a former Vatican judge to further a scheme to use the Catholic Church as a front to acquire US insurance companies.
The case is an embarrassment for the Vatican and comes when the Catholic Church in the US is being heavily criticised over its handling of cases of sexual abuse by priests. It is not clear, however, if it can proceed.
Foreign governments cannot normally be sued in US courts, though an exception can be made in the case of commercial fraud, and this suit alleges that the Vatican assisted Mr Frankel in the attempted purchase of the insurance companies.
Mr Frankel (47) is accused of stealing $215 million from Americans who bought burial insurance from his companies. He has a long history - detailed in a book The Pretender by Ellen Joan Pollock - of pyramid investment schemes and embezzlement from his own insurance companies. Mr Frankel allegedly used the money to acquire two mansions in Greenwich, Connecticut, and to finance a bizarre lifestyle where he supported many girlfriends.
The suit, filed by the insurance commissioners of Mississippi, Tennessee, Missouri, Oklahoma and Arkansas, accuses the Vatican and the former Vatican judge, Monsignor Emilio Colagiovanni, of racketeering, conspiracy and fraud, according to details published in the Wall Street Journal. It alleges that Vatican officials were aware to varying degrees of Mr Frankel's attempts to use a supposedly Catholic charity he created to acquire insurance companies, which would have the "credibility" of Vatican backing and therefore deter investigators.
The plan was that Mr Frankel would set up a Vatican foundation which, in reality, would be under his control, that he would transfer $55 million to the foundation and allow the Vatican to keep $5 million. It was rejected by the Vatican secretary of state. However, Mgr Colagiovanni, also now facing criminal charges, allegedly agreed to allow a Vatican foundation to create the impression that funding from Mr Frankel's activities came from the Catholic Church.
The case of Mr Frankel caused a sensation when it broke three years ago. Mr Frankel panicked when summoned to a meeting with regulators in Jackson, Mississippi, in 1999.
He fled to Europe as his associates burned documents at his $3 million Greenwich mansion, setting off a smoke alarm and attracting the police. They discovered charred Frankel memos to himself with reminders like "launder money".
When tracked down to a five-star hotel in Hamburg he was found to have a fortune in uncut diamonds in his possession. He was given three years in a German prison on charges related to the diamonds and then extradited to the US where he is currently in a Connecticut prison awaiting trial later this year. He denies the charges.
