Vatican denies flaws that led to credit card block
* Italy central bank took action against Vatican in early January
* Cited lack of "effective anti-money-laundering regime"
* Vatican says has made great strides against money laundering
VATICAN CITY, Jan 13 (Reuters) - The Vatican insisted on Sunday that it had taken adequate measures to combat money laundering and so could not understand why the Bank of Italy had blocked the use of credit and debit cards inside Vatican City.
The central bank stopped Deutsche Bank Italy from providing electronic payment services for the Vatican on Jan. 1 because the Holy See was seen as lacking anti-money-laundering controls and oversight, a move that left thousands of tourists visiting the Vatican museums and gift shops in the lurch, forcing them to use cash.
"I am truly surprised," Rene Bruelhart, the head of the Vatican's Financial Information Authority (FIA), told the Corriere della Sera newspaper in an interview Vatican Radio posted on its website.
Bruelhart, 40, said the Holy See had implemented EU-required controls and did not understand the action.
"The reality is that, considering the particular nature of the Vatican City State, adequate measures have been adopted for vigilance, prevention, and fighting money laundering and financing terrorism," he said.
The Bank of Italy said Deutsche Bank had installed machines for payment with credit and debit cards in the Vatican - a tiny city-state surrounded by Rome - without Italian permission after an agreement with another bank expired.
The sale of postage stamps, memorabilia and admission tickets to the Vatican Museums, home to art treasures including Michelangelo's Sistine Chapel frescoes, are a significant source of income for the Holy See, along with donations and investments.
In 2011, 5 million museum visitors brought in 91.3 million euros ($122 million), according to the city state's annual financial report, in which it posted its worst budget deficit in more than a decade.
Bruelhart, a Swiss national from Fribourg, was for eight years the director of Liechtenstein's Financial Intelligence Unit (FIU), the department that gathers and analyses information used by police to combat money laundering, organised crime and the financing of terrorism.
He began working for the Vatican in September, two months after the publication of a landmark report by Moneyval, a department of the Council of Europe, on the Vatican's efforts at financial transparency.
Moneyval gave the Vatican an overall pass grade on transparency-related criteria but fail grades in seven key areas.
The report identified serious failings in the Vatican's bank, officially known as the Institute for Works of Religion (IOR), which has been enmeshed in several scandals over the years.
"Moneyval affirmed that the Holy See has a system of preventing and fighting money laundering and the financing of terrorism, equivalent to and recognised at the international level," said Bruelhart.
But a Bank of Italy statement said that while Moneyval recognised that the Vatican had made progress in financial transparency, "the presence of an effective anti-money-laundering regime had still not been proved".
The Moneyval report was particularly pointed in its criticism of the management of the IOR and strongly recommended that it be independently supervised and that "fit and proper criteria" should be applied to senior management at the IOR.
The IOR is being investigated by Italian magistrates looking into money laundering. The bank has denied all wrongdoing.
The Vatican has struggled to shake off a reputation for opaque finances that dates back to 1982, when Roberto Calvi, an Italian known as "God's banker" because of his links to the Vatican, was found hanged under London's Blackfriars Bridge.
The IOR was entangled in the collapse of Calvi's Banco Ambrosiano, with its lurid allegations about money-laundering, freemasons, and mafia links.
The IOR then held a stake in the Ambrosiano, at the time Italy's largest private bank, and investigators alleged that it was partly responsible for the bank's fraudulent bankruptcy. ($1 = 0.7493 euros) (Reporting by Philip Pullella; Editing by Will Waterman)
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