Last week the Vatican’s Congregation for the Doctrine of the Faith and the Dicastery for Promoting Integral Human Development issued a joint document on the global economy, Oeconomicae et pecuniariae quaestiones (OPQ). OPQ focuses in particular on the financial sector of the economy, calling for greater regulation of international finance and an economy centered on the development of the person, with a preferential option for the poor. The document therefore builds on the Pontifical Council for Justice and Peace’s 2011 document “Towards Reforming the International Financial and Monetary Systems in the Context of Global Public Authority,” which raised many of the same concerns as OPQ.
OPQ serves as a reminder of how little has been done to reform the global economy since that earlier document was written, and indeed since the global financial crisis of 2007-08. In the United States, the Dodd-Frank Act of 2010 imposed greater transparency on the derivatives market, put in place protections for investors, and created a more orderly process for dealing with bank failures. Only yesterday, however, President Donald Trump signed into law a measure restricting many of Dodd-Frank’s regulations to only the largest banks. Internationally, banking authorities agreed to the Basel III standards in 2011, creating more stringent capital and liquidity requirements for bank, although implementation of some of these standards has been delayed.
As QDP points out, however, many of the underlying factors that contributed to the financial crisis remain in place. For example, it notes the problem of a lack of distinction or separation between the different functions of a bank. One manifestation of this problem is the lack of separation between investment banking and commercial banking that allowed the financial crisis to spread throughout the economy. Another noted in QDP is the risk that financial advisers will steer customers toward savings products based on their profitability for the bank rather than the interests of the customer (#22).
QDP also warns against the increasing complexity of investment instruments through the creation of derivatives and credit default swaps. The document claims that investment instruments that essentially hide their underlying risks are unethical, and it calls for greater regulation of these instruments (##25-26). QDP make transparency a crucial value in evaluating the economy, noting that “the asymmetrical concentration of information and power tends to strengthen the more stronger economic agents and thus to create hegemonies capable of unilaterally influencing not only the markets, but also political and regulatory systems” (#21).
One significant innovation in QDP is its treatment of the network of banking and finance institutions designed to operate outside the operations of the official normative framework. Consistent with its emphasis on transparency, the document criticizes these institutions as potentially unethical and detrimental to the common good. The document appears to make an oblique reference to Swiss banking (it notes that this network “expanded from an important European country” (#30), and focuses on so-called “offshore” banking sites such as the Cayman Islands, Cyprus, and the British Virgin Islands. QDP laments that these offshore sites are set up so that their clients can evade the regulations governing the official banking system and evade taxes.
QDP also points out that these offshore sites facilitate criminal activity such as organized crime and money laundering by allowing people to transfer money without scrutiny or allowing them to create anonymous shell companies through which “dirty money” can be moved. This section of QDP is a response to the revelations disclosed in the Panama Papers in 2015 and the Paradise Papers in 2017, both of which shed light on the efforts that many of the worlds rich have taken to hide their assets, and in some cases criminal activities. This shadowy network of finance institutions has also played a role in the investigation of ties between President Trump’s campaign and Russia; for example, Trump’s campaign chairman Paul Manafort has been charged with laundering millions of dollars paid to him by Ukrainian oligarchs through shell companies in Cyprus. QDP misses an opportunity to admit to the Vatican Bank’s role as an “offshore” bank that has been used for money laundering, embezzlement, and other crimes over the years.
This shadowy network of offshore banking is linked to the broader financial sector, according to QDP, by the lack of transparency, which enables those with access to information to exercise power while assigning risk to those without access to information. Both an unregulated financial sector and offshore banking cause harm to the common good, by diverting financing from the “real economy,” by putting the economy at risk of financial crises, and through tax evasion. QDP re-affirms Catholic social teaching’s vision of the common good, and offers practical reforms to the global economy which can better promote it.