A Vatican monsignor already on trial for allegedly plotting to smuggle €20 million ($33 million) from Switzerland to Italy was arrested on Tuesday in a separate case for allegedly using his Vatican bank accounts to launder money.
Financial police in the southern Italian city of Salerno said Monsignor Nunzio Scarano, dubbed "Monsignor 500" for his purported favoured banknotes, had transferred millions of euros in fictitious donations from offshore companies through his accounts at the Vatican's Institute for Religious Works.
Acting on evidence provided by the Vatican bank, police said they seized €6.5m in real estate and assets in Italian bank accounts on Tuesday, including Scarano's luxurious Salerno apartment, filled with gilt-framed oil paintings, ceramic vases and other fancy antiques.
A local priest was also placed under house arrest and a notary public was suspended for alleged involvement in the money-laundering plot. Police said in all, 52 people were under investigation.
Scarano's lawyer, Silverio Sica, said his client merely took donations from people he thought were acting in good faith to fund a home for the terminally ill.
He conceded, however, that Scarano used the money to pay off a mortgage.
"We continue to strongly maintain the good faith of Don Nunzio Scarano and his absolute certainty that the money came from legitimate donations," Sica told The Associated Press.
The Salerno investigation was already under way when Scarano was arrested in June in Rome on the smuggling accusations.
Police and Sica have said the money involved in both the Swiss smuggling case and the Salerno money-laundering case originated with one of Italy's most important shipping families, the d'Amicos.
On Tuesday, financial police said more than €5m had been made available to Scarano by the D'Amicos via offshore companies.
Police and Sica described the laundering plot as follows: Scarano allegedly withdrew €555,248 ($903,888) from his Vatican account in cash in 2009 and brought it into Italy.
Since he couldn't deposit it in an Italian bank without drawing suspicion, he selected 50 friends to accept €10,000 apiece in cash in exchange for a check or wire transfer in that same amount.
The money then went to pay off a mortgage on a Salerno property held in the name of a company Scarano partly owned.
The D'Amico family, from Scarano's hometown of Salerno, denied its involvement in a July 1 statement. Their communications firm did not immediately respond to a request seeking new comment on Tuesday.
No one in the family has been arrested in either case.
Scarano was fired from his job as an accountant in the Vatican's main financial office and Vatican prosecutors seized the $2.3m still in his accounts after his arrest.
The Vatican's top prosecutor said last week that the Holy See had responded to two official requests from Italy for information about Scarano's accounts, while making its own request to Italian authorities for help in its own money-laundering investigation against the prelate.
Salerno Prosecutor Elena Guarino went out of her way to praise how the bank, known as the IOR, had provided evidence against Scarano.
The IOR had previously reported to its own financial regulators that a 10-year analysis of Scarano's bank account activity showed some €7m had come into and out of the accounts in his name.
"The IOR opened its doors," she said. "They gave us ample and immediate cooperation without any type of insistence."
It was an unusual acknowledgement by Italian prosecutors of the Vatican's cooperation in cross-border legal affairs following years of tensions over Italian accusations that the Vatican bank was essentially an offshore tax haven for well-connected Italians.
Vatican spokesman the Reverand Federico Lombardi similarly praised the development as "fruit of the collaboration" between Vatican and Italian investigators, though he noted that Italian investigators didn't physically taken evidence from the IOR premises.
Scarano's original arrest in June led to the resignations of the Vatican bank's top two managers and accelerated efforts to make the troubled institute conform to international anti-money-laundering norms.
Pope Francis has made reforming the bank a priority and has named a fact-finding commission to look into its activities and legal structure.
Scarano's initial arrest in the smuggling case was reduced to house arrest because of his ailing health. Sica said the prelate would serve the new arrest warrant also under house arrest.
In the Rome smuggling case, prosecutors say Scarano, a financier and a carabinieri officer devised an elaborate plot to transport €20m in a private jet from Switzerland to Italy avoid paying customs duties.
The plot fell apart because the financier reneged at the last minute.
Sica has said Scarano in that case was merely acting as a middleman.