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A businessman helped fugitive Malaysian financier Jho Low strike deals with a Kuwaiti sheikh until a falling out

Last September, fugitive Malaysian financier Jho Low traveled to Kuwait, slipping free of international arrest notices and authorities in the U.S. and Malaysia seeking him for his alleged role in a multibillion-dollar fraud.

Mr. Low entered Kuwait despite red notices from international police agency Interpol, according to documents reviewed by The Wall Street Journal and people familiar with his Kuwait relationships.

The Kuwait connection has provided Mr. Low means to fend off U.S. and Malaysian investigators who accuse him of masterminding the plunder of Malaysian state investment fund 1Malaysia Development Bhd, or 1MDB. Mr. Low has denied wrongdoing.

Mr. Low had turned to the oil-rich emirate’s royal family in early 2016, as U.S. authorities began closing in and unraveling his life as a jet-setting deal-maker who financed the “The Wolf of Wall Street” movie and extravagant parties that drew Leonardo DiCaprio and other stars.

On visits to Kuwait in early 2016, he sought out a son of the prime minister, Sheikh Sabah Al-Jaber Al-Mubarak Al-Hamad Al-Sabah, whom he had met years earlier, and offered to use his contacts in China to steer investments to Kuwait, said a French businessman present at their meetings.

“‘I earned billions in Malaysia. I will earn a hundred billion in China, minimum,’" the businessman, Bachar Kiwan, then a business partner of the sheikh, recalls Mr. Low saying at a dinner in early 2016 hosted by the prime minister.

The Kuwaiti ties brought Mr. Low new protectors, new business deals and new channels for moving money. Banks there handled hundreds of millions of dollars tied to Mr. Low’s activities, including millions in payments to companies in the U.S. and U.K. to cover his mounting legal bills, according to people familiar with the transactions and documents reviewed by the Journal.

Malaysian investigators say they traced a trail of money from China to a Chinese bank in Kuwait and onward to a Cayman Islands entity partly controlled by Mr. Low that then paid nearly $1 billion for Low-controlled assets in Malaysia to pay some 1MDB debts. The transactions were in Chinese yuan to skirt U.S. attention, the investigators say.

Representatives for Mr. Low declined to comment. A spokesperson for Sheikh Sabah said he “categorically denies any wrongdoing,” and that the allegations about Mr. Low and the sheikh are false and originate from Mr. Kiwan and his associates who “have been indicted and convicted for forgery, fraud, and criminal breach of trust and other criminal acts against Sheikh Sabah.”

Mr. Kiwan said he became a target for retribution by Sheikh Sabah, who owned a stake in Mr. Kiwan’s Kuwait-based publishing and media firm, Al Waseet, after balking at a request from Mr. Low to shift money between different company accounts.

Mr. Low ultimately used Al Waseet to move 1.4 billion yuan ($200 million), according to Mr. Kiwan and documents viewed by the Journal.

Mr. Kiwan later fled Kuwait, hiding in a truck that took him to Iraq, after he was detained and, he said, beaten and otherwise mistreated by Kuwaiti secret services.

Mr. Kiwan, who is in France, was convicted in absentia in Kuwait of forgery and document falsification—charges he denies. His brother-in-law and brother are imprisoned in Kuwait after being convicted, respectively, on forgery and people-smuggling charges for helping Mr. Kiwan flee.

The Kuwaiti government didn’t respond to requests for comment, nor did the Malaysian government. The Justice Department declined to comment on Mr. Low’s activities in Kuwait.

Mr. Low spends most of his time in China and was residing in a compound in the city of Wuhan as of six months ago, say the Malaysian investigators. His current whereabouts couldn’t be ascertained. The Chinese government’s information office didn’t respond to a request for comment.

The U.S. Justice Department alleges that more than $4.5 billion in 1MDB holdings disappeared into intricate financial structures orchestrated by Mr. Low. Its collapse led to the unseating of his patron, then-Malaysian Prime Minister Najib Razak, who is on trial for money laundering and abuse-of-power charges relating to 1MDB. Mr. Najib denies the charges.

The Justice Department has since stripped Mr. Low of his custom-made yacht, a stake in New York’s Park Lane Hotel and $700 million in other assets, in civil-forfeiture settlements in which Mr. Low admitted no wrongdoing. He faces two criminal indictments in the U.S.

When Mr. Low began courting Kuwait in early 2016, Mr. Najib urgently needed to come up with billions of dollars 1MDB had borrowed but couldn’t repay because much of it allegedly was embezzled by Mr. Low and conspirators. He and Mr. Low turned to Beijing, appealing to a high-priority Chinese government program, the Belt-and-Road initiative, aimed at building infrastructure across Asia, Africa and other parts of the world.

Malaysia offered China rail and pipeline projects with an inflated $18 billion price tag to generate excess cash for other uses, according to documents reviewed by the Journal.

China Communications Construction Co., a giant state-owned business, took on the projects.

In Kuwait, Mr. Low brought along executives from China Communications and promised to further Beijing’s Belt-and-Road aspirations, said Mr. Kiwan, then the Al Waseet chairman.

China Communications didn’t respond to requests for comment.

Mr. Kiwan said his longstanding partnership with Sheikh Sabah drew Mr. Low’s attention. Mr. Kiwan obtained a license for his company in the 1990s and said he gave the sheikh a roughly 20% stake. He said he allowed the sheik’s family to use Al Waseet for personal transactions and he pursued projects at their behest.

After drinks one night, Mr. Low bragged about the parties he threw in the U.S., in the company of Paris Hilton and other celebrities. “Stars are slaves to money, and I am the master of money,” Mr. Low said, according to Mr. Kiwan.

Mr. Low gave Mr. Kiwan a phone loaded with the WeChat and Line messaging apps, Mr. Kiwan said. At Mr. Low’s urging, he said, he also opened an email account with Russian provider Yandex that the two shared, communicating by writing and deleting draft emails.

In April 2016, Sheikh Sabah traveled to Shanghai for the signing of an $8 billion joint real-estate investment fund between Al Waseet and China’s Greenland Holding Group, a large state-owned property company, according to public filings and announcements.

A letter from the sheikh to Greenland’s chairman, seen by the Journal, called it “the first major step in achieving our mutually beneficial long-term partnership between China and the Middle East in line with President Xi’s ‘One Belt, One Road’ vision.”

As part of the deal, entities registered in the Caribbean that use “Al Waseet” in their names would take ownership of Mr. Low’s $200 million stake in the Park Lane Hotel and then transfer it to Greenland Holding and Greenland Hong Kong Holdings, according to Mr. Kiwan and documents reviewed by the Journal.

At the time, Mr. Low told an associate the transaction would remove his biggest U.S.-based asset from the reach of the Justice Department, the associate said. The fund with Greenland ultimately didn’t move forward.

After the Shanghai meeting, Mr. Kiwan said, Mr. Low told him that China Communications planned to wire billions of yuan to Al Waseet, as payment to Mr. Low for helping the company win contracts in Malaysia. Mr. Kiwan said Mr. Low told him that a share would go to Sheikh Sabah.

In May and June 2016, according to documents and Mr. Kiwan, an Al Waseet subsidiary billed True Dragon Properties Limited, a Hong Kong holding of a unit of China Communications, for 1.4 billion yuan worth of asphalt—a product Mr. Kiwan’s firm didn’t produce or sell.

Mr. Low planned to use the transferred funds in part to pay legal bills, which exceeded $20 million, according to invoices and other documents viewed by the Journal. Then the first U.S. Justice Department lawsuit in its 1MDB investigation froze Mr. Low’s stake in the Park Lane and other assets.

When Mr. Low tried to sell a Monet painting targeted in the lawsuit via a Comoros Islands bank owned by the sheikh, the transaction got held up by a correspondent bank in Morocco, according to a U.S. court filing.

Sheikh Sabah and Mr. Kiwan confronted Mr. Low about the Justice Department probe. “‘The Chinese had dealt with the silly DOJ investigation,’” Mr. Kiwan said Mr. Low told them.

In September 2016, True Dragon wired the Al Waseet subsidiary the 1.4 billion yuan to an account at the Kuwait branch of the Chinese state-owned Industrial and Commercial Bank of China, or ICBC, according to Mr. Kiwan and documents. Mr. Low then asked Mr. Kiwan to transfer the money to another bank account belonging to Al Waseet, according to documents and Mr. Kiwan.

Then Mr. Kiwan refused, he said, because he didn’t want potential trouble from a U.S. investigation. He said Mr. Low told him: “You are ruining the next five years of my life” and then said, “You don’t know what you are getting yourself into.”

As an alternative, Mr. Low suggested transferring full ownership of the subsidiary holding the funds to the sheikh, said Mr. Kiwan, who agreed.

On Sept. 26, 2016, documents show, the bank began wiring the funds: €15 million ($17 million) to New York-based law firm Kobre & Kim LLP; $4.95 million to law firm Gibson, Dunn and Crutcher LLP of Los Angeles; €7 million to the Wright Maritime Group of Florida, for expenses related to Mr. Low’s yacht. None of the law firms answered questions for this article. Wright Maritime didn’t respond to a request for comment.

More transactions followed. In August 2017, Silk Road Southeast Asia Real Estate Ltd., a Cayman Islands company controlled at least partially by Mr. Low, paid nearly $1 billion to purchase 234 acres of property in Kuala Lumpur, Malaysia, that previously belonged to 1MDB and had since been taken over by a Malaysian Finance Ministry unit, according to the Malaysian investigators.

Silk Road’s funds came from a bank account at China’s ICBC in Kuwait, the investigators say.

Mr. Kiwan said that days after he declined to transfer the funds, a lawyer and an employee of Sheikh Sabah came to his office and warned that he had betrayed the family’s trust. Afterward, he was repeatedly detained and faced allegations about document falsification and other acts.

In December 2017, he fled.

He has twice been spared extradition to Kuwait, including in February 2020 by a Spanish court. Its ruling said that while evidence supports forgery charges against him, Mr. Kiwan may not receive fair treatment in Kuwait. It noted that the criminal allegations were based on complaints from Sheikh Sabah.

Six things to watch at the Federal Reserve meeting

Central bank will issue first forecasts in six months amid rising markets and turbulent streets

Federal Reserve policymakers are gathering this week for their regularly scheduled meeting — after taking an extraordinarily aggressive series of steps to ease economic hardship and reassure investors in the face of the coronavirus pandemic.

Although no big policy shifts are expected, there is plenty to look out for — and challenges for chairman Jay Powell — as the Fed navigates the next stage of its response to the crisis.

In some of his last public remarks at the end of May, Mr Powell trotted out the old quip by the late economist John Kenneth Galbraith that economic forecasting existed to make astrology look respectable. Nevertheless, the Fed will release economic forecasts for the first time since December.

Michael Feroli, an economist at JPMorgan, said he expected the median projection to show the US economy shrinking by 6 per cent in 2020, with joblessness around 10-11 per cent and interest rates stuck close to zero for years. Such projections would be roughly in line with statements by Fed officials that the economy is heading for a protracted slump.

A deviation to the upside — such as officials signalling they expect interest rates to rise — could unsettle markets. The Fed has ruled out moving to negative rates, so any projection of below-zero rates would be a shocker.

Fed officials have indicated it would be too early to offer more formal guidance on US interest rates, tying any increase to specific macroeconomic benchmarks. The same goes for launching a formal quantitative easing programme with fixed amounts of asset purchases, as opposed to the current policy of buying as many bonds as needed. A move towards either stance would be a surprise.

The bank could still reinforce its dovishness in other ways, including by strengthening the language in its statement to say it is “strongly committed” to using all its tools to support the economy, as Mr Powell did in late May, as opposed to “committed”, which is how the Federal Open Market Committee put it on April 1. Mr Powell could also characterise Fed discussions about its next steps.

“The Fed has been able to delay providing longer-term guidance because of the crisis environment. But we are moving out of that environment, and the market is hungry for better guidance as to what comes next,” said Jon Hill, a rates strategist at BMO Capital Markets.

Even when the economy was still growing and the pre-pandemic labour market was tight, the Fed was not particularly worried about asset bubbles, so it is hard to imagine its officials will be concerned with the country experiencing what they believe to be disinflationary shock.

They have also been comforted by the general recovery in financial markets after turmoil that sparked concerns about the short-term funding markets — and even US Treasury markets.

But the rally has been so fierce — with investors pouring into the securities of highly indebted, and even bankrupt, companies — that some analysts worry the market action could threaten financial stability.

Since Mr Powell last spoke, the US has been convulsed by the mass protests against racial injustice and police brutality — and the Fed chairman may have to address the issue.

A week ago, with President Donald Trump threatening to deploy the military to quash the unrest, and episodes of looting and vandalism on the streets, the situation was emerging as a potential new risk to the economy on top of the hit from coronavirus.

Since then Mr Trump has pulled back, curfews have been lifted and the protests have become even more peaceful. Still, the lack of social distancing at the demonstrations could spur a second wave of infections, which would be very economically damaging.

Mr Powell, who has been sensitive to addressing inequality and the distributional effects of economic policies since becoming Fed chairman, may have to reconcile any sympathy for the protests with warnings about their unintended consequences.

A big part of the Fed response to the crisis has been the establishment of a series of facilities, including some backed by funding from the US Treasury, to lend to struggling businesses and local governments.

The central bank acknowledged that it had crossed some “red lines” in setting them up, moving into new terrain. But the announcement effect has been much more significant than the real impact.

The Fed has still not launched a flagship “Main Street” lending plan, intended for small and medium-sized businesses, and was forced to revise its terms twice after criticism it was too stringent. Its corporate debt buying facilities have struggled to get off the ground, and a lending scheme for states and local governments was recently tapped by Illinois for the first time.

Mr Powell will have to address to what extent, and in what form, these facilities still serve a purpose.

With momentum for a new high-priced stimulus package visibly fading on Capitol Hill due to resistance from Republicans, Mr Powell is likely to make a delicate push for lawmakers not to take their feet off the pedal.

The Fed chairman has made appeals for fiscal support in the past, but this one may be more urgent. If Congress does not act by July, millions of Americans will lose enhanced unemployment benefits, which have served as a cushion during the recession. Meanwhile, the impact of $1,200 per person cheques sent to households by the federal government is fading.

To the extent that massive fiscal support has helped to avoid a deeper economic plunge, Mr Powell could insist that its early withdrawal threatens a potential rebound.

Uber Eats gets out of heat of delivery kitchens

Move comes as ‘dark kitchen’ start-ups reassess business models

Uber has abandoned a plan to run its own food delivery kitchens, taking itself out of competition with its ousted founder Travis Kalanick.

Since November 2018, Uber had run an “Eats Delivery Hub” in Paris, renting kitchen space to restaurateurs to make delivery food for its Eats business. But as part of a drive to cut costs and focus on profitability, it quietly closed the operation at the end of last year.

“At this point, we don’t have a desire ourselves to own real estate,” said Pierre-Dimitri Gore-Coty, head of Uber Eats, to the FT. “We’ve had a few pilots, but no intention at this stage to start our own proprietary network of dark kitchens, or warehouses . . . or however you call them.”

Over the past few years, several start-ups and some of Uber’s food delivery rivals have poured money into kitchens that only serve delivery customers, building networks of so-called “cloud”, “ghost” or “dark” kitchens.

Some of these companies are now reassessing their business models, with both restaurants and apps struggling to turn profits from food delivery.

Mr Kalanick, who has poached some of his former colleagues at Uber, has rapidly expanded his CloudKitchens start-up in the US, Europe and Asia, spending heavily to buy up warehouse space and convert it into delivery kitchens.

But one of his key collaborators from the restaurant industry has backed out, unconvinced the model can both produce quality food and make money. 

“I think the only reason why other people are doing [delivery kitchens] is because they're seeing him do it,” said Eric Greenspan, renowned LA-based chef and restaurant entrepreneur. “Travis sets the pace.”

Mr Greenspan launched several restaurant concepts with CloudKitchens, lending his face to the company’s website as a means of attracting more like him. 

But he has since cut ties, saying it was difficult to use a cloud kitchen, without a storefront, to attract business, unless you were offering an already known brand — such as a national fast-food chain — or you spent heavily on marketing in order to rank highly for searches such as “pizza”.

“It’s not what interests me as a chef, or as an entrepreneur,” he said.

Uber said it would focus on persuading existing restaurants to create new menus and brands to be cooked at the same location. For example, a San Francisco location of the chain Umami Burger uses the same kitchen to cook food for Sam’s Crispy Chicken, a brand which exists only on food delivery apps. 

But its rival, DoorDash, said its first delivery kitchen, opened last October in Redwood City, is currently running at full capacity with six tenants, mostly well-known San Francisco restaurants, as well as nationally-recognised Chick-fil-A. 

Other delivery kitchen start-ups have doubled down on the business.

Reef, formerly known as ParkJockey, operates thousands of car parks across North America. After exploring turning these parking lots into hubs for autonomous vehicles or e-scooter charging, Reef has now accelerated plans to deploy delivery kitchens after the pandemic shut down in-house dining for most restaurants. Ari Ojalvo, Reef’s chief executive, said it now has more than 90 kitchens up and running, almost doubling during the pandemic. 

“Over the next four or five years, we are looking at several thousand” such facilities, he said. “With Covid, this is a giant experiment in what happens if everyone suddenly moves to an on-demand economy.” 

Reef has settled on a business model that sees it license brands and recipes from restaurateurs, for a single-digit percentage of the price of a dish, and then prepares food delivery orders using its own food suppliers and staff.

“We are the operator, we produce within their quality requirements,” Mr Ojalvo said. “That is the business model we like the most and we believe in for the future of the company.” 

To fuel its expansion, Reef is now in talks with investors to raise hundreds of millions of dollars in new investment, Mr Ojalvo said, at a “significantly higher” valuation than when SoftBank invested in late 2018 at a price tag in excess of $1bn. 

Corey Manicone, the chief executive of start-up Zuul, said the pandemic meant “every restaurant became a ghost kitchen overnight” and restaurateurs are now wondering if they can use the same model to expand into new areas.

As well as renting out kitchen space, Zuul is looking to offer a wider range of services to its tenants. It provides software so restaurants can take orders directly from their own online storefronts, avoiding delivery-app providers’ fees. “By bringing the tech in-house, the idea is to drive demand for the brands at better margins,” Mr Manicone said. 

Each of these approaches to dark kitchens is an attempt to squeeze new efficiencies from online food delivery. In an industry yet to produce any real winners, drivers are feeling exploited by low pay, restaurants are feeling cheated by high rates of commission and tech platforms are burning cash in pursuit of market share. 

Mr Greenspan, the chef and author, said efforts by Mr Kalanick and his rivals were “super smart”, but success with dark kitchens would likely mean leaving acclaimed restaurateurs like him behind. 

“I just think that we're in a different business,” he said. “They're in a global domination, facilities business. I just want to make you a great fried chicken sandwich.”

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Inside the Vatican scandal over a London property investment

The case of Gianluigi Torzi is likely to shed a light on one of the Catholic church’s most controversial financial deals in decades

As the rest of Italy relaxed on December 26 2018, Gianluigi Torzi put on a dark suit and tie for an important meeting. The client the Italian businessman was visiting later that day answered to no one less than God himself.

At 12pm Pope Francis stepped out on to his balcony in the Apostolic Palace, to deliver a sermon on St Stephen, the first Christian martyr. Francis instructed the crowd of thousands gathered below “to learn from him how to forgive. It is not easy to do, as we all know.”

Later that afternoon the Argentine pontiff, who has refocused the Catholic Church on the poor and rooting out corruption since his election in 2013, granted a private audience in his ascetic Santa Marta residence to Mr Torzi and his family, an honour normally reserved for only the most senior foreign dignitaries and Cardinals.

The man Francis met that day had been a suspect in multiple criminal investigations, was flagged on a global anti-money laundering watchlist, and would come to earn millions of euros in commissions from the Vatican for just five months of work.

Last Friday evening Mr Torzi was arrested and charged by the Vatican authorities for what they described as “extortion, embezzlement, aggravated fraud and self laundering” for his role in a controversial purchase of a luxury building in Chelsea, one of the wealthiest neighbourhoods in London, on behalf of the Vatican in 2018.

The Italian broker is accused by Vatican prosecutors of having demanded payment for his role in helping the church acquire the building, and having threatened to keep the property for himself — a charge Mr Torzi, through his lawyers, has denied.

Before Mr Torzi’s arrest, Pope Francis called the Vatican investments that are being probed “a scandal”. “There is corruption, we can see it,” he said late last year.

Yet the Vatican has so far failed to explain how weeks before his audience with the Pope, Mr Torzi, a little-known businessman based in London, managed to gain access to some of the highest-ranking officials in the Holy See who decided to hand him control of hundreds of millions of euros worth of Church assets.

Contracts, banking records and financial documents seen by the Financial Times, as well as accounts from people with direct knowledge of the Vatican’s financial affairs, show the deal with Mr Torzi was signed off by some of the most senior officials in the Catholic Church.

These documents cast doubt on the Vatican’s official narrative that the controversy surrounding its purchase of 60 Sloane Avenue, a large building in Chelsea, was the work of Mr Torzi and a handful of junior administrators who have been suspended during the investigation.

Mr Torzi now awaits the prosecutor’s next steps in what has become the most high-profile Vatican financial scandal in decades.

A solution for the Holy See

Sat in his offices in a mews building off of Berkeley Square, one of London’s most prestigious areas, Mr Torzi described himself as a simple man. “I am a trader, I love to trade. I love the screens,” he told the FT earlier this year, pointing to the computer terminal on his desk.

Born in the southern Italian region of Molise, the 41-year-old Mr Torzi, a large man with a frequently startled expression, gained no higher education and began working in various small businesses in his twenties. His biography, which he gave to the FT, says that he started out as an independent currency trader before working in various Italian family offices. He later moved to London, and now runs a small financial brokerage there.

Yet there are a number of incidents that Mr Torzi left off his CV. One of the companies he established in Italy was later investigated on suspicion of false invoicing by Italian prosecutors, and he was named as a suspect in multiple other criminal investigations but never prosecuted. Several other of his companies have filed for bankruptcy in Italy.

These legal investigations into Mr Torzi resulted in him being flagged on the WorldCheck database used by banks to screen for money-laundering risks. He says all the criminal cases against him have been archived, and the WorldCheck entry is a mistake.

Mr Torzi also offers a straightforward explanation about how in a matter of weeks in late 2018 he managed to convince Vatican officials to hand him hundreds of millions of euros worth of Church property. He was introduced, he says, by a lawyer he knew at Ernst & Young in Rome, who had become aware that a group of priests had a tricky financial issue that needed to be resolved.

“I was introduced by a guy I knew at EY. The Holy See had a problem, and we offered them a solution,” he said.

The problem Mr Torzi refers to was how, several years before they met Mr Torzi, officials at the Vatican’s Secretariat of State, the Holy See’s powerful central administration office, had made a minority investment in a building in London, which was worth approximately £200m, that they had since come to regret.

Rather than sell, and realise a loss, the Vatican officials had decided the Church would buy the building outright in the hope of protecting the value of their investment.

In November 2018, a meeting was set up in the offices of the secretariat inside the Vatican where Mr Torzi met Alberto Perlasca, a 59-year-old Italian priest and senior official inside the secretariat handling its investments.

Mr Torzi says he proposed that Mr Perlasca sign over the building to a Luxembourg shell company called Gutt SA owned by the Italian businessman. A contract seen by the FT shows that on November 22 Mr Perlasca signed an agreement with Mr Torzi on behalf of the Vatican that would come to give Mr Torzi complete control of the building.

“I cannot think of any possible legitimate economic rationale for this deal,” says Matthew O’Brien, a US-based Catholic financier who has campaigned for financial reform in the Church. “You don’t just sign over hundreds of millions of charitable funds into an offshore company to a man you apparently just met, with no way of getting it back.”

To seal the deal, Mr Perlasca then went to his bosses at the Secretariat of State to get them to authorise the deal.

Documents seen by the FT show that three weeks before Mr Torzi’s company took control of the building, Cardinal Pietro Parolin, head of the Secretariat of State and the second most powerful man in the Vatican after Pope Francis, authorised his deputy, the Venezuelan archbishop Edgar Peña Parra, to take control of the Secretariat’s bank accounts.

Then on November 28 Mr Peña Parra sent a request to Credit Suisse in Lugano asking for payment to be made that resulted in the building being transferred to Mr Torzi’s Luxembourg shell company. Through the Vatican’s press office Cardinal Parolin and Archbishop Peña Parra declined to comment.

The Milan lawyer

Also present in the meetings between Mr Torzi and the Vatican priests were two Italian lawyers. One of these was Manuele Intendente, the lawyer from EY in Rome who Mr Torzi says simply introduced him to the Vatican. The other was Nicola Squillace, a lawyer based in Milan, who Mr Torzi says was there to help him structure the transaction for the Holy See.

To others in the meeting the lawyers might have appeared as mere functionaries, there to deal with documents and ensure things went smoothly. In fact both men had stronger connections to Mr Torzi than may have first appeared.

Before moving to London Mr Torzi had worked for several years in companies that were controlled by Mr Squillace’s family trust.

Mr Squillace has faced his own legal difficulties. In February last year, three months after being invited into the heart of the Catholic Church, Mr Squillace was sentenced to six and a half years in prison by a Milan court for his role in the bankruptcy of a company called Novaceta. He will appeal the conviction, which was made in a lower court, and would only go to jail if the decision is upheld in a higher court.

Because of the Vatican officials’ decision to appoint Mr Torzi’s company to handle its purchase of the London building, Mr Squillace was in effect representing the interests of both the Vatican and Mr Torzi at the same time as he was facing criminal charges.

When contacted by the FT, Mr Squillace said he could not comment on his role because of client confidentiality. He declined to answer questions about his conviction in Italy.

The second lawyer in the meeting room was Mr Intendente, from EY in Rome who Mr Torzi said had provided him with the introduction to the Vatican. Notes of the meetings show that Mr Intendente was identified as an EY employee, and he signed documents for the deal using EY’s corporate address in Rome.

However, the FT has learnt that EY never authorised Mr Intendente to work on a multimillion-euro deal with the Holy See. In December last year, Mr Intendente’s contract was terminated by EY in Italy when it discovered that he had been moonlighting on the transaction with Mr Torzi.

Several months after the Vatican deal was struck and while still working for EY, Mr Intendente acquired shares in the financial brokerage in London in which Mr Torzi was chairman and a shareholder.

Mr Intendente told the FT that he was not paid for his work on the property deal and was working in an independent capacity. He did not comment on why or how he had acquired the shares in Mr Torzi’s London brokerage.

In response to questions from the FT about Mr Intendente’s role in the Vatican transaction, EY said: “EY has a global code of conduct with which all EY people must comply and we do not hesitate to take disciplinary actions against anyone we determine to have violated our policies.”

Vatican investigation

This February, five months after the first junior Vatican employees were suspended, Holy See investigators raided the personal residence of Mr Perlasca to seize documents and computers in what a short press release called an “investigation into financial and real estate investments by the Secretariat of State”.

This made the Italian priest the highest ranking Vatican official yet to be drawn into the probe.

Mr Perlasca told the FT that he had only ever met Mr Torzi once inside the Vatican, on the advice of more junior officials who already knew Mr Torzi. 

He said that he signed the contracts with Mr Torzi as a proxy for more senior officials in the Vatican. “I would like to emphasise that the operation had been regularly approved by Superiors, including the Holy Father. I therefore did NOT act personally: the operation had been evaluated by the Superiors, who approved it,” he said in an email on Tuesday evening.

What remains unclear is how Mr Torzi won his private audience with Pope Francis a month after the deal was struck. Some Vatican insiders doubt the pontiff, who abhors money matters, would have known all of the details of Mr Torzi’s role in the transaction.

“Large amounts of Vatican money are rarely moved around without the Pope’s knowledge,” one Vatican insider says. “That does not mean that the people around Francis, who he trusts, are telling him the whole story.” The Vatican declined to comment on any contact between Pope Francis and Mr Torzi.

Several months after Mr Torzi’s audience with the Pope, something caused the priests to suddenly change their mind about the wisdom of their arrangement with the Italian businessman. Vatican prosecutors allege that Mr Torzi began to demand money for managing the property, and threatened to not return the building unless he was paid, according to the Vatican news service. According to a draft contract proposed to the Vatican and seen by the FT, Mr Torzi asked to be paid £2.75m a year in fees, and a cut of profits from any sale.

People with knowledge of the situation said that in early 2019 a suspicious activity report was lodged with the Financial Information Authority (AIF), the Papal State’s financial crime monitoring unit. The AIF then began investigating the transaction, making information requests to overseas enforcement agencies, and the Vatican set about getting the property back from Mr Torzi.

However, because of the contracts signed by Mr Perlasca, the Vatican had no means of forcing Mr Torzi to relinquish control of the building. By May 2019 the two sides agreed that Mr Torzi would receive a compensation payment.

There are conflicting accounts of how much Mr Torzi was paid. Vatican prosecutors, according to the official Vatican news publication, suggest this was €15m, while other sources say the payment was around €5m.

In comments made before his arrest last week, Mr Torzi told the FT he was paid this money fairly by the Vatican for the work he did related to the London property.

After the arrest last Friday, Mr Torzi’s lawyers said: “We believe that this measure is the result of a major misunderstanding caused by allegations that may have misinterpreted a correct interpretation of the case by the investigators . . . Mr Torzi never intended to act against the interests of the Holy See.”

Watchdog raid

During 2019 the Vatican’s financial crime unit continued to probe the suspicious property transaction involving Mr Torzi. Then, in October of that year, Vatican police suddenly decided to raid the offices of the AIF and seized documents, some relating to the London building investigation.

The Vatican’s raid on its own financial regulator stunned its officials, several of whom had been drafted in from outside Italy by Pope Francis to give the unit much-needed international credibility. Two of its four board members and its president, the Swiss-born lawyer René Brülhart, resigned. Pope Francis later said the AIF was raided because it had failed to “exercise control over the crimes of others”.

Juan Zarate, a former deputy national security adviser to George W Bush who quit the board of the AIF after the raids, said the watchdog’s integrity had been “undermined and compromised”. “You would never see this in a properly functioning banking or financial centre,” he told AP at the time.

One former AIF official says the unit had raised multiple financial crime cases with the Vatican’s prosecutors over several years, but these were never taken further. “All the right steps were being taken but what wasn’t happening were prosecutions. There were numerous occasions where we were raising concerns. Perhaps there were some people who didn’t want prosecutions to happen”.

The case of Mr Torzi will intensify the scrutiny. “They need to explain what has happened here, or the international image of the Vatican . . . will only get worse,” says the financier Mr O’Brien.

Speaking to the Italian media this week, Cardinal Giovanni Angelo Becciu, former deputy head of the secretariat, put the blame on Mr Torzi. He “will have to answer for a specific crime for which he alone is responsible”, the cardinal said. “And the Vatican will continue as before.”