Vatican questions $17 million donation to impact investing fund, moves to prevent similar gifts

The Vatican is seeking clarity after the former director of its U.S. missionary fundraising office oversaw the transfer of at least $17 million of its endowment and donations into a new nonprofit and private equity fund that he created and currently manages, The Associated Press has learned.

The new management of the Pontifical Mission Societies in the United States, which raises money for the Catholic Church in the developing world, has written off most of that money – the $10.2 million it invested in the private equity fund -- as a loss since “there is no timeline and no guarantee of investment return,” according to its latest financial statement.

The money was transferred from TPMS-US into a New York-based nonprofit, Missio Corp., and a private equity fund MISIF LLC created by the Rev. Andrew Small while he was the national director of TPMS-US. Both financial vehicles aim to raise capital to provide low-interest loans to and investments in church-run farming initiatives in Africa.

The bulk of the money was transferred in 2021, right before Small ended his 10-year tenure at TPMS-US. Small, a British-born Oblate of the Mary Immaculate priest, remains CEO of Missio Corp., which manages MISIF, while now serving on a temporary basis as the No. 2 at the Vatican’s child protection advisory board.

In a series of emailed responses to AP, Small strongly defended the money transfers as fully approved and in the best interest of the church and TPMS-US. He provided letters from grateful bishops and nuns in Africa who have benefitted from Missio Corp.’s low-interest loans, as well as letters from two Vatican cardinals expressing interest in his impact investing initiatives.

But the transfers have, at least temporarily, reduced the endowment fund of TPMS-US by a quarter and seemingly diverted money that was raised in the pope’s name away from Vatican-approved charities and projects in Africa, Asia and Latin America. The loss is thus the latest financial headache for the Holy See, which for decades has been beset by episodes of loss-making investments, opaque accounting methods, porous budgets and conflicts of interest that have undermined its financial reputation.

“The Holy See is aware of the situation and is currently looking into the details of the events,” Vatican spokesman Matteo Bruni told AP.

According to publicly available tax records and financial statements, the moneys transferred included $7 million in expense “reimbursements,” undefined “contributions” and “support,” from TPMS-US to Missio Corp. between 2019-2021, as well as a $10.2 million investment into MISIF, $7.5 million of which came out of a TPMS-US endowment fund.

The transfers were all approved by the TPMS-US board, making any litigation to get it back implausible.

But according to officials at TPMS-US, it remains unclear if the board was fully informed about the transfers and the Vatican’s view of the initiatives, including concerns expressed by the then-prefect of the Vatican’s missionary office, Cardinal Fernando Filoni.

The Rev. Robert Gahl, a moral theologian who runs a church administration and management program at the Catholic University of America, said the evangelical thrust of TPMS-US donations differs from MISIF’s more general development strategy of loans that must be repaid.

“How can donor intent be assured if the aims of the two are so different?” he asked. “Donor intent is defended in both civil and canon law,” he added.

Lloyd Mayer, a professor specializing in nonprofit law at Notre Dame Law School, said he didn’t see any “red flags” in the transfers, but “a few yellow flags.”

“And the legal question for me is: has someone violated a legal duty here, or is this essentially an internal political dispute?”

Small strongly defended the transfers as consistent with both the mission of TPMS-US and his fiduciary duty to increase its funding, which he said had been steadily declining as donations dried up. He said he tried new methods of fundraising, including crowdsourcing initiative where donors could see the direct outcome of their gifts. Donors, he said, were increasingly unwilling to just give via the typical TPMS structure, where Rome decides on projects.

“A lot of it goes to bishops and nuncios with only a tiny fraction going to priests and sisters,” Small said. “Many millions of dollars of the U.S. money help pay the expenses of operating nunciatures in mission countries, which seems anomalous with the messages sent to the faithful on Mission Sunday each year.”Small said he developed Missio Corp., and its public-facing Missio Invest website because he wanted to apply the principles of impact investing to the needs of the church in mission territory. It was an idea that had found support in some parts of the Vatican, which hosted three impact investing conferences in 2014, 2016 and 2018.

“The ultimate goal was to create a social impact fund that could provide low-interest loans to church-run enterprises in Africa so as to create a sustainable source income for the church and, presumably, make them less dependent on foreign annual donations which had shown themselves to be increasingly precarious,” Small said.

Small said the board of TPMS-US was informed of all the developments and approved all the transfers, and that he made at least annual presentations to the Vatican’s missionary office.

Robert Warren, a retired IRS criminal investigator who now teaches accounting at Radford University in Virginia, said the relationship between TPMS-US and Missio Corp., on its surface is problematic because Small headed both. Such interlocking relationships, he said, require extra scrutiny by auditors and management.

“I always tell my students: You have to determine whether there is an arm’s length transaction. If you have related parties, that means by definition you do not have an arm’s length transaction,” he said. If one charity is making substantial contributions to keep a second one afloat, “you now have an interrelated party and all those transactions require extra scrutiny by the auditors and by management.”

After Small’s term ended in 2021, TPMS-US under the leadership of its new national director, Bishop Kieran Harrington, hired a law firm to investigate. Small didn’t respond to lawyers’ questions.

“The independent analysis concluded that the TPMS board approved the funds transfers in a way consistent with their powers and the TPMS by laws,” according to a statement from TPMS-US to AP.

Harrington subsequently replaced the board with more high-ranking officials and Vatican oversight. It includes the pope’s ambassador to the United States, Archbishop Christophe Pierre, along with other senior U.S. cardinals and archbishops, including Boston Cardinal Sean O’Malley, who as head of the Vatican’s child protection board, is now Small’s boss.

“The new board is working to evaluate the governance structures of TPMS and will soon recommend new ecclesiastical statutes and vote upon the civil corporation bylaws,” the society said in a statement to AP.

Under Harrington, TPMS-US asked Missio Corp., for the $10.2 million investment in MISIF back but the request was denied, according to the TPMS-US audited financial statement.

“Management of the organization is diligently working to redeem the investment, however there is no timeline and no guarantee of investment return,” the statement says.

Small criticized the writeoff as “shortsighted,” saying there are no grounds for such a decision based on the fund’s performance. He said it was “unfortunate” that TPMS-US had such little confidence in the mission church’s ability to repay its loans.

“If we don’t believe in our missionary colleagues, how will banks and other capital markets?” he asked.