Failure to heed international regulations on money laundering and corruption can be hazardous to a bank’s health, even the bank of the Vatican. The curtain of secrecy and autonomy that has shrouded the activities of the Institute for the Works of Religion (IOR), as the Vatican bank is known, appears to be parting under new Pope Francis, although whether it will go far enough for the bank to survive remains to be seen.

Charges of money laundering and money smuggling have given way to arrests, and two of the IOR’s top directors have resigned. For such a small bank—it has only 114 employees—the scandals are legion. But when $7.1 billion under management is at stake, which was the bank’s assets as of 2012, it’s apparent that for some, temptation proves to be too strong.

Accusations of wrongdoing have plagued the IOR for decades. There have been allegations of everything from ties to the mob to murder—Roberto Calvi, the former head of the collapsed Banco Ambrosiano, was found hanged 30 years ago from Blackfriars Bridge in London amid speculation that Mafiosi may have been chasing money owed to them. The scandals have not diminished, even though the Vatican signed an agreement in December 2000 to use the euro. The Vatican’s agreement, however, was different from that signed by other eurozone countries in that it contained no measures to fight money laundering.

The European Commission (EC) insisted that the agreement be revised. It was, but it took until 2009 before the city-state agreed in a new document to accept the jurisdiction of the European Union Court of Justice, based in Luxembourg, in settling financial disputes—the first time the Vatican had bowed to any outside authority.

Transparency has been a difficult thing for the IOR to implement. In 2010 magistrates in Rome froze some $33 million in IOR funds that were held in an Italian bank on suspicion of moneylaundering. While the money was eventually released back to IOR in June of 2011, the bank said it was merely transferring its own money between German and Italian accounts—the investigation continues.

Last year was not a good one for the Vatican. In March, JPMorgan Chase shut down the IOR’s account at an Italian branch for its failure to provide enough data on money transfers. In May, Pope Benedict’s butler Paolo Gabriele was arrested on charges of leaking documents that exposed allegations of corruption ranging from price fixing on contracts to blackmail. The next day, IOR’s president, Gotti Tedeschi, was pushed out by the board of directors, who called him an obstacle to transparency; he claimed that the board was ousting him to protect the institution’s secrets. He was briefly succeeded by Ronaldo Hermann Schmitz, who was subsequently fired in June after accusations of erratic behavior, neglect of responsibilities and alienation of staff. Pope Benedict then appointed Ernst von Freyberg, a German lawyer, to head the bank.

Still, the IOR didn’t make much progress toward transparency or against money laundering. A July 2012 report by Moneyval, a department of the Council of Europe (COE), found that, although the institution had made many changes “in a very short period of time” compared to other countries that had been working on the process far longer, it still fell short in numerous important areas despite showing “clear commitment” in combating money laundering and occasionally going “beyond the requirements” of law to do so. The end result was the bank’s failure to get the Vatican onto the “white list” of countries that fight money laundering, tax evasion and the financing of terrorism.

When the IOR failed to meet a Dec. 31, 2012 deadline to comply with a number of anti-money laundering regulations, the Bank of Italy shut down Deutsche Bank’s credit card  and ATM facilities throughout the Vatican, making it impossible for tourists and others to pay for purchases except with cash brought in from outside the city-state. The situation lasted till February, when a Swiss group was found to take over the credit functions.

Problems are still surfacing: in late June, only two days after Pope Francis set up a new five-person commission to investigate the situation at the bank, Monsignor Nunzio Scarano, a senior accountant for the Vatican’s Administration of the Patrimony of the Apostolic See (APSA), was arrested, along with Italian secret service agent Giovanni Maria Zito and financial broker Giovanni Carenzio. The three were charged with trying to smuggle 20 million euros ($26 million) from Switzerland to Italy on a government plane. Scarano, who by reports was living a lush life, was already under investigation by Italian police, and had been suspended from his position earlier in the month; Zito had been suspended three months earlier. Scarano’s accounts were frozen.

And in early July, after the release of a report by Italian finance officials and magistrates that found, after a 30-month investigation of the IOR, that it was a “hot spot” for money laundering thanks to its own and Italian banks’ lack of checks and controls on cash and transactions, IOR bank director Paolo Cipriani and his deputy, Massimo Tulli, both resigned. They were responsible for the IOR’s day-to-day activities, and had been in their positions for six years.

Since his elevation to the papacy, Pope Francis has taken several actions to bring the IOR into the 21st century. He’s ordered a new commission to investigate the situation at the bank, bypassing all the institution’s former strictures on secrecy, and to bring its findings directly to him. He also attended the first meeting of the commission, and appointed Monsignor Battista Mario Salvatore Ricca as interim prelate of the bank.

There is, however, speculation that he may go as far as to shut down the Vatican bank altogether. A major address he gave in May railing against the “cult of money,” as well as commenting that “St. Peter didn’t have a bank account,” have given rise to rumors that in the end the Vatican’s money may move to conventional banks and the IOR may be eliminated. In April, a former aide, Federico Wals, who was the pope’s lay spokesperson in Argentina when he was still archbishop of Buenos Aires, said that he had taken similar action in the archdiocese to correct financial problems there—selling off shares in local banks that had been owned by the archdiocese so that it could secure favorable borrowing rates and transferring the money to international banks.

Asked how the latest arrests and the pope’s actions might affect the bank’s fate, Giuseppe Zaffuto of the COE’s directorate of communications said, “The Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL) will review progress by the Holy See at the December plenary. No comment will be available before then.”

Still, if failure to implement international regulations on transparency, money laundering and corruption costs the Vatican’s own bank its very existence, other banks may consider stepping up their own compliance lest they face renewed scrutiny for failure to do so.