By Philip Pullella
VATICAN CITY (Reuters) - A European committee evaluating the Vatican's financial reforms said the Holy See had made significant progress but needed more internal controls over its bank and another key financial office, sources familiar with the report said on Monday.
The plenary of Moneyval, a monitoring committee of the Council of Europe, adopted a progress report on the Vatican following a July, 2012 initial evaluation that made recommendations on how the Holy See could clean up its murky finances. Moneyval will issue its report on Thursday.
It is expected to add impetus to Pope Francis's efforts after decades of scandal, particularly surrounding its bank.
According to two sources familiar with it, the Moneyval report says the Vatican has made much progress in the past 17 months in areas such as legislation to combat money laundering, tax evasion and the financing of terrorism.
"This is a very positive document," one person familiar with the report said. Another expressed "massive satisfaction".
But it also says the Vatican's own Financial Intelligence Authority (FIA) still needed to carry out what Moneyval calls a "formal inspection" of the Vatican bank, officially known as the Institute for Works of Religion (IOR).
The bank, which has been embroiled in numerous financial scandals in the past decades, has been undergoing a massive overhaul of its operations since the arrival in February of its new president, Ernst Von Freyberg.
It has closed many accounts by people who were not entitled to have them and called in an outside firm, the Promontory Financial Group, to help it meet international standards.
The Moneyval report also calls for a formal inspection by the FIA of the Administration of the Patrimony of the Holy See (APSA), a department that manages the Vatican's real estate holdings and financial and stock portfolios and acts as its purchasing and human resources offices.
Promontory is already carrying out a due diligence investigation of APSA. Monsignor Nunzio Scarano, a former top accountant at APSA is undergoing a trial for alleged money smuggling in Italy. He is also suspected of money laundering.
"The adoption of the progress report confirms the significant efforts undertaken by the Holy See and the Vatican City State to strengthen its legal and institutional framework," said Monsignor Antoine Camilleri, head of the Vatican delegation to Moneyval.
In its statement on the Moneyval report, the Vatican said there was a "significant rise" in reports of possible attempts to use the Holy See to launder money in 2013 compared to the six reported last year. It said they was due to an improved monitoring process.
Pope Francis has made cleaning up the Vatican's financial image a key plank of his papacy. He has greatly increased the powers of the FIA, beefed up anti-money laundering legislation, and has not ruled out closing the bank altogether.
(Reporting By Philip Pullella; editing by Ralph Boulton)