By Philip Pullella
VATICAN CITY, July 9 (Reuters) - The Vatican said on Wednesday it will separate its bank's investment business from its Church payments work to try to clean up after years of scandal including allegations of money laundering and tax evasion.
French businessman Jean-Baptiste de Franssu was named as the new head of the bank, officially known as the Institute for Works of Religion (IOR), succeeding German lawyer Ernst Von Freyberg, who has run the bank since February 2013.
Freyberg, who has said he is leaving for private reasons, has introduced reforms to make the IOR more transparent and compliant with international norms against money laundering, and has closed many suspicious accounts.
The Vatican also plans to increase scrutiny on one of the two sections of the Administration of the Patrimony of the Holy See, or APSA - also hit by recent scandals - that runs Vatican properties, handles income and spending, prepares budgets and acts as a central accounting department and purchasing office.
Australian Cardinal George Pell, head of the Vatican's recently formed Secretariat for the Economy, told a media conference that the move was necessary in order for his department to "exercise its responsibilities of economic control and vigilance" over all Vatican departments.
A new central Vatican Asset Management department will handle investments, leaving the bank to concentrate on its original aim and focus on payment services for religious orders, Vatican employees and charities, he said, changes that will be phased in over three years.
Pell said he wanted the entire Vatican to become "a model of financial transparency instead of cause for occasional scandal", and that all the changes had been approved by Pope Francis, noting that the cardinals who elected him in 2013, had given him a mandate to make the Vatican transparent and scandal-free.
"We are aiming at substantial transparency. There will be audits and these reports will be audited externally," Pell said, noting that the IOR "is in a peaceful transition" and Freyberg had "cleared the decks" for a new phase in the bank's history.
In June 2013, Monsignor Nunzio Scarano, who worked for 22 years as a senior accountant at APSA, was arrested and is on trial on charges of using his position in a plot to smuggle millions of dollars into Italy from Switzerland for his rich friends in order to avoid Italian taxes.
Scarano, who has told Italian magistrates of numerous irregularities at APSA, such as allowing outsiders to have accounts there, is also the subject of a separate trial on money laundering charges connected to the Vatican bank.
Pell said the Vatican would appoint an "independent auditor general who will be able to go anywhere and everywhere" (in the Vatican) to guarantee transparency and legality.
On Wednesday, the Vatican bank said in a financial statement that it had blocked the accounts of more than 2,000 clients and ended some 3,000 "customer relationships" as part of a clean-up process that nearly wiped out its profit.
The clean-up process has come with a heavy financial price, particularly for ridding the IOR of some dubious investments.
Last year's profits were also hit by extraordinary expenses related to the hiring of external professionals, such as the Promontory Financial Group, to help in compliance and transparency issues and account closures. (Editing by Louise Ireland)