The arrests come just two days after Pope Francis appointed a special commission to oversee the Vatican’s scandal-plagued bank, which is known officially as the Institute for Religious Works.
Monsignor Nunzio Scarano was arrested after allegedly trying to bring the sum of money into Italy from Switzerland in an Italian government plane.
He had recently been suspended as an accountant in a Vatican department which manages the assets of the Holy See.
He is accused of fraud, corruption and slander.
His lawyer, Silverio Sica, told The Associated Press that the prelate was a middleman in the operation – friends had asked him to intervene with a broker, Giovanni Carenzio, to return 20 million euros (£17m) they had given him to invest.
Mr Sica said Msgr Scarano had persuaded Mr Carenzio to return the money, and an Italian secret service agent, Giovanni Maria Zito, went to Switzerland to bring the cash back aboard an Italian government aircraft.
The operation failed because Mr Carenzio, the broker, reneged on the deal, the lawyer said.
Mr Zito, the intelligence agent, was promised a 400,000 euro “commission” for his part in the plot but only received 200,000 euros.
Msgr Scarano is also under investigation in a purported money-laundering plot in southern Italy.
Prosecutors in Salerno, south of Naples, have placed him under investigation for alleged money-laundering stemming from his account at the Vatican bank, known by its Italian acronym as the IOR.
As a result of that inquiry, he was suspended about a month ago, according to Father Federico Lombardi, the Vatican spokesman.
The bank, one of the world’s most secretive financial institutions, has been plagued by scandals, including allegations of money-laundering, for years.
It was a major shareholder in the Banco Ambrosiano, an Italian bank which collapsed in 1982 with huge losses.
Its chairman, Roberto Calvi, was found hanging beneath Blackfriars Bridge in London. His death was initially treated as suicide but the suspicion is that he was murdered.
Pope Francis has made reforming the bank one of the priorities of the first few months of his pontificate.
The Telegraph
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