The latest allegations of misdoings come as Pope Francis struggles to tackle years of financial scandals involving the Vatican bank, which has long been in the spotlight for failing to meet international standards against tax evasion and the disguising of illegal sources of income.

The allegations concerning the Administration of the Patrimony of the Apostolic See, known as APSA, will present another headache for the pope, who has appointed two commissions to advise him on how to clean up Vatican finances.

A key suspect in a widening investigation by Italian magistrates looking into alleged money laundering through the Vatican bank told them that officials at APSA allowed the office to be used by outsiders even though it was against its regulations, according to a transcript of his questioning.

The prelate, Monsignor Nunzio Scarano, 61, is under investigation by magistrates in his home city of Salerno, where he is suspected of using his close ties with the Vatican bank to launder money. He is under arrest in a hospital in Salerno.

Scarano's lawyers say he did not launder money.

Scarano was arrested in Rome on June 28 along with an Italian secret service agent and a financial broker in a separate investigation concerning an alleged plot to smuggle 20 million euros ($26 million) into Italy from Switzerland.

Under questioning by Rome magistrates in July, Scarano said some officials at APSA, whose purpose is to pay Vatican salaries, fund its departments and manage its real estate, allowed the department to be used improperly by outsiders.

"As APSA, we were not allowed to have outside clients, but, despite this, in reality, we acted as a bank," Scarano told the magistrates, according to the transcript of the questioning obtained by Reuters.

"We took in money, used it, and paid out interest to depositors," he said.

The Vatican spokesman, Father Federico Lombardi, said he had no comment on Scarano's questioning.

BANK ACCOUNT

During the questioning by magistrates, Scarano named one Italian banker who had an account at APSA. That account was closed when the banker was caught up in an Italian investigation into market-rigging, Scarano added. Another account holder at APSA was a long-time Vatican benefactor, the prelate said.

Scarano also told prosecutors that he informed a superior of his concerns with the so-called "lay accounts." After this meeting, Scarano said some of the accounts were closed, but then he was promoted to another APSA office where he subsequently had limited access to first-hand information.

In addition to managing real estate and paying salaries, APSA acts as the purchasing office and human resources department for the Vatican, according to the department's statute. Among its lesser-known roles are financial portfolio management and stock management for the Vatican.

Vatican sources say the pope wants the Holy See to cooperate with Italian investigators on the Scarano case. Speaking to reporters aboard the plane taking him back from Brazil in July, Francis used an Argentine expression that means "he's no saint."

Through his position at APSA, Scarano had ready access to the Vatican bank, formally known as the Institute for Works of Religion (IOR), where he had several accounts.

The IOR is currently under pressure from the international financial community to ensure more transparency and comply with international standards against money-laundering.

Since his arrest, Scarano has written three letters to Pope Francis and has asked to meet the pontiff to tell him of what he says were irregular activities in financial administration.