Monsignor Nunzio Scarano, a suspended Vatican official who was arrested in June on money-laundering charges, told prosecutors that his office, the Administration of the Patrimony of the Apostolic See (APSA), has handled and provided financial services for outside clients.

Based on a transcript copy of questioning, Monsignor Scarano told Italian prosecutors that APSA had indeed "acted as a bank."

Emblem of APSA, Vatican

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

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

APSA's main mandate is to pay Vatican salaries, fund its departments and manage its real estate. It also acts as the Vatican's purchasing office and human resources department. It also handles financial portfolio management and stock management for the Holy See.

Arrested in Rome on June 28, Monsignor Scarano was alleged to have been plotting to smuggle 20 million euros ($26 million) into Italy from Switzerland. An Italian secret service agent and a financial broker were likewise arrested relative to these allegations.

Monsignor Scarano's lawyers had denied that their client laundered or plan to launder the money.

The suspended Vatican official reportedly told the prosecutors the identity of one Italian banker who had an account at APSA, but was immediately closed when the latter got involved and was subsequently caught up in an Italian investigation into market-rigging. Other such APSA account holders was a long-time Vatican benefactor.

Monsignor Scarano said the "lay accounts" were known to a Vatican superior as he told the latter about it. Immediately after that meeting, some of those accounts were closed.

The 61-year-old Monsignor Scarano is in his home city of Salerno, under arrest in a hospital there.