The US state department has added the Vatican for the first time to its annual list of countries considered vulnerable to money laundering, despite efforts by Pope Benedict to bring the city state into line with international standards.

The 2012 International Narcotics Control Strategy Report places the Vatican among 68 countries defined as “jurisdictions of concern”, the second of three categories. Most of the world’s leading economies, including the US, are included in the most vulnerable group labelled as being of “primary concern”.

Argentina was one of three countries that moved one notch up the list into the most vulnerable category.

The report, which noted the Vatican’s inclusion for the first time, did not specifically accuse it of being involved in money laundering, although in 2010 Italian prosecutors froze €23m of the Vatican bank, known as IOR, in the course of an investigation into suspected violation of money laundering regulations. The bank denied any wrongdoing. The funds were released last year but the investigation continues.

“To be considered a jurisdiction of concern merely indicates that there is a vulnerability to a financial system by money launderers. With the large volumes of international currency that go through the Holy See, it is a system that makes it vulnerable as a potential money-laundering centre,” the state department said, quoted by Reuters.

In 2009, Pope Benedict appointed Ettore Gotti Tedeschi, a banker and lecturer in ethics in finance, as head of IOR with a mandate to draw a line under its sometimes murky past through greater transparency and by adopting international norms.

This was followed by the naming of Cardinal Attilio Nicora to act as the equivalent of a central banker with a regulatory role over IOR as the Vatican sought to comply with international standards and be included on a “white list” of states complying with tax fraud and money laundering regulations. That process could be concluded later this year, although media reports have suggested that the cardinal’s authorities have been reduced.

Italian newspapers have published leaked Vatican letters that point to internal disagreements over how transparent the Vatican bank should be about its past.

Formally known as the Institute for Works of Religion, the bank was entangled in the fraudulent collapse of Banco Ambrosiano in the 1980s, which resulted in the death of its former chairman, Roberto Calvi, found hanging from London’s Blackfriars Bridge, and the Enimont corruption trials involving payments to Italian officials a decade later.

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