Arrested Vatican prelate lived lush life in hometown
* Money laundering investigation began after art burglary
* Police found art collection in vast, luxury apartment
* Monsignor withdrew 560,000 euros cash from Vatican bank in one go
* Police say he part-owner in three real estate companies
SALERNO, Italy, July 4 (Reuters) - Even though he was known to like to live well, police said they were startled when they entered Monsignor Nunzio Scarano's apartment after he called them one night in January to report a burglary.
The apartment, in one of Salerno's most up-market neighbourhoods in the city centre, was huge, with art lining the walls and hallways divided by Roman-style columns.
Scarano, a Vatican official with close ties to the Vatican bank and who is now in Rome's Queen of Heaven jail, had called police to report that thieves had stolen part of his art collection.
Interviews with two key chief investigators in different judicial and police departments in Salerno, in southern Italy, and police pictures of the apartment viewed by Reuters give the most detailed picture to date of Scarano's wealth.
The investigators disclosed that the trove of stolen goods estimated to be worth up to 6 million euro ($7.82 million) included six works by Giorgio de Chirico, one by Renato Guttuso, one attributed to Marc Chagall and pieces of religious art.
"We asked ourselves how did this monsignor come to own this place and possess these expensive works of art," said a senior investigator in the southern Italian city who spoke to Reuters on condition of anonymity.
"He said they were all donations. It is a luxury apartment and we asked ourselves how he could have bought it and where the money came from," he said. Magistrates suspect at least some of it may have come from illegal activity in the Salerno area.
Through his lawyer, Silverio Sica, Scarano said that the art work, the apartment and money in his bank accounts, including two at the Vatican bank, all came from donations and that he had done nothing wrong.
There was no sign of breaking and entering apart from a broken window which police believed irrelevant and the thieves were thought to have entered with a key.
The investigators asked tax police to dig into what Italian investigators call someone's "financial patrimony" - bank accounts, real estate, and stocks. The trail led to the Vatican bank.
The 700 square-metre (7,500 square feet) luxury apartment on Via Romualdo Guarna was not the only piece of property that Scarano owned, either alone or jointly. Investigators discovered that he was part owner of three Salerno real estate companies.
But, most significantly, the investigators discovered that Scarano had withdrawn 560,000 euros in cash last year in one transaction from the Vatican bank, officially known as the Institute for Works of Religion (IOR).
"DON 500 EUROS"
Scarano, well-connected in local high society circles, then divided the cash, most of it in 500 euro notes, among nearly 56 friends. The Italian media has dubbed Scarano "Don 500 euros" because it was apparently his preferred denomination.
Each friend gave him a cashier's check drawn on Italian banks. He then took all the checks to a bank in Salerno and paid off a mortgage on his apartment, which investigators said he had purchased for about 1.7 million euros.
Scarano told investigators that he took the money out of his Vatican bank account because he wanted to pay off his mortgage in order to sell his apartment at a profit and use the proceeds to build a home for the terminally ill. Lawyer Sica also said this was his client's intention.
Investigators said they were now looking into a home for the elderly that Scarano did help build in Salerno. They said they want to determine how the home was built, where the money came from and how it was financed.
An investigator in a police department in Salerno said each of the checks were justified as "a donation" in local bank records.
"But that was a very silly trick. We saw through that so fast. They were false donations," he said. Scarano's lawyer says all donations were genuine.
Referring to Scarano's luxury apartment, which the prelate told investigators was furnished through donations, an investigator said:
"If they were donations, you don't furnish a house like that if you are a priest who has taken vows."
A KNACK FOR NUMBERS
By all accounts, Scarano was a man of the cloth with a knack for numbers.
He worked at banks in Salerno and nearby Battipaglia before he became a priest at the relatively late age of 35.
After serving in a parish in his native Salerno, he entered the Vatican bureaucracy and eventually wound up in its central financial administration office, the Administration of the Patrimony of the Holy See, or APSA.
Scarano was arrested in Rome on June 28 and formally accused of taking part in a plot to smuggle 20 million euros into Italy from Switzerland for his rich friends.. Sica, his lawyer, said Scarano was "just trying to help friends" get their money back into Italy.
An Italian secret services agent and a financial broker were also arrested in the money smuggling case, which is being investigated by Rome magistrates and is separate from the Salerno case. Both investigations are continuing.
The Salerno investigators have formally asked the Vatican bank - via Italy's justice and foreign ministries - for information on a number of accounts there and more information about Scarano's financial activities. When Scarano was arrested, the Vatican said it would cooperate with investigators.
Salerno investigators said they had not yet received any information from the Vatican.
Since his election in March, Pope Francis has made it clear he wants to clean up the Vatican bank. On June 26, he set up a special commission of inquiry, in a bold move to come to grips with an institution that has embarrassed the Catholic Church for decades. ($1 = 0.7672 euros)
(Reporting By Philip Pullella; editing by Peter Millership and Janet McBride)