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Vatican near deal on financial information sharing -source

New recruits of the Vatican's elite Swiss Guard march during the swearing-in ceremony at the Vatican May 6, 2014. REUTERS/Tony Gentile

By Philip Pullella

VATICAN CITY (Reuters) - The Vatican and Italy are close to reaching an agreement to share financial and tax information in the aim of cracking down on money-laundering and other illicit behavior, a senior Vatican official said on Tuesday.

The deal, which the official said could be announced as early as this week, is part of Pope Francis' efforts to clean up the finances of the Vatican. The official asked not to be named, because he is not authorised to discuss the accord.

The Vatican has long been criticized by international financial organizations for providing a tax haven for well-connected Italians.

In particular, the Vatican bank for decades allowed many Italian citizens to hold bank accounts. That practice, which was in violation of the bank's mission to manage money for the Church, helped individuals evade taxes and launder cash, Italian law enforcement officials say.

Since Pope Francis' election two years ago, the bank, officially known as the Institute for Works of Religion (IOR), has been undergoing change. As of July, it had blocked the accounts of 2,000 clients and ended some 3,000 "customer relationships".

The process is nearly finished and the bank's 2014 annual report will be issued in a few weeks, a person close to the bank said.

The accord on information sharing between the two neighbours was flagged earlier this month by Italian Prime Minister Matteo Renzi, who said discussions were underway with the Vatican, following Rome's recent agreements with Switzerland, Monaco and Liechtenstein.

One complicating factor concerned how the agreement should treat money held in the Vatican by religious institutions and orders of priests and nuns based in Italy.

Some religious institutions run guest houses but some of the profits go to help missions in the developing world or for charity purposes -- money the institutions feel should not be taxed by Italy.

The talks also suffered a hiccup over the issue of whether any new measures agreed by the deal would be retroactive, according to one Italian official familiar with the negotiations.

The Vatican official declined to give details, but said the talks had since got back on track.

(Additional reporting by Elvira Pollina, Francesca Landini, and Giuseppe Fonte; editing by Alessandra Galloni and Crispian Balmer)