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An exterior view of the tower of the Institute for Works of Religion (IOR) in Vatican City in 2011. REUTERS/Stringer

(reuters_tickers)

By Philip Pullella

ROME (Reuters) - Italy put the Vatican on its "white list" of states with cooperative financial institutions on Tuesday, ending years of mistrust and providing an endorsement of efforts by Pope Francis to clean up the city state's banking sector.

The list includes countries with which Italy has agreements on the exchange of financial and tax information, such as other EU member states.

The upgrade was formalised in a decree published in the government's Official Gazette.

The Vatican is a sovereign state in the middle of Rome whose financial activities the Bank of Italy had for decades viewed with suspicion.

Last July the BOI and Vatican's Financial Information Authority (AIF), signed a cooperation agreement allowing authorities to monitor transactions between Italian

financial entities and the Vatican.

Inclusion on the white list follows more than five years of reforms, started under former Pope Benedict and strengthened under Francis, to bring the Vatican and its troubled bank up to international standards to guarantee transparency and combat money laundering.

Financial organisations had long criticised the Vatican

for providing a tax haven for well-connected Italians by allowing them to hold accounts in the Vatican bank, formally known as the Institute for Works of Religion (IOR).

Francis has made financial reform a central plank of

his papacy and under his watch the IOR closed thousands of

accounts held by people with little or no connection to the Vatican.

The IOR's mandate is to manage funds for Vatican employees, religious orders and charities.

Francis also greatly increased the power and independence of the Vatican's financial intelligence unit.

In 2015, European financial crimes watchdog Moneyval, which had previously criticised the Vatican, issued an overwhelmingly positive report, saying it had made great strides in cleaning up its finances.

Relations between Italy's central bank and the Vatican turned sour 1982 when Italian magistrates held the IOR partly responsible for the crash of Banco Ambrosiano, then Italy's largest private bank.

In 2010, Italian banks, prodded by the central bank and Italian investigating magistrates, stopped dealing with the IOR, and in 2012 Italy blocked the use of debit and credit cards in

the Vatican.

(Reporting By Philip Pullella; editing by John Stonestreet)

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Reuters