VATICAN CITY — In a small room on an upper floor of the Vatican’s only bank, dozens of auditors pore over accounts looking for potentially sinister activity. The bank, known as the IOR or Institute for Works of Religion, is, perhaps fittingly, housed in a medieval tower that once was used as a Vatican prison. It is undergoing a tedious reinvention of sorts, trying to clean up its act after decades of scandals. Rooting out clients who have used the bank’s lackadaisical standards is an essential step in its reincarnation as a trustworthy financial institution.

“To understand IOR, you have to look beyond the towers and castles,” Max Hohenberg, the bank’s spokesperson told The Daily Beast on a tour of the facilities. “You have to start with the concrete services the institute provides and understand that we have a unique set of clients.”

Indeed. The bank’s current president Ernst von Freyberg, a German analyst who was appointed to the job by Pope Benedict XVI in 2013 after the previous president Ettore Gotti Tedeschi was ousted in 2012, has no easy task ahead of him. Among the ongoing calamities playing out in the background as he works to reform the bank are two very serious criminal cases:

The bank’s former general director Paolo Cipriani and his deputy Massimo Tulli are facing trial for money laundering in the Italian judicial system. And Nunzio Scarano, a priest known as Monsignor 500 for his penchant for moving cash denominated in €500-euro bills (worth almost $700 each), is facing trial for allegedly using his Vatican bank account to launder some $26.2 million from Switzerland. Scarano was the director of accounting services for the Vatican’s treasury.

The bank acknowledges that it has some problems, but says they are anomalous. “We have no indication of systematic abuse,” Von Freyberg told The Daily Beast. “Over the past 12 months we have identified a few black sheep.”

On Monday the Vatican’s Financial Intelligence Authority or AIF, which was formed by Benedict in 2010 to help set up a regulatory system to combat money laundering within the bank, presented its first report on just how the bank is doing. The AIF was given an important endorsement in November 2013 when Pope Francis issued a motu proprio or decree in his own words that bolstered the reach of the AIF to include supervision and financial intelligence.

According to the initial findings outlined in the report, IOR has been steadily identifying many more suspect bank clients than ever before. In 2012, there were just six cases of suspicious activity by account holders reported to authorities; in 2013, there were 202 such cases.

According to René Brülhart, the oversight director of the AIF, pressure from international banks that the IOR does business with played an important role in the progress. “This increase is also due to international cooperation fostered by a series of bilateral agreements we have concluded,” he told reporters on Monday when he presented the report.

But despite the bank’s efforts to improve its best practices, not everyone is willing to do business with the IOR just yet. Among the most problematic entities that refuse to recognize the IOR as a trustworthy financial institution is the Bank of Italy, which reigns over dozens of Italian banks and many international banks with Italian branches. That means Italian account holders with IOR accounts, including countless Vatican employees who live in Rome and get paid into their Vatican bank accounts, cannot transfer funds to most banks outside the Vatican City State, which then forces them to transfer the money in cash, opening the door to tax evasion, corruption or money laundering.

In fact, the bank’s biggest problem has always been its reliance on cash. More than 25 percent of all its business is cash based, which can be explained away by the fact that more than half of its account holders are religious institutions that make their money from cash donations. But, according to Brühlart, the number of cash transactions exceeding €10,000 ($14,000) also has decreased steadily. IOR registered 1,557 declarations for outgoing cash in 2013, down by more than 200 from a year earlier and just 550 declarations for deposits of more then €10,000 in 2013, down by 48 from 2012. This, he says, is due to the introduction of new procedures and more prudent monitoring of activities.

Before 2010, the bank essentially turned a blind eye to large cash deposits and withdrawals, which cost them dearly. Major financial institutes, including JP Morgan, ceased doing business with the IOR in 2012 because of a lack of transparency.

Now, it operates more in accordance with international standards, including those set forth by the European Union’s Moneyval, which issued a damning report in 2012 (PDF) that led to the temporary suspension of credit card services at the Vatican’s museums and souvenir shops.

Brühlart says that the Vatican is making real progress. “The Evaluation conducted by Moneyval, the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism of the Council of Europe, in December 2013, and our statistics allow us to say that today we have a proper and equivalent system in place to prevent and fight financial crime,” he says. “A system that is well in line with international standards.”

No doubt having mostly clergy as customers helps. “We deal with trustworthy clients, nuns, priests and religious institutions,” Von Freyberg told The Daily Beast. “They are clearly one of the safest clientele around, whose mission it is an honor to support.”” Or so you would think.