(Adds Vatican bank declined to comment)
ROME, July 6 (Reuters) - Italian prosecutors have dropped inquiries into the Vatican bank's former president, Ettore Gotti Tedeschi, after concluding a money laundering investigation that did implicate two of his juniors, judicial sources said on Saturday.
Prosecutors accuse the bank's director general, Paolo Cipriani, and its deputy director, Massimo Tulli, who both resigned this week, of "authorising illegal financial transactions", the sources, who asked not to be identified, told Reuters.
The Vatican bank declined to comment. Reuters was unable to reach the two men accused in the investigation.
A judge will now decide whether to proceed to a trial of Cipriani and Tulli.
The two directors left the bank on Monday after the arrest of a senior cleric who is accused of plotting to smuggle millions of euros into Italy from Switzerland.
Gotti Tedeschi was ousted from the bank last year. He said he was dismissed because he wanted more transparency, but the board of directors said he had neglected his duties.
The Vatican bank, known formally as the Institute for Works of Religion (IOR), has been a byword for opaque and secretive dealings for decades and its future has been in question since the appointment of Pope Francis in March.
Italian investigators believe the way the bank operated may have facilitated money laundering, according to a document summing up their preliminary inquiries that was leaked to Italian newspapers on Saturday.
Investigators wrote in the document that there was a high risk the bank could be used as "a shield by account holders to disguise illegal operations" because it often did not specify who its actual clients were, the Corriere della Sera daily reported.
The inquiry faulted the bank for failing to make sufficient checks on clients and said account holders were able to transfer sums on behalf of others, Corriere said, citing the document.
Italian banks accepting transfers from IOR also failed to verify the origin of the money, the inquiry found, according to the news report.
In 2010, officials froze 23 million euros ($29.5 million) of the bank's funds in Italian banks as part of the investigation. The Vatican bank said it had done nothing wrong and was transferring its own funds between its own accounts in Italy and Germany. The money was released in June 2011.
Pope Francis set up a special commission of inquiry to reform the bank in June.
The European anti-money laundering committee, Moneyval, said in a report last year that IOR still had to enact more reforms to meet international standards against money laundering. ($1 = 0.7792 euros) (Reporting By Paolo Biondi and Catherine Hornby; Editing by Robin Pomeroy)