Trusts
may be set up under foreign law, but may not
have more favourable treatment than would apply
under Liechtenstein law. A trust under foreign
law is a Liechtehnstein Trust and subject to
local taxation. Liechtenstein law applies to
a foreign trust if the trustee, or more than
half of the trustees, are resident in Liechtenstein,
if the trust property is in Liechtenstein, or
if the Trust Deed says so
In
response to its inclusion on the FATF money
laundering blacklist in 2000, Leichtenstein
enacted new money laundering legislation, including
a new regulation in relation to the law on the
duty of care, which had been passed by parliament
in its September 2000 session and came into
force on January 1 2001. The government also
abolished the existing privilege of trustees
and lawyers by which they did not have to disclose
the identity of their clients to banks where
funds are invested.
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Liechtenstein
Banking Law
The
Liechtenstein banking sector is regulated under
the Law on Banks and Finance Companies 1993;
this law was substantially amended following
Liechtenstein's entry into the EEA in 1995,
through the Law on Banks and Finance Companies
1998. The Act concerning Banks and Savings Funds
1960 imposes heavy penalties for breaches of
professional secrecy. Other recent legislation
dealt with due diligence on the part of bankers
accepting deposits or assets, installing 'know
your customer' rules.
The
"know your customer" system is legally
compulsory (and has been since October 2000)
for all banks that belong to the Liechtenstein
Bankers' Association. This means that banks
in Liechtenstein, previously known as one of
Europe's most secretive tax havens, can no longer
guarantee anonymity for new and existing account
holders, although further account details will
remain under normal banking secrecy agreements.
In
December, 2000, Liechtenstein signed the United
Nations Convention Against Transnational Organised
Crime in Palermo, Sicily, to demonstrate the
country's commitment to stamping out money laundering.
Also
in December of that year, Liechtenstein announced
that it had issued a new regulation in relation
to the law on the duty of care, which had been
passed by parliament in its September 2000 session.
The revised law on the duty of care and the
associated regulation came into force on 1 January
2001.
Late
in 2003, Parliament approved the adoption of
EU Directive 2001/97/EG, which amended the existing
Directive on the prevention of the use of financial
systems for money laundering purposes.
Vice
Parliamentary President, Peter Wolff complained:
"The report and motion of the government doesn't
mention that this regulation opens up the issue
of fraudulent tax evasion. I gained the impression
that the government intends to sweep the critical
points in the directive under the carpet."
In
August 2004, the Government decided on a total
revision of the Due Diligence Act; the revised
Due Diligence Act entered into force on 1 January
2005.
Prime
Minister Otmar Hasler explained that: 'In order
to enhance the efficiency and attractiveness
of the Liechtenstein financial center, due diligence
provisions must be further developed and modernized
in accordance with the changed European guidelines.'
In
addition to implementing the 2nd EU Directive
on Money Laundering, the goal of the revision
of the Due Diligence Act was to create a modern
law that takes into account the newest developments
and international standards in the prevention
of money laundering, organized crime, and terrorist
financing.
'For
the benefit of the international community,
Liechtenstein has been and continues to be willing
to take action against such grave abuses,' Prime
Minister Hasler explained. 'Against this backdrop,
the Government endeavors to maintain the 'high
level of compliance' ascertained by the International
Monetary Fund with respect to the suppression
of money laundering, organized crime, and financing
of terrorism. In the context of international
recognition, due diligence legislation will
also take into account the 40 revised recommendations
and the 8 special recommendations on terrorist
financing of the FATF and the recommendations
arising from the MONEYVAL and IMF assessments.'
In
2008, the banking sector became the centre of
an international row over tax evasion, which
was sparked by the use by German taxpayers of
Liechtenstein entities to duck their tax liabilities
in their home country.
The
scandal first broke after it emerged that the
home of Klaus Zumwinkel, Chief Executive of
Deutsche Post, one of Germany's largest companies,
had been raided by police as part of a tax evasion
investigation. He was accused of hiding about
EUR1 million from German tax collectors in Liechtenstein.
Zumwinkel
was subsequently forced to resign by Deutsche
Post, but the affair did not end there. On Monday,
it was reported that several more homes and
offices in the Frankfurt area and in southern
Germany have been raided, after the intelligence
services received information from a former
employee of a Liechtenstein bank about hundreds
of wealthy German clients.
The
informant, an ex-employee of LGT, Liechtenstein's
largest bank, was said to have handed over a
disc to the German intelligence service, the
BND, containing confidential information on
more than 1,000 clients. The BND was believed
to have paid the informant a sum of between
EUR4 and EUR5 million for the disc.
Following
the revelation, Prince Alois reiterated his
message that the jurisdiction would continue
to improve its financial sector regulation,
but that this would not come at the expense
of an erosion in individual privacy.
"The
Liechtenstein financial centre has already undertaken
considerable reform efforts in recent years,
but more reforms will be necessary, not only
to ensure the competitiveness of the financial
centre for the future, but also to enhance it,"
the Hereditary Prince told Parliament.
"Other
financial centres have caught up by creating
new, attractive business environments, while
the international pressure has risen on locations
offering a high level of protection of privacy,"
he observed.
The
scandal had repercussions throughout the world,
and in February 2008, US Senator Carl Levin
(D-MI), announced that he intended to investigate
whether US citizens may have had dealings with
the Liechtenstein bank at the centre of the
row over tax evasion and offshore secrecy laws.
Levin,
who had long campaigned for legislation to prevent
Americans from moving money offshore, recently
revealed that the Senate Permanent Committee
on Investigations, which he chairs, would launch
a probe into reports that the stolen computer
disc containing details of clients of Liechtenstein's
LGT Bank also included several American names.
It
also emerged that month that the Internal Revenue
Service had initiated enforcement action involving
more than 100 US taxpayers, to ensure proper
income reporting and tax payment in connection
with accounts in Liechtenstein.
The
national tax administrations of Australia, Canada,
France, Italy, New Zealand, Sweden, United Kingdom,
and the United States of America, all member
countries of the OECD's Forum on Tax Administration
(FTA), had also announced that they were working
together, following revelations that Liechtenstein
accounts were being used for tax avoidance and
evasion.
"Combating
off-shore tax avoidance and evasion are high
priorities for the IRS," explained IRS
Acting Commissioner Linda Stiff.
“We
are determined to protect the United States
tax system from abuse and ensure that taxpayers
pay what they owe. We will use all our authority
to fairly and effectively enforce our tax laws.
It should be clear from recent events that there
is no safe hiding place for the proceeds of
tax avoidance and evasion. Anyone with hidden
income and gains would be well-advised to make
a prompt and complete disclosure to the Internal
Revenue Service," she added.
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