- The Washington Times - Saturday, February 23, 2008

VADUZ, Liechtenstein (AP) — Liechtenstein is in trouble again over its banking rules — accused of being a haven for European tax evaders — years after it hurriedly revised its laws to shake off the label of being a money-laundering center.

While the tiny Alpine principality has touted the reforms it made several years ago, German investigators accuse hundreds of wealthy Germans of stashing away their money in Liechtenstein trusts, and hiding behind banking secrecy laws to evade taxes.

Ruling Prince Alois, who has sweeping rights including the power to dismiss governments and veto laws, has admitted in the past that Liechtenstein had a “big problem” with its image, but he pointed to strong regulations in fighting money laundering and terrorism funding.

He jumped into the fray Tuesday to again defend his realm — saying Germany should get its own tax system under control.

The spat has dragged Europe’s tax havens back into the spotlight — a touchy subject and an uncomfortable media glare for Liechtenstein, a famously discreet bastion of gentility nestled in the Alps between Austria and Switzerland.

t he Organization for Economic Cooperation and Development, a 30-country watchdog body, says Liechtenstein is among only three countries still on its blacklist of “uncooperative tax havens” — along with the small European nations of Andorra and Monaco.

Liechtenstein had been lobbying to have its name removed from the list, saying the classification is based on outdated information But the renewed pressure is likely to increase international scrutiny of the continent’s other shady financial centers.

“Excessive bank secrecy rules and a failure to exchange information on foreign tax evaders are relics of a different time and have no role to play in the relations between democratic societies,” Angel Gurria, secretary-general of the OECD, said in a statement.

Liechtenstein, Monaco and Andorra have tourism and other industries, but financial services play an outsized role in maintaining high living standards in all three.

Banking fueled Liechtenstein’s transformation from a poor agricultural country, bringing an influx of wealth to the sovereign state whose per capita income of $102,000 now ranks it among Europe’s wealthiest countries. Glass-and-steel banks line the streets of the capital, Vaduz, below a towering medieval castle.

The financial sector developed with close links to Switzerland — another country whose fabled banking secrecy has attracted fortunes from around the world. As in neighboring Switzerland, tax evasion is not a crime.

Liechtenstein’s banks have taken a blow to their reputation because of the dispute, said Andreas Venditti, a financial analyst at Zurcher Kantonalbank in Switzerland.

Claudia Meier, an analyst at Zurich-based private bank Vontobel, said the tax affair would likely hurt Liechtenstein’s banking business, with German clients withdrawing assets and new investments declining.

That could deal a sizable blow to the economy. Banks and other financial services contribute 30 percent of Liechtenstein’s gross domestic product of $3.9 billion, and the royal family owns the country’s largest bank — which handles investments from clients around the globe.

German Chancellor Angela Merkel is pressing for quick progress toward a European Union-Liechtenstein anti-fraud agreement, citing an agreement the principality has with the United States that could provide a guide.

“We say that what is possible with the United States … should also be possible with the European Union,” Merkel said.

The dispute began with a German tax-evasion investigation, based on a CD-ROM of Liechtenstein bank client information obtained by German authorities. Tax inspectors have been conducting a string of raids across the country.

The key problem identified by German officials in the investigation: private trusts opened in Liechtenstein that potentially could be used for tax evasion.

Liechtenstein’s government says it is preparing a reform of laws governing such trusts, but delegates noted that the changes have been planned since 2001 and had nothing to do with recent complaints from Berlin.

Liechtenstein Justice Minister Klaus Tschuetscher said registering foreigners to trusts in Liechenstein anonymously through a local attorney or trustee is allowed by international law.

He said the complaint that this encourages foreigners to use Liechtenstein trusts for tax-evasion purposes was “an absurd theory.”


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