The tiny Principality of Liechtenstein may not have Switzerland’s prestige, but its strict bank secrecy laws have made it one of the best places to conduct offshore financial activity. Bob Bauman in The Sovereign Society says Liechtenstien’s proposals to clamp down on tax evasion will not dramatically affect the appeal of this tax haven. Limited co-operation with foreign governments may increase, but an upcoming election will preclude any broad opening of the banking system.

“We will not give up bank secrecy,” said Otmar Hasler, Liechtenstein’s Prime Minister in a speech last week. “But we are willing to collaborate with other nations when it comes to the misuse of bank secrecy laws for tax evasion.”

Prince Alois, hereditary ruler of Liechtenstein, also confirmed on Friday that his tiny Alpine tax haven is taking a proactive stance and responding to the foreign critics who are attacking this small nation’s bank secrecy laws.

“The time has come for us to base our system of mutual legal assistance and administrative assistance in tax matters on a new foundation,” the Prince said in his traditional national day speech to the nation.

Crimes Behind Closed Doors

What nudged the historically conservative Liechtenstein to respond to these critics? As you may have heard, this small haven faced an unfortunate situation earlier this year.

In short, the German secret police paid a known felon named Heinrich Kieber more than US$7 million to hand over a stolen CD from one of Lichtenstein’s most trusted banks. Supposedly, the CD contained confidential lists of the bank’s foreign clients. I have previously commented on this gross violation of Liechtenstein’s bank secrecy and criminal laws in my blog.

When this bank theft hit the international newspapers in February, Prince Alois responded with: “German authorities paid a criminal to obtain stolen data. We reject this action.” I couldn’t agree more.

More to the point, Alois praised Liechtenstein for passing several laws since 2000 to combat money laundering. And he pledged, then and now, that the country won’t surrender its strict bank secrecy.

The Billion Dollar Question

So now, the billion dollar question is: Do these latest government actions in Liechtenstein mean the country is surrendering possibly the strictest bank secrecy laws in the world?

Frankly, I don’t think so at all. Liechtenstein was one of the first nations in the world to adopt specific asset protection laws – dating back to 1926 – and I doubt they would give that secrecy up now.

But I’ll get to that in a moment. First, I’d like to give you a quick recap of what’s been happening to this proud country this decade.

This Proud Haven Is Now Even More Squeaky Clean

Back in 2000, the ridiculous Paris-based Organization of Economic Cooperation and Development’s (OECD) and its Financial Action Tax Force (FATF) blacklisted this country because it was supposedly lax on money laundering
In response to this undeserved attack, the Principality of Liechtenstein carefully revised its laws in 2000 to become more transparent and cooperative with other nations in cross-border criminal matters.

At the time, Liechtenstein also adopted tough anti-money laundering laws that cover all crimes. The country created a Financial Intelligence Unit (FIU) to oversee the financial sector.

Financial professionals imposed much stricter “know-your-customer” and suspicious activity reporting requirements. To some minor degree, the country also eased its historic, very strict financial secrecy now under attack once again.

Liechtenstein made such strides that the country was removed from the OECD/FATF money laundering blacklist just a year later.

Most recently, Liechtenstein’s parliament approved amendments to the country’s law on foundations on June 30, 2008. Foundations are the country’s most popular asset protection tools.

The recent amendment makes these vehicles more open and imposing certain restrictions intended to curb their use for tax evasion, but not compromising traditional secrecy.

In spite of all this outside pressure, Liechtenstein has refused to surrender its financial privacy laws for the past eight years. All the while, Lichtenstein has preserved its long history of excellent asset protection and private banking. That’s one of the major reasons why this tiny Alpine redoubt has been one of my top choices for offshore financial activity and estate planning.

Secrecy That’s Even Stronger Than Switzerland

Liechtenstein’s banking and financial secrecy statutes historically have been considered stronger than even those that apply in nearby Switzerland.

Tax evasion is not a crime in the country and until now tax information rarely has been shared with foreign governments. Now this may change to a limited degree.

Bank secrecy is an established legal obligation under Liechtenstein law. This obligation can only be lifted by a local court order. At present you need a court order to release or examine an account holder’s bank records.

Foreign governments or creditors who want your bank records in Liechtenstein face a time-consuming and costly process. By law, Liechtenstein does not have to honor a foreign court’s information request. The local courts can approve such requests but only if the foreign court shows the alleged offense involves a clear violation of local Liechtenstein law.

The cost and time required for such appeals tends to deter foreign-based claims and lawsuits in many cases. Just having your money in Liechtenstein can also help you settle much faster because it saves creditors or lawyers time and money.

It’s an Election Year: Secrecy Is Here to Stay

Prime Minister Hasler recognizes that even the hint of liberal tax information co-operation could unsettle many members of the principality’s large financial services sector. The government faces elections in February 2009 and bank secrecy remains a highly sensitive issue.

“We are in a pre-election period. So such a proposal is extremely controversial. But I’m convinced it’s essential to implement this strategy for Liechtenstein’s future,” said Hasler.

In short, after conferring with trusted investment and legal experts we work with in Liechtenstein, I believe yes, Liechtenstein officials may allow a very limited cooperation on tax information with foreign governments in individual cases.

But they will NOT open the doors to fishing expeditions. Sorry tax collectors. Liechtenstein and its bank secrecy is here to stay.

Source: Why this Small Haven’s Bank Secrecy Is Still Alive and Well