Liechtenstein Geared Up For Money Laundering Ramifications

Ulrika Lomas, Tax-news.com, Brussels

13 June 2000

In recent months, the reputation of Liechtenstein as an offshore financial centre has been tarnished by the arrest of many of its citizens on money laundering charges and, despite announcing details last month of new money laundering legislation, which is to come into force at the beginning of 2001, this small country is girding itself for yet more trouble ahead.

One of the major concerns of the Liechtenstein government is that the country could potentially face economic sanctions by major powers such as the US and France if a Financial Action Task Force (FATF) review, the outcome of which should be made public at the end of June, puts it on a blacklist of states that fail to combat money laundering. The OECD's FATF review is essentially a check to see if countries are complying with its guidelines on how to fight the laundering of criminal proceeds, although the OECD recently announced that action would only be taken on the basis of a second list to be issued in June, 2001.

Government members met last week to discuss the anti-money laundering legislation that has been proposed and made known their fears. Foreign Minister Andrea Willi said 'We have had contact with the FATF people and we know this is no joke. This is deadly serious.'

The potential confrontation comes amid a wave of arrests triggered by a probe of whether the Russian mafia and Colombian cocaine cartels were using Liechtenstein to launder profits. Five people remain in investigative custody. Liechtenstein has endeavoured to try and restore its reputation by announcing a package of remedial legislation last month to address most of the problems, but the real threat of blacklisting remains.

The eventual 2001 blacklist of uncooperative counties will be the basis for individual FATF members to consider adopting bilateral sanctions against financial centres and plans have already been prepared, primarily in the US and France, which could well be implemented. Sanctions could include the blocking of bank accounts, demands for details on transactions, the identification of customers or mandatory approvals for individual financial transfers.

Mario Frick, head of the Vaduz government, has repeatedly stressed that Liechtenstein is committed to cracking down on money laundering and is setting up a Financial Intelligence Unit as an early warning system for potential abuse of its banking secrecy. At last week's meeting he said 'We protect the privacy of customers. We don't protect criminals.'

Notably, Frick is taking the threat from the FATF more seriously that the ramifications of the Financial Stability Forum's recent report, which put Liechtenstein amongst other jurisdictions deemed as least compliant on financial supervision. He said of the Forum's rating `When you look at who is on the first (best) list and who is on the second list, then with all due respect there is something wrong here.'

As far as the FATF is concerned, Frick commented that an adverse finding 'could be very sensitive.' He clearly feels that Liechtenstein has already been harmed by both the money laundering scandals and the intense scrutiny of the FATF. He said 'If an American bank, for example, would not do transactions with Liechtenstein any more, this would be a problem. And even if these states say "OK, you are on the right track", you still have to fear that some overeager bank says "we had better break off relations". The damage is done in either case.'

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