The Principality of Liechtenstein and Bank Privacy
The Principality of Liechtenstein is a tiny country locked in between Austria and Switzerland; it has just 33,500 residents and ranks as one of the world's smallest countries. But it's also high and has been ruled by the same aristocratic family for centuries, making it one of the world's most politically stable nations.
Not long ago, a popular saying in German-speaking Europe was, "In Switzerland, the bankers don't talk. In Liechtenstein, they don't have tongues". But all that's changed. After reports by Interpol that traces of nearly every white-collar crime committed in Europe led to Liechtenstein, the OECD's Financial Action Task Force put this tiny country on its money laundering "blacklist" in 2000. rapid and painful changes followed. Declaring that "Liechtenstein faces the biggest domestic and foreign political crisis since World War II", Liechtenstein's ruling prince spearheaded sweeping financial reforms that gave the government much greater powers to probe speculate financial transactions, confiscate laundered assets and cooperate with authorities in other countries in investigations of serious crimes.
While Liechtenstein retains a culture of privacy and bank secrecy laws keep on the books, it now has the same know-your-customer rules that are in effect almost everywhere else in the world. However, Liechtenstein nevertheless does not cooperate in foreign tax investigations. Any foreign tax official curious about an account in Liechtenstein is politely shown the door.
Until the new laws took effect, it was possible to hire a lawyer to form a Liechtenstein company or trust and then function a bank explain that entity without the bank ever knowing the identity of the owner. The lawyer was bound by law never to show his clients' identity. It was the ultimate tool for anyone wanting true anonymity. Liechtenstein was the last place in Europe to offer such a service and it attracted many billions of dollars as a consequence. With a near-monopoly for such dealings, Liechtenstein edges had an easy life. So easy that they already had the guts to charge customers a percentage for cash deposits.just think of a shop asking you for a percentage of what's in your wallet before you are allowed to buy something! Life couldn't have been more profitable.
already better, until the early 1990s, there wasn't any competition. Only three edges existed in Liechtenstein. They shared business among themselves, the locals got well-paid jobs and no one had to work particularly hard. Foreign edges finally pressured Liechtenstein into letting them set up shop, but already today there are only 16 edges active in the country.
Given this state of affairs, when the laws changed in 2000, a huge crisis resulted for Liechtenstein's edges. Many trusts and companies wound up their anonymous accounts instead of clarify their beneficiaries. Some edges lost as much as 20% of their clients. The arrival of money slowed and, simultaneously, the dot-com expansion ended, taking equity markets down with it and cutting deeply into the edges' commissions and custody fees. It seemed that the world had conspired against Liechtenstein edges, with everything going wrong at once.
But in retrospect, the tough times did Liechtenstein a lot of good. The new laws forced the edges to stop being fat and lazy. They were forced to cut costs and fees to provide competitive sets. They also learned a lesson about focusing on a single market – asset management – and how to market their sets effectively. In short, Liechtenstein edges re-launched themselves as a safe and clean place for stashing away funds.
One of Liechtenstein's three original edges is the Verwaltungs und Privatbank. Most of VPB's voting shares are controlled by a trust set up by Liechtenstein's ruling family, headed by Prince Alois. VPB offers the complete spectrum of banking sets, but the focus lays on asset management and related sets for wealthy clients. Of Liechtenstein's fat and lazy edges, VPB was one of the fattest and laziest. But financial realities forced it to change. Profits dropped more than 80% between 2000 and 2002, due to shady but profitable clients closing their accounts, falling stock markets and high costs. VPB's proportion price got hit too, falling from its all-time high of CHF380 in 2000 to a low of CHF117 in 2003. In Vaduz – the only city in Liechtenstein – the official money is the Swiss franc (CHF).
But during this time, VPB laid the groundwork for a fresh start, cutting costs and, for the first time, actively marketing its sets. These changes are now bearing fruit. VPB's allurement is safety. A growing number of foreign investors are eager to stash money in a safe haven where it will neither be taxed nor confiscated. In other words, a place like Liechtenstein, where the public finances are so sound that personal income tax was abolished because there wasn't anything to use the money on. Individual freedom and privacy is sacrosanct and there's no history of government confiscation for authentic funds.
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