U.S. Sanctions Cause Liechtenstein Fiduciaries to Flee
Liechtenstein Trust Companies Fleeing Amid US Sanctions Against Wealthy Russians
A financial crisis is unfolding in Liechtenstein due to the exodus of trust companies catering to wealthy Russians under the pressure of U.S. sanctions. The U.S. Office of Foreign Assets Control (OFAC) has targeted several foundations in Liechtenstein, placing some of their trustees on the sanctions list.
The fear of being swept up in the U.S. sanctions regime has prompted trustees to resign en masse from foundations with ties to Russia. The resulting vacuum has seen hundreds of foundations effectively frozen, with total assets estimated to run into several billions of Swiss francs.
The financial sector plays a crucial role in Liechtenstein's economy, with estimates suggesting that the financial center is around 100 times larger than the country's economic output. Tax-saving foundations often make headlines, providing a way to bundle assets such as company shares, real estate, cash, or securities globally. While the founder benefits from tax savings, they can also promote specific purposes and protect assets from third-party access.
Since April 2021, around 475 trusts have been affected, with around 350 undergoing reappointment, 40 in the process of liquidation, and 85 struggling to find replacement administrators. Not all of these trusts are linked to Russia.
The situation has elicited efforts from Liechtenstein's government to contain the turmoil in the crucial financial sector. Possible solutions include providing legal certainty to lawyers willing to wind down foundations, transferring abandoned trusts to a winding-up bank, or placing them under the supervision of Liechtenstein's financial market authority, FMA. However, details remain hazy, with a government official stating only that "solutions are regularly examined."
The crisis poses the most significant challenge to Liechtenstein's financial credibility since the 2008 LGT Bank tax scandal. The U.S. action could potentially threaten Liechtenstein's access to US dollar markets, with broader economic implications for its $930 billion financial sector.
Sources: ntv.de, Oliver Hirt and John O'Donnell, rts
1) The ongoing financial crisis in Liechtenstein, stemming from the departure of numerous trust companies, has brought US sanctions against wealthy Russians into the general-news, employment policy, and political discussions, as the exodus has resulted in hundreds of trusts needing reappointment or liquidation, affecting the stability of many businesses and the community within the country's financial sector.
2) The crisis, with roots in the U.S. sanctions against Russian wealth, has sparked uncertainty in Liechtenstein's employment policy and finance sector, as trustees resign en masse, foundations freeze, and the future of around 475 trusts remains uncertain, leading to potential implications for the country's broader economy, including its access to US dollar markets. This situation, following the 2008 LGT Bank scandal, has emerged as the most significant challenge to Liechtenstein's financial credibility and, by extension, its overall business reputation.
