Liechtenstein
Anti-Money Laundering and Combating the Financing of Terrorism-Technical Note

This Technical Note evaluates the state of Anti-Money Laundering and Combating the Financing of Terrorism in Liechtenstein. Liechtenstein has made significant steps and achieved considerable progress since the last mutual evaluation, particularly in bringing its legal framework more closely in line with the Financial Action Task Force recommendations, consolidating an overall robust institutional framework for combating money laundering and terrorist financing and moving toward greater transparency. Domestic cooperation is robust, and key stakeholders enjoy the trust of the financial and nonfinancial sectors. However, effective implementation is uneven and not always optimal. Liechtenstein’s proactive use of the in rem regime of confiscation of criminal proceeds has proven to be quite effective.

Abstract

This Technical Note evaluates the state of Anti-Money Laundering and Combating the Financing of Terrorism in Liechtenstein. Liechtenstein has made significant steps and achieved considerable progress since the last mutual evaluation, particularly in bringing its legal framework more closely in line with the Financial Action Task Force recommendations, consolidating an overall robust institutional framework for combating money laundering and terrorist financing and moving toward greater transparency. Domestic cooperation is robust, and key stakeholders enjoy the trust of the financial and nonfinancial sectors. However, effective implementation is uneven and not always optimal. Liechtenstein’s proactive use of the in rem regime of confiscation of criminal proceeds has proven to be quite effective.

1. Key Findings

1. Liechtenstein has made significant steps and achieved considerable progress since the last mutual evaluation, particularly in bringing its legal framework more closely in line with the Financial Action Task Force (FATF) recommendations, consolidating an overall robust institutional framework for combating money laundering (ML) and terrorist financing (TF) and moving towards greater transparency. Domestic cooperation is robust, and key stakeholders enjoy the trust of the financial and nonfinancial sectors.

2. However, effective implementation is uneven and not always optimal. Liechtenstein’s proactive use of the in rem regime of confiscation of criminal proceeds has proven to be quite effective, however, the near absence of convictions for ML and the exiguous number of ML standalone prosecutions, already noted by the last mutual evaluation, call into question the effectiveness of the criminal approach to ML. The feedback received from several countries on mutual legal assistance (MLA) and the statistics provided by the authorities show that substantive progress has been achieved in an area that is particularly relevant, given that practically all the predicate offenses to ML occur outside the country. While the majority of countries indicated, to varying degrees, that information exchange with the Liechtenstein’s Financial Intelligence Unit (FIU) is good, a few were more critical. The number of onsite inspections carried out by the Financial Market Authority (FMA) has increased significantly since the last mutual evaluation, but the over-reliance on external firms to conduct on-site inspections, the lack of a fully fledged risk-based approach to supervision and the limited use of sanctions somewhat reduce the overall effectiveness of the supervisory regime. Finally, the effective implementation of the preventive measures and of the reporting of suspicious transactions is uneven across and within the various sectors subject to the anti money laundering (AML)/counter financing of terrorism (CFT) requirements, and affected by the over-reliance on trust and company service providers (TCSPs) for the performance of certain elements of the customer due diligence (CDD) process.

3. Few, albeit significant, legal shortcomings remain. The most important one concerns financial secrecy provisions, which are fragmented, not always fully coordinated, and could have an impact on the FIU’s core functions and negatively affect the overall effectiveness of the AML/CFT regime. A review of all secrecy provisions should be undertaken to remove any inconsistencies and to ensure that these provisions do not limit or pose a challenge to an effective implementation of the AML/CFT framework. There should be a clear provision stating that authorities’ powers with regard to AML/CFT supersede any secrecy provisions enshrined in other laws.

4. There are some intrinsic vulnerabilities, of which authorities are aware, that continue to expose the country to risk of ML (and could, potentially, create a risk of FT). The business model of Liechtenstein’s financial center focuses on private banking, wealth management, and mostly nonresident business, which are regarded as high risk by the FATF. It includes the provision of corporate structures such as foundations and other companies and trusts that are designed for wealth management, the structuring of assets, and asset protection. Banks continue to be exposed to ML risks as they offer a variety of products that can be abused for ML purposes. The TCSP sector in Liechtenstein is particularly vulnerable to the risk of ML (and, potentially, to FT) because of the services offered and the types of customers served, who often are intermediated, nonresident, and components of existing legal structures. While industry representatives were generally aware of AML/CFT measures and obligations, their level of implementation is not always commensurate with the risk level of the sector. The role of TCSP in creating often very complex legal persons that can make it challenging to trace back beneficial ownership amplifies the risk that this particular sector is facing. The insurance sector has developed over the years, and a number of suspicious transaction reports (STRs) have been submitted that showed an increasing use of insurance products. The real estate sector does not appear to pose particular risks, considering the limited possibilities of investment and the inaccessibility for foreigners. There are no bureaux de change, no notaries, and (as yet) no casinos in Liechtenstein.

5. The vulnerabilities of the TCSP sector impact the entire framework in Liechtenstein due to their central role as repository of beneficial ownership information (for the purpose of Recommendation 33), and the over-reliance placed upon them by financial institutions and other Designated Non-Financial Businesses and Professions (DNFBPs) in carrying out the CDD process. These risks are further amplified by a general and residual tendency for industry and other participants to prioritize confidentiality. To mitigate these risks, the authorities should consider requiring enhanced due diligence (EDD). Such EDD should go well beyond the minimum current requirement of a signed certificate stating the identity of the beneficial owner and should include a high degree of knowledge of the expected profile of business coming from the beneficial owner.

1.1. Legal Systems and Related Institutional Measures

6. Liechtenstein has brought the ML offense fully in line with the relevant convention and FATF standards, but there are questions on its effective implementation. The substantial number of investigations only very exceptionally results in a domestic ML prosecution, and there was only one conviction since 2007. The repressive approach is still under pressure as a result of its reliance on external factors and the perceived high level of burden of proof concerning the predicate criminality. Liechtenstein maintains a policy of transferring prosecutions to foreign judicial authorities whenever this measure is deemed more effective. The recommendation of the previous assessment to develop autonomous money laundering cases to attenuate the (over)reliance on external factors has not yet been followed up.

7. The authorities took great care to ensure the technical implementation of the CFT standards. All FT Convention Treaties have entered into force in Liechtenstein and the sole financing of all offenses covered by the relevant treaties is now punished as terrorist financing. Another important gap has been addressed by penalizing the financing of a terrorist individual or group as such. The imprisonment term is rather low, particularly in comparison with the sanctions wielded by most European jurisdictions, weakening their deterrent and dissuasive effect. All in all, however, the legal and institutional framework is adequate enough to capture any FT indication.

8. A strong point in the Liechtenstein AML/CFT system is its focus on asset recovery. Beside the criminal confiscation the Liechtenstein regime also features a civil forfeiture procedure that is systematically used to significant effect for foreign predicate proceeds, taking priority over criminal convictions. The civil in rem confiscation procedure is indeed a powerful and effective tool, particularly in a criminal policy system that is quite reliant on foreign investigations and prosecutions. The results of the Liechtenstein confiscation regime, translated in the number of conservatory measures, the systematic use of the in rem confiscation possibilities and the overall amount of forfeited criminal assets, must be underscored, notwithstanding some elements can hamper the performance of the system. In particular, the seizure/confiscation measures dispatch still can suffer from dilatory procedures before the Constitutional Court, which merits a serious reflection by the legislator to strike an appropriate balance between the protection of fundamental rights and a reasonable application of the procedures.

9. The adoption of the Enforcement of International Sanctions Act (ISA) significantly improved the legal framework governing the terrorist asset freezing regime in Liechtenstein, but some issues remain. Except for public guidance on delisting, there are now clear-cut procedures in place for challenging or reviewing the administrative measures and governmental decisions on freezing listed terrorists’ assets, both in a United Nations Security Council Resolution (UNSCR) 1267 and 1373 context. The ISA restriction to only enforce the sanctions adopted by the “most significant trading partners” cannot be reconciled with the general purport of UNSCR 1373 by unduly narrowing the implementation of the resolution from the very start. Also, neither the ISA nor any other legal text determines how to proceed in the event of the establishment of a domestic list.

10. The FIU’s power to obtain additional information from any reporting entity was strengthened right after the onsite visit. However, the FIU’s power to gather information established by Article (Art.) 4.3. of the FIU Act is subject to secrecy provisions and could affect the FIU’s ability to properly undertake its core functions. Additionally, certain provisions in sector-specific laws restrict the possibility for the FIU to get the full range of information it needs from the FMA. Liechtenstein should ensure that none of the FIU’s powers to request and obtain information from domestic authorities and reporting entities are subject to any unduly restrictive conditions and should amend Art. 4.3. of the FIU Act in that regard. Clear provisions should be introduced to compel domestic authorities to provide information requested by the FIU, and reporting entities should be subject to specific sanctions for failure to provide information to the FIU when so requested.

11. The quality of notifications disseminated by the FIU to the Office of the Public Prosecutor (OPP) has improved over time as a result of an enhancement to the analytical process. The FIU should keep this aspect of its functions under constant vigilance to ensure that the improved quality of notifications is maintained. The FIU issued comprehensive guidelines on the manner of reporting, including standard reporting forms and the procedure to be followed in the submission of Suspicious Activity Reports (SARs) by reporting entities and has continued providing training to reporting entities.

1.2. Preventive Measures—Financial Institutions

12. Liechtenstein’s legal framework for preventive measures has been significantly improved, but its effectiveness is hampered by certain characteristics inherent in the business model and by issues related to the implementation of the AML/CFT requirements across the financial industry. While there is a general understanding of AML/CFT obligations, their implementation and effectiveness are negatively affected by certain factors. Effectiveness is particularly undermined by the prevalence of and over-reliance on professionals (mostly trustees) introducing contracting parties, both foreign and domestic, who often establish and represent legal structures on behalf of the customer, which is a predominant characteristic of the Liechtenstein’s financial business model. Such arrangements might distort the various elements of AML/CFT obligations, particularly the identification and verification of the beneficial owner. Financial institutions (FIs) do not necessarily consider the high risk activities and customers specifically categorized by the FATF and the Basel Committee on Banking Supervision. Accordingly, the effectiveness of the AML/CFT framework is undermined by a failure to treat identified higher risk customers and activities as such. Assessors noted uneven implementation of due diligence obligations across FIs, often without regard for the high risk nature activities and customers. Certain FIs described thoughtful and thorough policies and procedures developed based on risk, whereas other institutions described weak risk assessments and policies and procedures that appeared to be taken directly from the minimum requirements set forth in law, without giving thought to prevailing risks specific to the institution or instituting additional procedures to effectively manage risks. Of particular note are deficiencies related to the general lack of development of exhaustive customer profiles based on reliable and up-to-date information and documentation, necessary to fully understand customers and their beneficial owners, including in the cases of higher risk legal entity customers with complex structures. The documentation used to verify the parties to a relationship varies across the industry. FIs and DNFBPs alike should improve the effectiveness of the CDD measures undertaken, including by implementing procedures to develop a more thorough understanding of the customer and related parties based on reliable and up-to-date information and documentation, with an increased focus on the beneficial owner(s).

13. The preventive measures framework is broadly in line with the international standard, but a number of technical deficiencies remain. Most notably, verification measures for customers and beneficial owners do not have to be based on reliable sources in all instances; certain blanket exemptions under the Due Diligence Act (DDA) for simplified CDD are not permissible under the international standard; and there is no requirement in the DDA that CDD measures have to be applied to all existing customers at appropriate times and on the basis of materiality. For purposes of cross-border correspondent relationships, there is an unjustified presumption that all European Union (EU) and European Economic Area (EEA) countries adequately apply the FATF Recommendations. Enhanced CDD measures are required only for persons in, but not from high risk jurisdictions. The DDA grants the authorities only few countermeasures to apply to high risk jurisdictions. Record keeping requirements are adequate, albeit some minor deficiencies have been identified in relation to business correspondence and transaction records.

14. The reporting requirement has been brought fully in line with the standard, particularly in relation to terrorist financing and attempted (occasional) transactions, but its effective implementation is uneven and hampered by certain factors. The automatic five-day freezing mechanism was retained. However, the FIU was empowered to release certain transactions before the expiry of the freezing period. The requirement to submit SARs to the prosecutor’s office by the FIU exposes the reporting entity that has filed the SAR. Although all reporting entities were aware of their reporting obligation, the level of understanding of the implementation of the reporting obligation was not found to be satisfactory in all cases. A large majority of SARs were triggered by negative information on the customer in the media or commercial intelligence database. The main contributor of SARs is the banking sector, which is the main component of the financial sector in Liechtenstein. The FIU received five SARs on FT, none of which substantiated a concrete case of FT. However, the FIU has not conducted an assessment to determine whether the number of FT SARs should be higher. It is recommended that the authorities assess whether the number of FT SARs is commensurate with the FT threat in Liechtenstein, in light of available information on the FT risks.

15. Secrecy provisions should be harmonized and revised, as they could affect core functions of the FIU and, more generally, the sharing of information. The FMA has broad powers to access confidential information, but conflicting provisions in sector-specific laws and the DDA do not clearly allow the sharing of such information domestically, including with the FIU. No measures are in place to ensure that secrecy provisions in sector-specific laws do not inhibit FIs’ ability to share confidential information in cases where this is required under the FATF standard. Liechtenstein has taken significant steps towards promoting transparency versus confidentiality, but remnants of a culture of confidentiality, heritage of the past business model, could still pose challenges. To avoid any obstacles on this issue, the authorities should amend either sector-specific laws such as the Banking Act or the DDA to clarify in express terms that the FMA’s powers under the DDA supersede any secrecy provisions enshrined in other laws, and that Liechtenstein FIs may share otherwise confidential information with other FIs in cases where this is required under FATF Recommendations 7 or 9. It should also be clarified expressly that the FMA can share confidential information with the FIU, regardless of existing secrecy provisions.

16. The supervision of compliance by FIs and DNFBPs with their AML/CFT obligations is the responsibility of the FMA, which has the powers it needs to undertake its functions. However, the effective implementation of the AML/CFT supervisory regime needs to be enhanced. There is an over-reliance on private audit firms to conduct inspections which may reduce the effectiveness of those inspections and affect the quality of supervision overall. The use of private audit firms also creates a potential conflict of interest, which is not being fully mitigated, as audit firms are appointed by the FMA, but nominated and paid for by the obligated firms. The negligible number of sanctions and assessors’ interviews with obligated firms indicate that the audit firms’ reviews may not be sufficiently rigorous. Moreover, although the FMA accompanies the audit firms on some inspections (and conducts a few itself), it does not gain the wide market experience of the state of compliance that it would if it were conducting all inspections. The FMA should conduct more inspections itself and strengthen the measures to mitigate the risk of conflict of interest in mandated audit firms.

17. Effective supervision is also affected by the absence of a fully fledged risk-based approach to the allocation of inspection resources to different institutions. Although the annual inspections by audit firms produce information that is used by the FMA to assess individual firms, there is no routine off-site reporting of AML/CFT, and the information received from audit firms is not sufficiently analyzed to detect broader trends and patterns. Although the DDA/Due Diligence Ordinance (DDO) obligations are detailed, there is scope for more guidance to specify the FMA’s expectations the context of the particular risks of the prevailing business models. The supervisory approach, including the annual inspection cycle for FIs, does not focus either on the higher risk firms or the higher risk business areas within firms. The DNFBP sector has a longer three-year inspection cycle despite TCSPs being riskier in themselves and the source of risk for the FIs. The FMA should use its supervisory tools in full and, to enhance effectiveness, should adopt a risk-based approach amending its guidance to audit firms accordingly. Inspections should be more risk based and there should be greater use of themed inspections so as to target resources on higher risk business, particularly the TCSPs.

18. The FMA has a range of sanctions available to enforce the AML/CFT measures, but should make more effective use of them. The FMA has sanctions at its disposal against individuals, including fines (although the maximum fine for institutions is too small to be dissuasive and should be increased). The FMA, in practice, rarely imposes sanctions beyond written warnings. It should make more effective use of its more serious sanctions.

1.3. Preventive Measures—Designated Nonfinancial Businesses and Professions

19. All the DNFBP specified by the FATF Recommendations are covered by the DDA and all the obligations applicable to the FI extend also to DNFBPs. The deficiencies noted above in relation to FIs thus equally apply to DNFBPs. Casinos are subject to an additional set of laws and regulations, but Liechtenstein has not yet issued any licenses for casinos, and the practical application of these additional legal requirements could not be reviewed.

20. DNFBPs, TCSPs in particular, do not effectively implement the policies and procedures to manage AML/CFT risk and to thoroughly understand their customer, beneficial owner, related parties, and related legal structures based on exhaustive and credible documentation. Deficiencies relate to ongoing monitoring procedures that are ineffective in identifying and investigating suspicious activity and to uneven implementation of due diligence obligations across the sector. Of particular concern is that these weaknesses have a cascading effect throughout the Liechtenstein financial system due to the culture of trust amongst TCPs and FIs, specifically common practice for FIs and other DNFBPs to rely on TCSPs for provision and certification of customer information.

21. The TCSP sector in Liechtenstein is particularly vulnerable to the risk of ML and, potentially, FT, with far-reaching consequences on the overall effectiveness of Liechtenstein’s AML/CFT regime. The risk of compliance failures and the consequential vulnerability to abuse by money launderers, fraudsters, and others is heightened, not simply because these kinds of businesses are cited in the FATF methodology as high risk business, but also because the TCSP sector is the least regulated element of the system with no comprehensive licensing and prudential regime (at the time of the onsite visit) and AML/CFT inspections being carried out only every three years. Moreover, because of resource constraints, the authorities only carry out onsite inspections at TCSPs every three years unless there is a reason for increasing the frequency. Information held by Liechtenstein professional trustees may not always be accurate. Liechtenstein trustees rely heavily on introducers, many of which are foreign trustees or lawyers. The Liechtenstein trustees in such cases are permitted to rely on declarations from foreign introducers on beneficial owners, which may be mistaken or inaccurate and yet could be passed to FIs in Liechtenstein without further verification. At the same time, TCSPs in their capacity of representatives, shareholders, and managers of legal entities are also customers of FIs. Any weaknesses in the TCSP sector can thus rapidly spread through the financial system as a whole. The FMA should consider increasing the frequency of the TCSP inspection cycle based on risk and conducting more targeted inspections

1.4. Legal Persons and Arrangements and Nonprofit Organizations

22. There has been significant progress since the last Mutual Evaluation Report (MER) in improving the transparency of Liechtenstein’s legal framework concerning legal persons and arrangements and nonprofit organizations, but there are weaknesses that may still pose a risk and affect effective implementation. While the basics of the legal regime concerning most types of legal persons and arrangements have remained unaltered since the previous MER, there have been important changes: the DDO’s definition of beneficial owner has been amended to also extend it to those who control legal entities; a new law on foundations was adopted in 2008, a new law (December 2012) introduced new requirements concerning bearer shares and certificates and for certain types of companies to keep shareholders registers at the registered seat of the company. Through the requirements enshrined in Art. 180aPGR, Liechtenstein ensures that most legal entities have a director subject to the DDA, which is a strong element of the legal framework. There are, however, still significant challenges in the effective implementation and some inherent vulnerabilities and weaknesses. On the one hand, there are elements of risk inherent in some types of institutions that can be created in Liechtenstein, such as deposited foundations and anstalten, which can be used as a placeholder for more complex structures and whose regime, legal and in practice, has elements that make it challenging to identify the beneficial owner or the beneficiaries. On the other, the characteristics of Liechtenstein’s regime of access to beneficial owner information, based on TCSP as the main repository of beneficial owners information and FMA and law enforcement authorities access to that information raises questions on its effectiveness, given the issues of effectiveness noted with regard to trustees’ implementation of CDD requirement and their supervision by the FMA. Finally, the recent introduction of an immobilization and registration system for bearer shares is a positive step forward, although it is too early to form a final opinion on its effectiveness, in the absence of a specific risk assessment on the ML risk they may pose to Liechtenstein and considering that legal entities that issue bearer shares very often do so for the totality of their shares. Authorities should improve the transparency of legal persons and arrangements established under Liechtenstein law by, inter alia: (i) strengthening supervision of TCSPs to ensure that they obtain and maintain full, accurate, and up-to-date information on beneficial owners of legal entities and arrangements; (ii) clarifying the powers of the competent authorities to obtain, compel, and share confidential information, domestically and internationally, for the purpose of Recommendation 33; and (iii) (also in light of the new FATF standard) subject “deposited” foundations to the same registration requirements as “registered” foundations.

23. In 2009, the Foundation Supervisory Authority (FSA) was established to oversee the activities of foundations set up with a common-benefit purpose. Associations set up with a common-benefit purpose are still not subject to any form of supervision. The supervision of NPOs by the FSA, which is carried out with the assistance of audit firms appointed for that purpose, does not adequately extend to FT issues. No measures are in place to sanction violations of measures applicable to NPOs. The laws regulating NPOs were reviewed in June 2008 to strengthen the responsibilities of the founder and enhance the governance of foundations. However, the review was not preceded by a review to understand the NPO sector in Liechtenstein and determine the features and types of NPOs that are at risk of being misused for FT. The outreach provided by the FSA to the NPO sector to protect it from FT abuse was very limited.

1.5. National and International Cooperation

24. Liechtenstein has a robust system of domestic cooperation. The creation of the PROTEGE working group, which is chaired by the FIU and consists of the major AML/CFT stakeholders is an important step consolidating the long-standing work of organizing a coordinated AML/CFT regime, addressing operational cooperation issues as well as the more recent work of preparing for the implementation of the new standards, including the national risk assessment, on which authorities were working at the time of the onsite visit. The issues noted with regard to financial secrecy laws may affect the effectiveness of the domestic exchange of information. Cooperation and exchange of information between the FMA and the FIU should be enhanced.

25. International cooperation is of fundamental importance in a country like Liechtenstein. MLA traffic is quite intense in both directions, and the figures indicate a generally responsive approach by Liechtenstein. The MLA system has improved its effectiveness range, particularly with the important steps taken in speeding up the process by reducing the possibility of delaying procedural tactics, which resulted in a significant shortening of the average implementation duration from 91 to 59 days. Serious and organized fiscal fraud has been excluded from the fiscal exception rule insofar it relates to serious value-added tax (VAT) fraud affecting the budget of the EU. Particularly with regard to obtaining bank records, the effectiveness of the legal procedures could be challenged in the presence of dilatory tactics, such as noted in the context of the confiscation regime. Authorities should also assess if legal privilege could have an impact on the effectiveness of international cooperation.

26. In extradition matters, there is a clear cooperative willingness of the Liechtenstein judiciary to assist in an effective administration of justice. The duration of the extradition proceedings have in practice been substantially reduced to a reasonable average of around three months. Dilatory procedural tactics before the Constitutional Court have been met by an adequate response of giving priority to extradition matters.

27. The FIU generally exchanges available information with its foreign counterparts in a timely manner. However, a number of factors could restrict the FIU’s powers to exchange information. In response to a request for information from a foreign FIU, the Liechtenstein FIU can only obtain information from a reporting entity if a SAR has been submitted, and the power to obtain information indirectly through the FMA is limited. These factors could have an impact on the constructive and effective nature of information exchanged with foreign FIUs. In view of the significance of international cooperation within the context of international business conducted in and from Liechtenstein, measures should be taken to ensure that the competent authorities in Liechtenstein, especially the FIU, are able to provide the widest range of international cooperation to their foreign counterparts. Authorities should in particular consider to establishing a clear power of the FIU to obtain confidential and other information from reporting entities and other authorities in the case of a request of information from a foreign FIU.

28. The FMA is able to obtain confidential information for the purposes of international cooperation and is obliged to provide information to foreign authorities, subject to certain conditions. The FMA’s power to obtain confidential information for the purpose of foreign cooperation is clearly provided for FIs. The position with respect to TCSPs is less clear, but the assessors accept that judicial decisions must be assumed to provide the FMA with the power to obtain confidential information from TCSPs and pass it to foreign authorities. The FMA can conclude agreements for cooperation, but can exchange confidential information in the absence of such agreements. The FMA can protect confidential information received from foreign authorities.

29. The confidentiality equivalence provisions in the sector-specific acts for FIs are less restrictive, but the DDA is the only statute available for exchanging confidential information relating to TCSPs. There is a risk of a challenge based on the strict interpretation of the law. Also, under the DDA, the FMA is obliged to apply a test relating to the protection of confidential information by a requesting country which could, if interpreted strictly, prevent such an exchange. The FMA should seek to remove this provision and replace it with a more general provision requiring adequate confidentiality protection by a recipient authority.

2. General

2.1. General Information on Liechtenstein

30. The Principality of Liechtenstein is located between Switzerland and Austria and covers an area of 160 sq. km. (61.8 sq. miles), making it the fourth smallest state in Europe and the sixth smallest country in the world. A constitutional monarchy with a democratic and parliamentary system, the Head of State of Liechtenstein is His Serene Highness (HSH) Prince Hans-Adam II von und zu Liechtenstein who, in 2004, entrusted Hereditary Prince Alois to exercise his sovereign powers as his representative. Liechtenstein’s parliament (Landtag) is comprised of 25 elected members who serve for four years. The parliament nominates the five member government, which is then appointed by the Prince for four-year terms. Following the last election in February 2013, a coalition government was formed by the two largest political parties. To be valid, each new law enacted by the parliament requires the consent of the Prince. The enactment of ordinances, where provided for under a law, does not require the consent of the parliament or the Prince as they are issued under the authority of the government.

31. Liechtenstein’s GDP and gross national income (GNI) at current prices in 2010 were CHF 5.3 billion and CHF 4.5 billion, respectively. The majority of Liechtenstein’s workforce is comprised of persons living abroad, 52 percent in 2011, a characteristic that renders per capita economic figures somewhat misleading. Gross national statistics for 2006–2010 are as follows:

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32. Liechtenstein’s diversified economy is the result of rapid development since the early 1950s and has a significant emphasis on industrial production and financial services, which constituted approximately 39 percent and 27 percent of Liechtenstein’s [2010] GDP,1 respectively. Of particular note, Liechtenstein’s financial services industry and trust and company service providers (TCSP) have proven attractive to nonresident business.

33. With a population of just over 36,000 inhabitants, Liechtenstein is one of the smallest countries in Europe and the world. A third of the country’s population is comprised of foreign nationals, predominantly from Switzerland, Austria, and Germany. The country is divided into eleven communities, with Schaan forming the largest community and Vaduz the second largest community and the capital. The country’s unemployment rate in 2011 was 2.5 percent, an increase of 0.3 percent over the previous year. Liechtenstein’s services sector, which is generally comprised of financial and insurance services, legal and tax consultancy, and trade, employed nearly 60 percent of the workforce in 2011, with the industrial sector employing nearly 40 percent, and the remainder employed in the agricultural sector.

34. Liechtenstein’s industrial sector is heavily export focused, with the most products being exported to Switzerland, Germany, and the United States. The table below outlines the last five years’ imports and exports of Liechtenstein goods (without Switzerland):

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35. In 1923, Liechtenstein entered into a customs and monetary union with Switzerland, which remains in place to this day. The latter entails that the Swiss National Bank (SNB) is responsible for the entire “Swiss franc (CHF) currency area” (Switzerland and Liechtenstein), exercising associated monetary and currency policy functions.

36. From the perspective of economic and integration policy, Liechtenstein’s relations within the framework of the European Economic Area (EEA) and the European Union (EU) play an important role in Liechtenstein foreign policy and economic framework. As an EEA member, Liechtenstein is fully subjected to the EU anti-money laundering (AML)/counter-financing of terrorism (CFT) framework. Additionally, Liechtenstein is party to international and multilateral organizations and agreements, including: (i) the Statute of the International Court of Justice, since 1950; (ii) the Helsinki Final Act of the Commission on Security and Cooperation in Europe, now Organization for Security and Co-operation in Europe (OSCE), since 1975; (iii) the Council of Europe, since 1978; (iv), the United Nations, since 1990; (v) the European Free Trade Association (EFTA), full member, since 1991; and (vi) the World Trade Organization (WTO), since 1995.

2.2. Structural elements for an effective AML/CFT system

37. Liechtenstein joined the partial agreement establishing Group of States against Corruption (GRECO) on January 1, 2010, after the closure of the first and second evaluation rounds. Accordingly, the country was subject to a joint evaluation covering the themes of the first and second rounds. This joint evaluation, published in October 2011, highlighted that the country has included combating corruption in its agenda; however, the assessment indicated that the country was in an “early stage when it comes to combating domestic corruption and there is over-reliance on the limited size of the country (which is thought to prevent corruption).” In line with its findings, the GRECO report recommended an improvement of relevant preventive measures.

38. Liechtenstein submitted to a Phase 1 review performed by the Global Forum on Transparency and Exchange of Information for Tax (Global Forum), and later requested a supplemental review in consideration of legislative developments following the first review. The Global Forum considered Liechtenstein as having taken adequate steps to remedy the deficiencies highlighted in the Phase 1 Report adopted by the Global Forum in August 2011 and allowed the country to progress to Phase 2.

39. In an effort to stem the flow of illicit proceeds, Liechtenstein endorsed the UN Convention Against Corruption in December 2003 (ratified in 2010). Additionally, the country provides financial and technical support to the International Center for Asset Recovery (ICAR) in Basel.

40. Liechtenstein is not a member of the Organisation for Economic Co-operation and Development (OECD) and, therefore, is not party to the 1999 OECD Convention on Combating Bribery of Foreign Public Officials. Liechtenstein has signed (but not ratified) the Council of Europe Criminal Law Convention (ETS 173) and its Additional Protocol (ETS No. 191) on November 17, 2009. The country has not ratified or signed the Civil Law Convention on Corruption (ETS174).

2.3. General Situation of Money Laundering and Financing of Terrorism

Predicate offenses

41. As a small country with a moderate number of inhabitants favoring social control and law enforcement, the rate of domestic crimes is low. As a financial center with strict confidentiality rules, however, Liechtenstein is vulnerable to attract criminal proceeds or undeclared assets,2 particularly tax related, predominantly of foreign origin, as a 2008 incident shows.3 White collar crimes are typical predicates, both domestic and foreign, but lately the authorities have noticed an increase of corruption related cases, which they attribute to sharper law enforcement focus on this type of criminality abroad.

42. On domestic criminality, following statistics were provided:

Statistical Table 1.

Statistics on domestic criminality (general)

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43. In terms of major offenses prosecuted, particularly in the category of predicates to money laundering (ML), the figures show a preponderance of property and fraud offenses:

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2.4. Money Laundering

44. The main attraction of Liechtenstein as a destination for domestic and foreign funds and investments lies in the broad range of financial services the country offers, in particular wealth management and private banking services. According to the authorities, large cash transactions are uncommon and generally mistrusted by the financial intermediaries. Payments to Liechtenstein accounts or withdrawals from such accounts are quite limited, which is typical for private banking. Liechtenstein corporate structures holding assets can also be used as a money laundering vehicle. The main purpose of such corporate structures is the possession and administration of shares of another company, registered in a different jurisdiction (holding companies).

45. Banks continue to be exposed to ML risks as they offer a variety of products that can be abused for ML purposes. In Liechtenstein, the Designated Non-Financial Businesses and Professions (DNFBP) (TCSP and lawyers) sector is well established, and their corporate services face equal challenges. Increasingly, the insurance sector has developed over years, and a number of suspicious transaction reports (STRs) have been submitted that showed an increasing use of insurance products. On the other hand, the real estate sector does not appear to pose particular risks, considering the limited possibilities of investment and the inaccessibility for foreigners. There are no bureaux de change, no notaries, and no casinos (yet) in Liechtenstein.

46. Based on the ongoing national risk assessment the Liechtenstein authorities identified, together with the appropriate countermeasures, a number of vulnerabilities typical of Liechtenstein as financial center, which are mainly:

  • offering private banking/wealth management financial services, in particular to clients resident or active in countries with high levels of crime;

  • offering multi-layered, complex corporate structures that favor protection of real ownership; and

  • circumvention of international sanctions, both in respect of ML and FT.

47. The assessors complemented the analysis of these vulnerabilities with additional risk factors, described more in detail under the analysis of the relevant FATF Recommendations. In the light of the fight against ML and, to a lesser extent, FT, the use of legal structures governed by strict confidentiality (if not secrecy) rules represents significant challenges for the law enforcement and judiciary community, requiring in the first place an effective preventive system that it can rely on, together with an adequate arsenal of legal means to trace, identify, stop, and ultimately forfeit such criminal property.

48. Apart from the confidentiality issue, there are other factors weighing on a successful investigation, prosecution, and/or confiscation. A typical feature of the law enforcement approach in Liechtenstein is its reactive character to external initiatives and sources such as mutual legal assistance requests. The number of domestically triggered ML investigations is encouraging, but ML prosecutions are rare. The authorities explain the low number of prosecutions and absence of convictions as mainly due to the fact that in almost all cases the predicate activity occurs outside the Liechtenstein jurisdiction. There is still no policy of pursuing autonomous money laundering, presumably because of the deterrent effect of the high burden of proof on the specific predicate offense that seems to be required.

49. The Liechtenstein authorities endeavor to meet those challenges with appropriate legal means and a policy of actively pursuing asset recovery. The Liechtenstein criminal procedure legislation provides for a series of measures supporting them to that end, such as taking witness statements from the intermediaries, production orders, and seizure of documents, as far as the legal privilege does not oppose these efforts. The in rem confiscation procedure is indeed widely used, showing encouraging results. The reliance on foreign factors and evidence is mitigated by the input of the FIU reports, which has resulted in prosecutions and convictions (although not for ML). The commitment and professionalism of the police and the judiciary authorities is undeniable.

50. The law enforcement results are shown in following statistics covering 2008–2012:

Statistics Table 2.

Statistics of law enforcement results for 2008–2012.

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51. No significant changes of ML patterns have been observed by the authorities since the last assessment, except the already mentioned increase in corruption related cases and that, recently, there have been indications that Liechtenstein may be used to attract dubious investments in gold and other precious metals as a reaction to the financial crisis. No such instances of money laundering have yet been identified, however. A more detailed description of risk and vulnerabilities identified by the evaluators can be found later on this section with specific reference to the financial and DNFBPs sectors as well as to legal persons and arrangements.

2.5. Terrorism financing

52. As the figures above show, there has only been one investigation in 2011, but no prosecutions and convictions for terrorism financing. The risk for terrorism financing is considered low by the authorities. The complex legal structures, the culture of confidentiality, the extensive legal privilege protection, and the beneficial ownership identification issues could result in terrorist-related assets going undetected. It is, however, a positive sign of the alertness of the sector that relevant (though external) information was picked up by the reporting system in one case. More in general, the few STRs received by the Financial Intelligence Unit (FIU) related to suspected terrorist financing activities abroad and were communicated to the counterparts interested or involved. Otherwise, no relevant information came to the attention of the law enforcement authorities.

2.6. Overview of the Financial Sector

53. Liechtenstein has a substantial financial sector. It accounted for 9.1 percent of the workforce and 27 percent of GDP in 2010.4 Its largest element is banking, mostly private banking, and business. In addition, Liechtenstein’s financial sector includes asset managers, collective investment funds, life insurance, captive insurance, and pension funds.

54. As is the case with many financial centers, the banks dominate the sector in terms of financial assets managed. There are a total of 17 banks, which concentrate on private banking and wealth management services and manage total assets of CHF 117.7 billion at the end of 2012.5 Banks also dominate the management of assets and collective investment schemes. Total assets fell from CHF 153.2 billion at the end of 2007, the reduction being partly due to the financial crisis and the strength of the Swiss franc. In addition, some interlocutors told the assessors that much business had left Liechtenstein following the moves made by the Liechtenstein authorities towards greater transparency and cooperation on tax matters. The same factors have affected profitability. Total bank profits, which reached CHF 861.6 million in 2007 had fallen to CHF 122.2 million in 2011, but recovered to CHF 388 million in 2012.The business is highly concentrated in that three major banks accounted for just under 90 percent of total assets at the end of 2012. There are seven banks which are subsidiaries of Swiss or Austrian institutions, but the three major banks are domestically owned. The banks accounted for the employment of 2,044 staff (full-time equivalent) in 2011.

55. Asset management companies provide portfolio management and investment advisory services. After a period of rapid growth, the number of such companies has stabilized at just over 100 (109 at the end of December 2012). In 2006, the number of such companies was 28. Total client assets at the end of December 2012 were CHF 23.52 billion. A total of 436 people were employed by asset management companies. The total number of collective investment funds (known as investment undertakings in Liechtenstein) was 557 in December 2012, accounting for total assets of CHF 37.2 billion, having been just 276 and 20.6 billion respectively in 2006. These collective investment funds were being managed by 20 fund management companies.

56. The insurance business in Liechtenstein consists of 41 companies, 22 of which provide life insurance, 14 non-life, and 5 captive reinsurances. Total premium income was CHF 4.2 billion in 2012, of which 79 percent was from life insurance. The insurance sector offers its services primarily to Italy (accounting for 58.2 percent of premium income), Germany (16.9 percent) and Switzerland (7.4 percent). The sector employed 601 staff at the end of 2011. The sector is supported by 49 insurance intermediaries.

57. At the end of 2012, 29 pension schemes offered occupational pensions (pillar two) with CHF 4.35 billion in capital and technical provisions. Six pension funds were licensed to provide private pensions (pillar three).

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58. The table below sets out the types of FIs that can engage in the financial activities that are within the definition of “financial institutions” in the FATF 40+9.

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59. The following types of FIs can obtain a license and are allowed to operate financial activities in Liechtenstein:

Banks and finance companies

60. In accordance with the Banking Act (BA), dated October 21, 1992, as amended, only banks can collect deposits, provide safekeeping services, and issue electronic money; make off-balance sheet transactions, manage securities issuance, and provide securities services. The BA also provides the regulatory framework for investment firms, which are allowed to render investment services and ancillary services on a professional basis (however, no investment firm has been licensed so far). The BA defines and regulates the activities of bank and investment funds and entrusts the FMA with supervisory powers. Banking regulations are stipulated in the Banking Ordinance (BO), dated February 22, 1994, as amended. The BA specifically addresses AML/CFT issues and requests banks and investment firms to set up internal guidelines to ensure adherence with customer due diligence obligations under the Due Diligence Act (DDA) (Annex 5 BO, Section 1.3.6.).

61. Domestic banks may perform banking activities or provide investment services in an EEA member state either through branches or directly by virtue of the free movement of services. Conversely, banks and investment firms licensed and supervised in EEA member states may perform, respectively, banking and securities-related activities in Liechtenstein either through a branch or directly by virtue of the free movement of services (Art. 30d BA). Such institutions are subject to the DDA.

62. The Liechtenstein Postal Service provides financial services. It accepts from the public and offers some payment services on behalf of Swiss Post and offers money transfer services on behalf of Western Union. The money remittance business provided by the Postal Service as an agent for Western Union amounts to approximately 2,500 transactions per year. The average transaction amounts to CHF 400. Based on the internal rules of the Postal Service, enhanced due diligence is carried out as soon as four linked transactions are carried out per month (irrespective of the value) or if the value of linked transactions is above CHF 5,000 per month. Money remittance services have recently been started by a business acting as an agent for Moneygram. This undertakes very limited business as yet. Money remitters are also covered by the DDA.

Asset management companies

63. Pursuant to Art. 3 of the Asset Management Act (AMA), which became effective on January 1, 2006, asset management companies (Investment firms within the meaning of Directive 2004/39/EC) provide or arrange to provide on a professional basis asset management services in the form of:

  • portfolio management;

  • investment advice;

  • reception and transmission of orders concerning one or more financial instruments; and

  • investment research and financial analysis.

64. Asset management companies (AMC) cannot accept or hold assets that belong to third parties (Art. 3.3 AMA) and cannot hold a trustee, lawyers, patent attorney, or auditor license (Art. 6.1.l AMA). The assets managed are in the form of holdings in financial instruments and must be deposited in a bank. At the time of the assessment, AMCs fell within the scope of application criteria of the DDA. However, in practice they are subject to the DDA only for STR reporting, but not due diligence requirements, as all AMCs in Liechtenstein operate on the basis of a limited power of attorney for client accounts, and outside the context of a high risk scenario, all of them carry out simplified CDD scenarios under Art. 10 of the DDA.

65. Asset management companies registered and licensed in Liechtenstein may conduct their business in an EEA member state through a branch or in form of cross-border services, or in a third country, after demonstrating to the FMA that they hold, or are not required to hold, a local license (Arts. 33 and 36 AMA).

66. Asset management companies registered and licensed in an EEA member state may conduct their business in Liechtenstein through a branch or in form of cross-border services (Art. 34 AMA). Asset management companies or asset managers whose registered office or residence is in a non-EEA member state must obtain a license from the FMA before operating in Liechtenstein (Art. 37 AMA).

Investment undertakings

67. The Investment Undertakings Act (IUA), dated May 19, 2005, dated September 1, 2005, as amended, governs entities (funds) which raise assets in the form of units marketed to the public, for the purpose of collective capital investment, and have them managed by a management company for the joint account of the investors. Both the investment undertaking and the management company must hold a license from the FMA. Depositary functions are carried out by a bank holding a domestic license or by a domestic branch of a bank licensed in an EEA member country. Investment undertakings fall within the scope of application of the DDA under Art. 3. However, investment undertakings which do not maintain share accounts or distribute shares are exempted from the scope of the DDA under Art. 4. At the time of the assessment only two licensed investment undertaking in Liechtenstein did not qualify under this exemption and were thus subject to the DDA.

68. If so authorized by the FMA, a fund management company may in addition manage individual portfolios and other assets, such as pension funds or investment foundations (Art. 24.3.a IUA). Subject to FMA authorization, it may delegate some of its responsibilities to third parties, domiciled in Liechtenstein or abroad, but operating under its effective monitoring and oversight (Art. 25 IUA).

69. Units of domestic investment undertakings can be marketed in an EEA member state:

  • for transferable securities, providing that they conform to the Directive 85/611 requirements or this has been approved by the FMA (Art. 93 IUA); and

  • “for other values or for real estate,” providing that this has been approved by the FMA (Art. 89 IUA).

70. Units of an EEA member state investment undertaking can be marketed in Liechtenstein, providing that they conform to the Directive 85/611 requirements. A FMA license is required to market units of an EEA investment undertaking which are not in conformity with the Directive 85/611, as well as units of a third country investment undertaking (Arts. 93 and 94 IUA).

Insurance undertakings

71. Undertakings that provide direct insurance or reinsurance are governed by the Insurance Supervision Act (ISA), dated December 6, 1995, as amended. Insurance undertakings must hold a license for each class of insurance they provide (Art. 12 ISA) and are prohibited from conducting noninsurance activities (Art. 20 ISA).

72. Insurance undertakings which are located and licensed in Liechtenstein may conduct business in an EEA member state through an establishment or cross-border services (Art. 26 ISA); in other states, they must hold a local license (Art. 27.b ISA). Insurance undertakings which are located and licensed in an EEA member state or in Switzerland may engage in direct insurance business in Liechtenstein by way of an establishment or cross-border services (Art. 28 ISA and Direct Insurance Agreement between Liechtenstein and Switzerland, 1996). Insurance undertakings which have a head office in a third country must obtain a license in Liechtenstein (Art. 31 ISA) and operate through a branch managed by a general agent.

E-Money Institutions

73. Institutions that provide e-money services are governed by the E-Money Act and supervised by the FMA. Electronic money as defined in article 3 (a) of the E-Money Act is spent or managed, provided that: (i) if the device cannot be recharged, the maximum amount stored in the device is no more than 150 francs; or (ii) if the device can be recharged, a limit of 2,500 francs is imposed on the total amount spent or managed in a calendar year, except when an amount of 1,000 francs or more is redeemed in that calendar year by the bearer as referred to in Art. 10, paragraphs (paras.) 2–4 of the E-Money Act. There is one e-money institution in existence in Liechtenstein.

Risks and Vulnerabilities

74. The business model of Liechtenstein’s financial center focuses on private banking and wealth management and is mostly nonresident business. It includes the provision of corporate structures such as foundations and other companies and trusts that are designed for wealth management, the structuring of assets and asset protection. The term asset protection refers to the protection of assets from liabilities arising elsewhere.

75. This business falls squarely within that which FATF Recommendation 5 cites as examples of high risk customers:

  • Nonresident customers;

  • Private banking;

  • Legal persons or arrangements such as trusts that are personal assets holding vehicles; and

  • Companies that have nominee shareholders or shares in bearer form.

76. All of these examples are present in much of the business conducted in Liechtenstein.

77. The organization of the financial business in Liechtenstein creates risks and vulnerabilities. Typically, a foreign customer will be the beneficial owner of a foundation, company or trust established by a professional trustee in Liechtenstein. Although the term professional trustee is used in Liechtenstein, in fact, the professional is only rarely a trustee of a trust as such and is more often a member of the council of a foundation or a company director as well as fulfilling other duties, all of which justify the use of the term “professional trustee” in a Liechtenstein context. Henceforth the term TCSP will be used.

78. The TCSP will be responsible for forming the legal person or arrangement on behalf of the client. In many cases, the client will be using the services of similar professionals in other countries and may have a series of such legal persons and arrangements established in different countries and subject to the nominal control of many professionals in different countries. Although most of them may well be subject to obligations with regard to AML/CFT, many of them will not be subject to a licensing regime ensuring that they are fit and proper persons.

79. Within this context, the Lichtenstein TCSP has a clear obligation to conduct due diligence on their customer (as is described in detail in this report). However, the more complex the structure, the more remote the TCSP will be from the true client and the greater the risks that the person the TCSP believes to be the client is not, in fact, the true beneficial owner.

80. Moreover, once the TCSP in Liechtenstein has established to his or her satisfaction that the beneficial owner is a bank, with which the TCSP opens an account on behalf of the customer, is entitled to rely on a signed declaration by the TCSP, without being required to conduct further enquiries.

81. The TCSP sector in Liechtenstein is subject to due diligence obligations, but not subject to a full licensing or prudential supervisory regime. As a result, although there must be at least one person in the TCSP who has a license as a professional trustee in Liechtenstein, the TCSP business as a whole and the owners and controllers are not all necessarily subject to any screening by the authorities. They may not, therefore, all be persons who could pass a “fit and proper” test in a full prudential regime. Moreover, because of resource constraints, the authorities’ only subject the TCSPs to onsite inspections every three years unless there is a reason for increasing the frequency. Those inspections (like those for FIs) are by a mandated audit firm. The inspections are paid for by the TCSPs, rather than the authorities themselves.

82. The effect of this structure is that any weaknesses in the TCSP sector can rapidly spread through the financial system. The risk of compliance failures and the consequential vulnerability to abuse by money launderers, fraudsters, and others is heightened, not simply because the kind of business is that which the FATF methodology cites as an example of high risk business, but also because the TCSP sector is the least regulated element of the system—having no comprehensive licensing and prudential regime and AML/CFT inspections only every three years.

83. In addition to the risks posed by the structure of the financial system, the changing nature of the business that is available to the Liechtenstein sector also creates a risk.

84. Private sector interlocutors have indicated that, until relatively recently, their primary business was assisting clients in other countries to minimize their tax payments and that, in the past, techniques to minimize taxes may have strayed beyond tax avoidance into tax evasion. The scope for such business has been reduced by the international attention that has been focused on offshore centers and the quantity of business has suffered as a result.

85. The authorities adopted the Lichtenstein Declaration in 2009. This was a pledge to transparency, especially in tax matters. It has been followed by the signing of tax information exchange agreements with various countries.9 Following this declaration, there has been some reduction in assets under management and the number of new companies, or other legal entities and arrangements has declined.

86. The assessors understand from the authorities that Liechtenstein has been developing a strategy for sustaining its financial center in the future. The key elements of the strategy are to enhance competitiveness by:

  • Relying on the existing competitive advantages, in particular the ability to provide for the structuring and administration of wealth using Liechtenstein legal entities and arrangements;

  • Ensuring that the legal framework for such sectors as insurance and alternative investment funds remains in line with international standards and attractive to foreign investors;

  • Emphasizing the strengths of Liechtenstein as a country with a stable political system, a high degree of legal certainty, membership of the EEA and the use of the Swiss franc;

  • Exploiting its ability to act quickly to meet international standards and customer needs; and

  • The adoption of international standards of transparency while preserving legitimate secrecy and asset protection.

87. The authorities are wise to seek to create a financial center based on principles of transparency and adoption of international standards. Like other offshore financial centers that have undergone similar transformations, Liechtenstein faces the risk that its previous reputation as a center devoted to secrecy will continue to attract those who seek to abuse secrecy and the various legal forms available in the jurisdiction.

88. The assessment team considers that there are a number of areas where action is necessary to reinforce the defenses. However, these observations should be set against recognition of the progress Liechtenstein has made and the strengths it now has.

2.7. Overview of the DNFBP Sector

89. All DFNBPs that exist in Liechtenstein are designated as such by FATF and are subject to the obligations set forth in relevant laws and regulations, and are supervised by the FMA. DNFBPs in the country offer products and services that are integrated into and complementary to those offered by traditional financial institutions.

90. The categories of DNFBPs, as defined in the AML/CFT Law are trustees; trust companies; persons authorized to act as company directors for Liechtenstein registered firms, but who do not have the right to form companies; lawyers; law firms; legal agents; auditors; audit firms; real estate brokers; dealers in goods; and casinos, with a catch-all provision to cover other persons engaged in financial services.

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Trustees and Trust Company Service Providers (TCSPs)

91. TCSPs in Liechtenstein include trustees and trust companies as well as persons with a certificate under Art. 180a PGR situated in Liechtenstein or any other EEA member state. TCSPs establish various types of legal entities (e.g. foundations, companies, and trusts) in Liechtenstein on behalf of a customer, who can be natural persons or authorized representatives of legal entities or legal arrangements, which are commonly non-residents. The established legal structures often form part of a broader legal structure consisting of legal entities or arrangements set up in different parts of the world. It is common practice for the TCSP to retain nominal control of the established legal entity or arrangement and to act on its behalf. In this capacity, TCSPs establish relationships with FIs and/or DNFBPs in Liechtenstein on behalf of the legal entity or arrangement.

92. Trustees under the Professional Trustees Act are licensed by the FMA and are covered under the DDA to the extent they pursue activities under Art. 7, paras. 1 (a), (b), (e), or audit activities under (f), or activities under Art. 7(2) of the Professional Trustees Act. Pursuant to the Professional Trustees Act, the FMA may issue two types of licenses. The first license category is granted on the basis of the applicant’s passing of the trustee exam. The second type of license is issued based on the applicant’s license under the Lawyers Act, and the passing of an additional trustee exam. Holders of a license in the first category are permitted to carry out a wide range of services on a professional basis, as listed under Art. 7, para. 1:

  • The forming of legal persons, companies and trusteeships for third parties, in the license holder’s own name and for the account of third parties, and related interventions with the authorities and administrative offices;

  • Assuming board mandates in accordance with Art. 180a PGR;

  • Assuming trusteeships;

  • Financial and business counseling;

  • Tax counseling; and

  • Accounting and inspections, unless such activities are reserves to auditors and auditor companies.

93. All activities except financial and business counseling are covered by the DDA.

94. The second category of license is more restrictive in that it only permits the carrying out of activities under the first and second bullet points, and the DDA applies in relation to both of these activities.

95. Licensed trustees are subject to disciplinary powers of the Court of Appeal, which may take action on its own initiative or based on information received from the public. Disciplinary measures include reprimand, a fine of up to CHF 50.000, and permanent or temporary withdrawal of the license. Trustees licensed under the law of a foreign country also have to obtain a license from the FMA under the Trustees Act and are subject to the DDA to the same extent as domestic trustees.

96. In addition to licensed trustees, the DDA also covers within its scope:

  • Holders of a certification under Art. 180aPGR, to the extent that they act as partner of a partnership, or a governing body of general manager of a legal entity on the account of a third party, or carry out a comparable function on the account of a third party. A certification under this Article may be obtained by a Liechtenstein lawyer who is domiciled in Liechtenstein and is licensed as a lawyer, legal agent, trustee, auditor, or government recognized business qualification, or a Liechtenstein resident working for such a person;

  • Natural and legal persons to the extent that they provide a registered office, business address, correspondence, or administrative address and other related services for a legal entity on a professional basis;

  • Natural and legal persons to the extent that they act as a nominee shareholder for another person other than a company listed on a regulated market that is subject to disclosure requirements in conformity with EEA law, or deemed by the FMA to impose equivalent international standards, or to the extent that they provide the possibility for another person to carry out such function; and

  • Any natural and legal person to the extent that they contribute to the planning and execution of financial or real estate transactions for their clients concerning the buying and selling of undertakings or real estate; the managing of client money, securities or other assets; the opening or management of accounts, custody accounts, or safe deposit boxes; the organization of contributions necessary for the creation, operation or management of legal entities; or when acting as a partner of a partnership or a governing body or general manager or a legal entity on the account of a third party or carrying out comparable function on the account of a third party.

97. Art. 2 of the DDA defines “legal entity” to include legal arrangements. As indicated above for purposes of this report, any reference to a “TCSPs” encompasses also any natural or legal person carrying out any of the activities specified in the bullet points listed above.

Lawyers and Law Firms

98. Lawyers, similar to trustees, are subject to the DDA and supervised by the FMA to the extent that they carry out “financial transactions” as defined and which generally comports with the term “transactions” as it is presented in the FATF standards, including Recommendation 12. Liechtenstein further divides the universe of lawyers into residents and nonresidents. Nonresident lawyers in Liechtenstein are further divided into two groups: lawyers from EEA member states who become certified and registered in Liechtenstein, and EEA lawyers who practice as an apprentice and are not registered. Despite these distinctions, each type of lawyer is subject to the DDA and supervised by the FMA if it carries out financial transactions. According to the 1992 Law on Trustees (Art. 1.3), lawyers can obtain a limited trustee license by special examination with one year of practical work. The law also allows lawyers who were authorized to form companies before that date to continue to do so (Art. 54.1 and 2).

99. Lawyers and law firms entered in the list of lawyers or list of law firms under the Lawyers Act as well as legal agents as referred to in Art. 67 of the Lawyers Act are registered with the FMA in the list of lawyers or law firms, and are covered under the DDA to the extent they provide tax advice to their clients, or assist in the planning or execution of transactions for their clients concerning:

  • The buying and selling of undertakings or real estate;

  • Managing of client money, securities or other assets;

  • Opening or management of accounts, custody accounts, or safe deposit boxes;

  • Organization of contributions necessary for the creation, operation or management of legal entities; or

  • Establishment of a legal entity on the account of a third party or acting as a partner of a partnership or a governing body or general manager of a legal entity on the account of a third party of carrying out a comparable function on the account of a third party.

100. The Lawyers Act permits a license holder under the Act to provide legal advice on a professional basis, and to represent parties on a professional basis in all judicial and extrajudicial public and private matters.

101. Lawyers under the Lawyers Act are subject to disciplinary powers of the Court of Appeal, which may take action on its own initiative or based on information received from the public. Disciplinary measures include reprimand, a fine of up to CHF 50,000, and permanent or temporary withdrawal of the license.

102. “Legal agents” as referred to under Art. 3 of the DDA are an extremely small (two persons) class of practitioners who were so registered in February 1958, or were granted a subsequent permit before the Act on Lawyers entered into force in 1992.

103. Accountants are not expressly referenced but Art. 3(v) of the DDA sets out a catch-all provision for “any natural or legal person to the extent that they contribute to the planning and execution of financial or real estate transactions for their clients” concerning any of the activities that would cover lawyers, i.e. the buying and selling of undertakings or real estate; the managing of client money, securities, or other assets; the opening or management of accounts, custody accounts, or safe deposit boxes; the organization of contributions necessary for the creation, operation, or management of legal entities; or the establishment of a legal entity on the account of a third party or acting as a partner of a partnership or a governing body or general manager of a legal entity on the account of a third party of carrying out a comparable function on the account of a third party.

Auditors and Audit Firms

104. Auditors in Liechtenstein fulfill two important, yet separate, roles. In certain circumstances auditors perform audit functions for various customers, including entities in the financial and industrial sectors. In other circumstances, auditors investigate and examine other financial institutions and DNFBPs for compliance with applicable obligations on behalf of the FMA, this role will be discussed under relevant supervision-related recommendations.

105. Regarding the role of auditors in which they establish customer relationships, any natural and legal person licensed under the Auditors Act and Auditing Companies as well as audit offices subject to special legislation require are licensed by the FMA and are subject to the provisions of the DDA. Pursuant to Art. 7 of the Auditors Act, a license under the act permits the carrying out of the following activities on a professional basis:

  • Account and statutory audits; and

  • Advice in the area of finance and accounting, taxes, financing, organization and information technology.

106. In addition, the DDA covers within its scope any other natural and legal person who, on a professional basis, accepts or keeps third-party assets or assists in the acceptance, investment, or transfer of such assets or who, on a professional basis carries out external statutory and other audits.

Real Estate Brokers

107. Real estate agents are not required to obtain a license from the FMA, but need to have a commercial license issued by the Amt juer Volkswirtschaft. Real estate agents are covered by the DDA and supervised by the FMA to the extent that their activities cover the purchase or sale of real property.

108. The real estate market in Liechtenstein is very small and highly regulated. Liechtenstein citizens, and certain few noncitizens who become eligible through an annual lottery or other means, are allowed to purchase a limited number of properties in Liechtenstein (one house and one apartment or two apartments, in addition to one house in certain less developed areas in the mountains). As such, individuals purchasing property, generally through their real estate agents, must demonstrate to the land registry that the purchaser of the property is qualified to do so.

Dealers in Goods

109. Natural and legal persons trading in goods on a professional basis are covered by the DDA and supervised by the FMA to the extent that payment is made in cash in an amount of CHF 15,000 or more, whether the transaction is executed in a single operation or in several operations which appear connected. This industry in Liechtenstein is very small, with four covered entities. The small industry, combined with the minimal covered activity (i.e. single or aggregate transactions greater than CHF 15,000) results in the risk associated with such institutions as low.

Casinos

110. Casino and providers of online gambling games under the Gambling Act must obtain a license by the Liechtenstein government and are subject to the DDA. At the time of the onsite visit, there had been no licenses issued under the Gambling Act. For online casinos, the authorities stated that there was a moratorium for the issuance of licenses until at least 2014. This is based on the fact that there is a case pending at the European Court of Justice on subsidized online gambling, which may have an impact on whether or not Liechtenstein will issue such licenses in the future. The authorities stated that even if there was a decision to issue online gambling licenses, there was no expectation that many applications for such licenses would be received, as the licensing requirements under the Gambling Act are very strict compared to those in other jurisdictions.

111. The authorities indicated that the government took a decision to issue only one license for a land-based casino under the Gambling Act, and would reassess the demand for further land-based casinos in 2016. The authorities received two applications for the land-based casino license and had issued one license in 2012. However, this decision was appealed, and the case is now pending before the Constitutional Court. It is possible that the license will be re-issued in 2013, which would allow for a casino to become fully operational no sooner than 2016.

Other Persons Subject to Obligations

112. Art. 3.1 DDA further provides that any other natural or legal person who conducts financial transactions as defined in Art. 4 DDA on a professional basis is covered by the law.

Risks Emanating from the DNFBP Sector

113. The DNFBP sector in Liechtenstein is particularly high risk given the services offered and the types of customers served, which are often nonresident, intermediated, and can be components of existing complex legal structures. To mitigate these risks, all participants in the DNFBP sector should understand and implement the appropriate preventive measures, including enhanced due diligence policies and procedures. Any shortcomings in understanding or implementation of the requisite measures decrease the effectiveness of the overall framework and allow the heightened risks emanating from the DNFBP sector to go unmitigated.

114. Interviews conducted by the assessment team demonstrated that the effectiveness of mitigating the risks emanating from the DNFBP sector is diminished by shortcomings in the implementation and understanding of the necessary measures, along with a general lack of appreciation for the high risk nature of the DNFBP sector.

115. Additionally, shortcomings with respect to supervision of the DNFBP sector further diminish the effectiveness of the framework. Issues related to supervision include: the absence of proper licensing requirements in certain circumstances, including with respect to trustees; conflicting legal provisions with respect to the ability to obtain information; the use of mandated audit firms for compliance examinations; supervision processes and cycles that are not risk-sensitive; lack of an off-site supervision regime; and the imposition of very few sanctions. It must be noted that, according to MONEYVAL procedures, Recommendation 24 has not been reassessed as part of this assessment.

116. Generally, the risks emanating from the DNFBP sector impact the entire framework in Liechtenstein due to the central role of DNFBPs, specifically TCSPs, and the reliance placed upon them by financial institutions and other DNFBPs. These risks are further amplified by a general and residual tendency for industry and other participants to prioritize confidentiality.

2.8. Overview of Commercial Laws and Mechanisms Governing Legal Persons and Arrangements

117. Liechtenstein has a very liberal regime concerning the creation of legal persons and arrangements. For a description of the types of legal persons and arrangements that can be established or recognized by the Liechtenstein legal framework, see the 2007 MER and the table and description under Recommendations 33 and 34.

118. While the basics of the legal regime concerning most types of legal persons and arrangements have remained unaltered since the previous MER, there have been important changes: the DDO’s definition of beneficial owner has been amended to extend it also to those who control legal entities; a new law on foundations was adopted in 2008, a new law (December 2012) introduced new requirements concerning bearer shares and certificates and, for certain types of companies, introduced an obligation to keep shareholders registers at the registered seat of the company. As discussed in the analysis, issues remain with regard to the adequacy, accurateness and timely access to information on beneficial ownership.

119. The table below (source: Office of Justice) provides the total number of registered/deposited entities, broken down per type of entity as of 12/31/2012 (also showing the figures of 2011 and new entries/deletion):

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120. The use of trusts is not as extensive as that of some other legal entities, such as foundations or Anstalten, as the table below shows. Moreover, many more trusts are registered than are deposited. This is shown by the following table showing legal arrangements at the end of 2012:

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Source: Office of Justice

Risk and vulnerabilities

121. The number of registered or otherwise deposited entities is quite high, although there has been a decrease, since 2011. In the authorities’ view, this is mainly attributed to Liechtenstein’s having signed several agreements concerning the exchange of information on tax matters with the U.S. and the EU and on its greater transparency. There have certainly been significant improvements on this front from the previous assessment, including with regard to legal persons and arrangements. There are however still significant challenges in the effective implementation and some inherent vulnerabilities and weaknesses in the system chosen by Liechtenstein to prevent the unlawful use of legal persons and arrangements by money launderers and, possibly, terrorist financiers. Authorities have identified the creation of complex legal structures as posing a risk, and assessors concur with this finding. There are indeed elements of risks inherent in the types of institutions that can be created in Liechtenstein, such as deposited foundations and Anstalten (see analysis of R33), which can be used as a placeholder for more complex structures and whose regime, legal and in practice, has elements that make it challenging to identify the beneficial owner or the beneficiaries (use of agents to establish these entities, identification of beneficial owner, and beneficiaries in bylaws that are not subject to registration or deposit with the OJ and may be not always maintained by TCSP, especially in the case of foreign introducers). The issues of effectiveness noted with regard to trustees’ implementation of CD requirement and their supervision by the FMA, add to the risk of ML/FT abuse that legal persons and arrangements still pose for Liechtenstein.

2.9. Overview of Strategy to Prevent Money Laundering and Terrorist Financing

AML/CFT Strategies and Priorities

122. The Liechtenstein AML/CFT system relies on the following pillars:

  • Conformity with International Standards: As a MONEYVAL and EEA member, Liechtenstein is committed to implementing international standards in fighting money laundering and terrorist financing. This approach is complemented by the government’s strategy to fight international tax crimes and corruption. In the Liechtenstein Declaration of 2009, Liechtenstein has committed itself to apply the global OECD standards of transparency and exchange of information. In the area of fighting corruption, Liechtenstein is a party to the UN Convention against Corruption and a member of GRECO.

  • Dedication of sufficient resources to combat ML and FT: Since 2000, the government has systematically and continuously increased the authorities’ capacities to combat ML and FT.

  • Proactive approach: Proactive AML/CFT action is an integral aspect of the Liechtenstein approach, in particular through the FIU. The FIU has increased its capacities to build up a strategic analysis function.

  • International cooperation: Liechtenstein is an international financial center and therefore depends on close and effective cooperation with foreign countries at all levels, be it FIU, the Office of the Public Prosecutor, the police, the Supervisor, the Office of Justice (Central Authority for Mutual Legal Assistance), or other competent authority. Liechtenstein has become a Schengen member, and participates in international fora for combating money laundering and terrorist financing, such as the EU FIU platform, FATF, MONEYVAL, and the Egmont Group.

  • Domestic cooperation: The authorities, as well as representatives from the private sector cooperate and collaborate where needed. A special AML/CFT Working group (PROTEGE) has been set up, chaired by the FIU, to coordinate all ML/FT related efforts. Its members are the Directors or Senior Officials of all agencies involved.

123. The effectiveness of the measures is under regular review by the authorities concerned and the AML/CFT Working Group PROTEGE. The process for a National Risk Assessment has been initiated, simultaneously reviewing the appropriateness of the existing measures. The AML/CFT Task Force has been tasked to propose measure to implement the new FATF standards in Liechtenstein law, taking into consideration the recommendations from the fourth round IMF/MONEYVAL assessment and the new fourth EU AML/CFT Directive, such as the inclusion of serious tax offenses as predicate offenses.

The Institutional Framework for Combating Money Laundering and Terrorist Financing

124. The following Liechtenstein authorities play a role in the AML/CFT effort, to some extent or another.

Ministry of Finance

125. The Ministry of Finance is responsible for all issues relating to finances, budgets, and taxes, as well as the financial center policy, including countering the abuse of the financial center for criminal purposes. Within the Ministry, the FIU is responsible for AML/CFT policy and coordination issues while the Office for International Financial Affairs is responsible for the policy with regard to international cooperation in tax matters and for the financial market strategy.

Ministry of Justice

126. The Ministry of Justice is responsible for the areas of civil law, including the Law on Persons and Companies, criminal law, execution, estate, and bankruptcy law, procedural law, data protection, mutual legal assistance, extradition and transit, enforcement of sentences, and foundation law. They include updating the existing legal order by preparing and managing legislative texts and legislative amendment processes, such as those arising from Liechtenstein’s membership in the EEA.

Ministry of Interior

127. The Ministry of Interior exercises authority over the Liechtenstein National Police, whose organization and functions are governed by the 1989 National Police Act, i.e., conducting criminal investigations, including in relation to money laundering in terrorism financing, executing assignments at the instruction of government offices, administrative authorities and courts provided by law, and supporting the prevention of accidents and crime. It is also legally in charge of the cross- border cash transportation control.

Ministry of Foreign Affairs

128. The main responsibilities of the Ministry of Foreign Affairs include the preparation and treatment of all government matters relating to international agreements and treaties, bilateral and multilateral cooperation, European and international cooperation, international organizations and conferences, and diplomatic and consular relations. In the area of AML/CFT, the ministry is involved in the ratification of relevant treaties, and in the implementation of UN and EU sanctions. The ministry is also responsible for humanitarian aid.

AML/CFT Working Group.

129. A national AML/CFT working group, created on January 15, 2013, is responsible for coordination and cooperation in all areas relating to proliferation, FT, and ML (PROTEGE). The working group is chaired by the FIU, with the participation of the FMA, national police, public prosecutor, Office of Justice, Office for International Financial Affairs, Foreign Office, Courts, and Tax Administration, all represented by their directors or delegates. Prior to January 2013, three distinct working groups existed that covered AML/CFT issues with one of them specifically focusing on terrorist financing.

Financial Intelligence Unit (FIU)

130. The FIU, also known under its acronym EFFI, is an administrative analytical unit within the Ministry of Finance. It is the central office receiving and analyzing information in order to identify indications of ML, predicate offenses of ML, organized crime, and FT. It is also the office to which SARs are submitted, analyzed, and disseminated. It has two departments, operational and strategic analysis and a designated staff for international affairs. The Head of the FIU chairs the AML/CFT working group PROTEGE and the country’s MONEYVAL delegation.

Law enforcement agencies including police and other relevant investigative bodies

131. As stated above, the Liechtenstein National Police is in charge of the criminal investigations, including ML and FT. One section (the Economic Crime Unit) is specifically dealing with financial and economic affairs. Organizationally, the National Police is structured into the Safety and Traffic Division, the Criminal Police Division (who deals with the ML/TF matters), and the Command Services Division. The Chief of Police is the head manager of the National Police. He is supported by the Chief of Staff, who is responsible for the administration and also serves as the head of the Command Services Division. The Chief of Police and the division heads constitute the Executive Staff of the National Police. The National Police counts about 120 officers and staff.

Prosecution authorities including specialised confiscation agencies.

132. The responsibility of the Office of the Public Prosecutor is to prosecute, indict, and argue the indictment before the competent court ex officio with respect to all offenses that have been reported to the office. Investigative magistrates of the Princely Court have the authority to issue legal orders, such as production orders and search and arrest warrants, as required to investigate ML and FT.

133. The Office of the Public Prosecutor safeguards the interests of the state in the administration of justice, in particular with respect to the administration of criminal justice and mutual legal assistance in criminal matters. In the exercise of its responsibilities, it is independent of the courts. The Office of the Public Prosecutor reviews all reports of punishable acts it receives and ex officio decides to on the prosecution or other measures. If there are sufficient grounds for initiation of proceedings, the Public Prosecutor submits an application for initiation of an investigation or a writ of indictment. If not, the case is filed away. The Office of the Public Prosecutor represents the state before the courts.

134. In the absence of a specialized confiscation agency or criminal asset bureau, the management of confiscated assets falls under the general authority of the government.

Customs service

135. There is no customs department in Liechtenstein. All customs duties are taken up by the Swiss Customs under the Treaty of December 3, 2008 between the Principality of Liechtenstein and the Swiss Confederation. The cross-border cash transportation control at the Liechtenstein borders, genuinely the responsibility of Customs authorities, is performed by the Liechtenstein National Police.

Financial Market Authority (FMA) Supervision

136. As a supervisory authority, the FMA supervises the financial market participants in the Liechtenstein financial center in order to ensure the stability of the FIs and financial market as well as the protection of clients. In case of violations the FMA takes the necessary measures to safeguard the interests of the clients and the reputation of the financial center. The FMA also deals with cases in which activities subject to a license are pursued without the appropriate license.

Regulation

137. The FMA ensures implementation of international standards and participates in the preparation of financial market laws on behalf of the government. To further specify laws and their implementing ordinances, the FMA also issues guidelines and communications.

External relations

138. The FMA is represented in all relevant supervisory organizations at the global and European level. With its mission as an equivalent supervisory authority, the FMA contributes to ensuring market access for Liechtenstein financial intermediaries. At the national level, the FMA maintains close contact with business and professional associations.

Office of Justice

139. Within the Ministry of Justice, the Office of Justice (presently three lawyers) is responsible for preparing legislative proposals, the Land Registry (Cadaster), and the Commercial Registry. It is the Central Authority in Mutual Legal Assistance context.

The Commercial Registry

140. The Commercial Registry is a public register ensuring the legal certainty of commercial transactions by disclosing arrangements under private law, especially liability and representation arrangements, entered into by the natural and legal persons operating in this sphere. It registers businesses, foundations, establishments (anstalten), and other commercial entities. It functions as a depository of documents relating to foundations, trusts/settlements, and other instruments. Furthermore, it registers public authorizations and clarification of names and business names, performance of the legally required announcements, various official acts such as monitoring compliance with various requirements (submission of balance sheet, etc.), changes of domicile, and reviews. The registered data have force of evidence.

Approach Concerning Risk

141. The overall approach to risk is led by the PROTEGE Working Group. As noted above, this has begun the process of developing a National Threat Assessment. PROTEGE is examining alternative strategies, identifying any gaps in its current data set, holding “brainstorming” sessions to assess risk, and attending international workshops to consider appropriate strategies for developing National Threat Assessments in comparable countries.

142. More generally, the authorities have reinforced this general approach to risk by implementing the Third EU Money Laundering Directive and following its approach closely.

143. In advance of the development of a National Threat Assessment, the PROTEGE Group has identified key risk areas within the jurisdiction. It has informed the assessors that it considers private banking and wealth management—a key element of the financial services business—to be high risk. It has concluded that risks are higher still where customers are resident in countries that have only recently become a market economy—such as Asia—and where customers are resident in high crime countries. The jurisdiction has had no instances of terrorism and considers that there is a relatively low risk of terrorist financing.

144. The PROTEGE Group has concluded that the main risk in terms of the traditional analysis of money laundering methodologies is at the layering and integration stages. There is little risk in terms of the initial placement.

145. The PROTEGE group also seeks to keep abreast of trends in the development of business models that might create risk and of trends in criminal behavior. In the latter context, it has identified an increasing incidence of economic crime, investment fraud, and market abuse. The FMA has been able to provide assistance and cooperation to foreign authorities on these matters (and this was confirmed by third-party countries in their response to the assessors’ enquiry). There has also been some increase in the instance of corruption proceeds.

146. In response to the assessment of risks that the PROTEGE has developed thus far (in advance of the full National Threat Assessment), the main focus has been on preventative measures imposed by the FMA. As noted in the description of supervision below, the DDA presupposes a risk-based approach by stating, for example, that the frequency and intensity of inspections is based in part on the risk posed by an institution. Moreover, the DDA requires institutions subject to its provisions to adopt a risk-based approach, for example with respect to the monitoring of transactions.

147. In the discussion of supervision below, it is noted that, in practice, the FMA has not yet fully adopted a risk-based approach to supervision. Inspections of FIs are conducted annually and neither the frequency nor intensity is substantially altered by reference to AML/CFT risk. Moreover, the allocation of resources within supervision does not appear to be related to the AML/CFT risk of the different businesses for whose supervision different businesses are responsible. Guidance given to FIs and DNFBPs is primarily concerned with the interpretation of the detailed and mandatory provisions in the DDA and the Due Diligence Ordnance (DDO). While the guidance does provide advice on a risk-based approach, more detailed advice on implementation of such an approach and on meeting the requirements of the DDA and DDO would encourage flexibility and innovation and allow diversity in implementation.

148. At this stage, therefore, although there are some elements of a risk-based approach, it is clearly some way from being fully developed. Nevertheless, the authorities are seeking to conduct a full National Threat Assessment and, as noted above, are considering appropriate methodologies for developing their risk-based approach within the context of the adoption of the EU Money Laundering Directives.

Progress since the last IMF/WB Assessment or Mutual Evaluation

149. Please refer to the analysis of the individual recommendations for a description of the progress since the last Mutual Evaluation vis-à-vis the shortcomings noted in the 2008 MER.

3. Legal System and Related Institutional Measures

Laws and Regulations

3.1. Criminalization of Money Laundering (R1 rated PC in third round MER)

3.1.1. Description and Analysis

Summary of the 2007 MER factors underlying the ratings and recommendations and progress since the last MER

150. The last assessment noted following deficiencies:

  • no offenses in the categories of environmental crimes, smuggling, forgery, and market manipulation were predicate offenses for money laundering;

  • no criminalization of self-laundering in relation to converting, using, or transferring criminal proceeds;

  • no prosecution possible for money laundering where the offender has been convicted for the predicate offense; and

  • association or conspiracy of two persons to commit money laundering is not criminalized.

151. Art. 165 of the Liechtenstein Penal Code (PC) criminalizing money laundering activity has undergone some significant changes in the wake of the third round mutual assessment, in an effort to accommodate the comments and recommendations made at that occasion. In essence, this includes completion of the list of predicate offenses and removal of the clause restricting the punishment of laundering activity committed by the author of the predicate offense. Conversion, transfer, and use by the author of the predicate offense are now covered, as well as association to commit money laundering.

Legal Framework:

  • Article 165 Penal Code (PC);

  • Article 5 and 7 PC;

  • Articles 12 and 15 PC;

  • Article 17, para. 1 PC;

  • Article 64, para. 1.9 PC;

  • Article 278, para. 2 PC.

Criminalization of Money Laundering (c. 1.1—Physical and Material Elements of the Offense):

152. Art. 165 PC now criminalizes money laundering as follows (amendments in italics):

  • “(1) anyone who hides asset components originating from a crime, a misdemeanor under Arts. 223, 224, 278, 278d, or 304 to 308, a misdemeanor under Arts. 83–85 of the Foreigners Act, a misdemeanor under the Narcotics Act, or an infraction under Art. 24 of the Market Abuse Act, or conceals their origin, in particular by providing false information in legal transactions concerning the origin or the true nature of, the ownership or other rights pertaining to, the power of disposal over, the transfer of, or the location of such asset components”

  • “(2) anyone who appropriates or takes into safekeeping asset components originating from a crime, a misdemeanor under Arts. 223, 224, 278, 278d or 304 to 308, a misdemeanor under Arts. 83–85 of the Foreigners Act, a misdemeanor under the Narcotics Act,11 or an infraction under Art 24 of the Market Abuse Act, whether merely in order to hold them in safekeeping, to invest them, or to manage them, or who converts, realizes, or transfers such asset components to a third party.”

153. The previous assessment already found in Art. 165PC complying with the physical elements as stated in the Vienna and Palermo Convention, i.e., concealment (hiding), acquisition, possession, management and use (conversion, realization or transfer).

154. Although Article 165 PC does not contain specific terminology on the moral element (mens rea), it is clear that at a minimum the “willful” standard applies. Liechtenstein criminal law (Art. 5 PC) knows three forms of “mens rea” characterizing an offense “willfully,” “intentionally,” or “knowingly.” When a criminal provision does not specify the mental element required, such as in Art. 165, paras. 1 and 2PC, the act is deemed “willful,” which is an even lower standard than the required “intention” according to the terminology used in the relevant Conventions.

The Laundered Property (c. 1.2):

155. As before, according to Art., 165, para. 4PC, the assets (“asset components”) originate from a criminal offense if the offender has either obtained the assets himself through the offense or for its commission or if the value of the originally obtained or received assets are embodied in it.

156. Disregarding the reference to assets obtained to commit an offense (which is not a proceed but an instrumentality), the ML offense relates to all kinds of property, either obtained directly from the offense or indirectly through substitution (“embodied”). This would also cover the interests and investment yields derived from the criminal proceeds.12

Proving Property is the Proceeds of Crime (c. 1.2.1)

157. While proof of the predicate offense does not technically require a conviction, in the absence of jurisprudence on ML cases, it is still unclear what level of proof would satisfy the courts. The authorities refer to the common law concept of “beyond reasonable doubt,” which as a legal term is foreign to the civil law tradition and as such is no criterion for the civil law judge, who is fully sovereign in assessing the value of the evidence (Art. 205CPC). Proving an (unspecified) illicit origin appears insufficient for the Liechtenstein courts, because the predicate list approach requires the identification of the proceeds originating offense in any case as a constitutive element of the ML offense. For the Liechtenstein courts, a formal proof of a specific predicate offense will likely be necessary, as in the case of confiscation in rem (discussed under Recommendation 3).

158. As a consequence, considering that in reality most of the predicate offenses are committed outside Liechtenstein, there is a tendency to (over)rely on the foreign criminal investigation or prosecution to deliver sufficient certainty or proof enabling a ML prosecution in Liechtenstein.

The Scope of the Predicate Offenses (c.1.3):

159. Predicate offenses to ML fall under two categories:

  • all crimes, that are intentional criminal offenses punishable by life imprisonment or a term of more than three years (Art. 17, para. 1PC);

  • designated misdemeanors (penalty less than three years).

160. The deficiencies in the list of designated predicate offenses, as highlighted in the previous assessment, were addressed by the inclusion in Art. 165PC of the misdemeanors of forgery (Arts. 223 and 224PC) and market manipulation (Art. 24 Market Abuse Act).13 The environmental offenses covered by Arts. 180, para. 2; 181a, para. 2; and 181c, para. 2PC have been elevated to crimes in aggravating circumstances. As for smuggling, reference is made to specific Swiss Customs legislation applicable under the 1923 Customs Treaty by public notice.

161. To be noted that a certain category of tax offenses that fall beyond the list of designated predicate offenses, i.e. VAT fraud exceeding 75,000 francs affecting the budget of the European Communities, has been introduced as predicate criminality for ML (Art. 165, para. 3aPC). Other categories of serious tax crimes such as large and organized income tax fraud are no predicate offense to ML.

162. The designated predicate offenses are now fully covered as follows:

  • Participation in an organized criminal group and racketeering: Arts. 277, 278a, and 278b PC;

  • Terrorism, including terrorist financing: Arts. 278b, c, and d PC;

  • Trafficking in human beings and migrant smuggling: Arts. 104, 104a, and 217PC;

  • Sexual exploitation, including sexual exploitation of children: Arts. 200, 201.2, 204, 205, 206, 208.3, 212.3PC;

  • Illicit trafficking in narcotic drugs and psychotropic substances: All misdemeanors in the 1983 Narcotics Act are predicate offenses for money laundering, including the sale or procurement of narcotics, the financing of narcotic trafficking or the procurement of financing of narcotics;

  • Illicit arms trafficking: Art. 60.3 Arms Act, Arts. 33.2–34 and 35 Swiss Act on War Material: Arts. 27.2, 28.1, 29.1 (LI) Act on War Material;

  • Illicit trafficking in stolen and other goods: Art. 164.4PC: Art. 14.2 Swiss Act on the Control of Goods with Civilian and Military Application (GKG), Art. 21.2 (LI) KGG;

  • Corruption and bribery: Arts. 153.2, 304–308PC;

  • Fraud: Arts. 147, 148, 148a.2, 153.2, and 156PC;

  • Counterfeiting currency: Arts. 232, 233.2, and 234PC;

  • Counterfeiting and piracy of products: Art. 60.2. Law Concerning Brand Protection;

  • Environmental crimes: Arts. 180, para 2; 181a, para 2; and 181c, para 2PC;

  • Murder, grievous bodily injury: Arts. 75, 76, 77, 78, 79, 85, 86, 87, 92.3, 96.2, and 321 PC;

  • Kidnapping, illegal restraint and hostage taking: Arts. 99.2, 100, 101, 102, 103, 104, and 106 PC;

  • Robbery or theft: Arts. 128.2, 129, 130, 131, 132.2, 133.2, 142, and 143PC;

  • Smuggling: Art. 14, para. 4 Swiss Federal Act on Administrative Criminal Law of March 22, 1974;

  • Extortion: Art. 144 and 145PC;

  • Forgery: Arts. 223 and 224PC;

  • Piracy: Art. 185 and 186 PC (air piracy); and

  • Insider trading and market manipulation: Arts. 23.1 and 24 2006 Market Abuse Act.

163. The predicate offense of piracy (Art. 185PC) is about air piracy and no other provision covers naval piracy as such, which is a very important issue. This apparent inconsistency is countered by the authorities with the argument that the criminal acts pertaining to naval piracy are all covered in the PC and that prosecution would take other (designated) offenses (theft, robbery, extortion, terrorism, murder, grievous bodily harm, e. a.) to satisfy the predicate requirement of Art. 165PC.14

Threshold Approach for Predicate Offenses (c. 1.4):

164. The Liechtenstein approach is partly threshold, partly list based. As said, predicates to ML are all crimes (i.e. punishable by life or more than three years imprisonment) and a series of designated misdemeanors (less than three years imprisonment).

Extraterritorially Committed Predicate Offenses (c. 1.5):

165. As long as Liechtenstein has jurisdiction over the ML activity itself ratione loci, it is irrelevant where the predicate offenses are committed, presuming the facts constitute a domestic predicate offense. Liechtenstein even assumes jurisdiction over the money laundering conduct in another country if the predicate offense has been committed in Liechtenstein (Art. 64, para. 1.9PC). Art. 65, para. 3PC finally provides that, if there is no penal power at the place where the criminal act was committed (such as the Antarctic or high seas) it is sufficient that the offense is punishable in Liechtenstein.

Laundering One’s Own Illicit Funds (c. 1.6):

166. A major improvement since the previous assessment is the abolition of para. 5 of Art. 165 PC prohibiting the prosecution for money laundering of a person who had been punished for participation in the predicate offense.15 While in the previous assessment, Art. 165, para. 2, was found to exclude self-laundering conduct, this is no longer the case in its present formulation where it refers to the conversion, use, and transfer of criminally obtained assets. Criminalization of self-laundering in respect of “appropriation and taking into custody” is justifiably precluded by the fundamental “ne bis in idem” principle (the commission of the predicate offense infers the acquisition and taking into possession of the assets).16

Ancillary Offenses (c. 1.7):

167. All relevant ancillary offenses are presently covered. Since criterion 1.7 has been clarified by the FATF in respect of the association/conspiracy aspect (association with or conspiracy to), the criticism in the previous assessment regarding the absence of criminalization of conspiracy by two persons to commit money laundering can no longer be sustained. Conspiracy in the common law sense not being an offense in a continental (civil) law-based criminal law tradition such as in Liechtenstein, the international standards (including the relevant conventions) alternatively require the criminalization of association to commit money laundering. Such association is criminalized pursuant to Art. 278, para. 2PC.

Additional Element—If an act overseas which do not constitute an offense overseas, but would be a predicate offense if occurred domestically, lead to an offense of ML (c. 1.8):

168. Art. 64PC lists a series of offenses that fall under the Liechtenstein jurisdiction if committed in a foreign country, even if that conduct is not criminalized in that country. The list includes money laundering if the predicate has been committed in Liechtenstein, but does not cover all predicate offenses to money laundering according to Art. 165PC.

Statistics (R.32):

169. The following statistics on judicial follow-up were provided by the Liechtenstein authorities:

Statistics Table 3.

Judicial Follow-up

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Prosecution closed/suspended. One defendant was convicted for the predicate offense (drugs) in Sweden, whilst the whereabouts of the second defendant remain unknown. The criminal proceeds transited over Liechtenstein back to Sweden.

Prosecution closed. Acquittal for ML. Predicate offense (fraud) in Germany (no prosecution).

Self laundering and breach of trust acquittal for the predicate offense and the ML aspect.

170. Roughly 90 percent of the ML investigations were triggered by an FIU report to the Public Prosecutor, who is legally obliged to start an enquiry whenever there is indeed sufficient suspicion. The remainder was initiated by the police predominantly based on information received through Interpol or after a criminal complaint.

171. The statistics still show no convictions, apart from one case in 2008, when on July 15, 2008 the Court of Justice sentenced a German citizen to eight month imprisonment for third party ML after the predicate offender was convicted for fraud in 2005. The penalty was however suspended subject to a probation period of one year.

172. Out of effectiveness considerations the Prosecutor General pursues a policy of waiving his jurisdiction and transferring the prosecution to the foreign authorities with jurisdiction over the predicate offense or who are already investigating.

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Effective implementation

173. The 2009 amendments to Art. 165PC took into account almost all third round recommendations and brought the criminal ML provision broadly in line with the international standards. They extended the list of predicate offenses “beyond the call of duty” covering VAT fraud beside all designated predicate offenses (reservation made for naval piracy), removed the legal obstacles to the criminalization of self-laundering, and broadened the scope of the ML offense to capture conversion, transfer, and use of the criminal assets. Technically, there are, however, still some deficiencies with more or less relative impact on the effectiveness of the repressive approach.

174. The object (corpus) of the ML offense, i.e. the criminal assets either obtained directly from the offence or indirectly through substitution (“embodied”) (Art. 165.4PC), may raise the question if this includes any income derived from the immediate and substitute proceeds, such as interests and dividends. According to the doctrine quoted above (see footnote 13), these items are also covered. Also, in the confiscation area the terminology of Art. 20bPC explicitly providing for forfeiture of the predicate offense proceeds as object of the money laundering offense, (“involved in money laundering”), makes it clear that derived income is covered.

175. Immediately notable from the statistics is the substantial number of investigations that only very exceptionally result in a domestic ML prosecution. There are a number of reasons for putting these figures in perspective. Not all intelligence from the FIU (accounting for circa 90 percent of the investigations) can be turned into evidence justifying further proceedings. Also, investigations can give cause to prosecution for other offenses than ML. Finally, there is the criminological policy to waive the own jurisdiction in favor of that of the foreign country that is dealing with the predicate offense or other related offenses.

176. The authorities explain the low number of indictments and (no) convictions being due to the fact that in almost all cases the predicate offense is committed abroad and the connection to Liechtenstein is relative (single transaction, use of a front company or other services by a financial intermediary). In most cases, according to the authorities, the financial intermediaries act in good faith, and in some cases negligent, but not intentional; while in very serious cases there is an involvement in the predicate offense, which occurs abroad. They consider the ML investigations a deterrent by themselves even if not resulting in indictments and convictions in Liechtenstein.

177. Consequently, transferring prosecutions to foreign judicial authorities is a frequent occurrence, not limited to money laundering cases (see statistics). Authorities insist on the effectiveness of this policy, which is a view the assessors only partially share. If proceedings in respect of the predicate offense are or have been initiated elsewhere, it makes sense to join the two judicial actions together. There are downsides to this predominantly reactive approach however: the results in terms of convictions and asset recovery are completely out of the Liechtenstein authorities’ control and depend on the diligence or even interest of the foreign judiciary. It is no coincidence that one of the complaints voiced by the judicial authorities is the lack of effective response by some foreign jurisdictions, even to the extent that no action is taken against the criminal assets. Also, this practice does not promote the development of Liechtenstein’s own jurisprudence on the matter.

178. The previous assessment already recommended to develop jurisprudence on money laundering as an autonomous offense to attenuate the (over)reliance on external factors. Although in the past years some prosecutions have been initiated, they all have been closed without a conviction, bar one that has ended in a (mild) conviction in 2008. A common factor to all prosecutions is the narrow link to the predicate offense proceedings and the burden to establish the predicate offense, which the authorities’ state has to be done beyond a reasonable doubt. While there is still no jurisprudential answer in ML cases to the essential question of what level of proof on the (foreign) basic offense suffices for an ML conviction outside the existence of a predicate conviction (not legally required, but of course highly appreciated), the conditions required by the courts in the case of in rem confiscation (need to establish specifically predicate offense) suggest a conservative approach by the courts. Moreover it is not clear why Liechtenstein, as a civil law system would require a “beyond reasonable doubt” standard, which is a common law feature. It is understood that, as a consequence of the list-bound character of Art. 165PC, at a minimum the identification of the predicate offense figuring in the list (crimes and specific misdemeanors) is required, but questions remain on the required level of proof. The result is that the concept of ML as an autonomous offense still has not made its entrance in the Liechtenstein jurisprudence. The list-bound aspect of the ML offense increases the overall level of the burden of proof as it does not allow a furnishing of proof based on an (unspecified) illegal origin of the assets, as is possible in jurisdictions with an all crimes ML legal approach. Internationally there is a tendency to make the scope of the ML offense as wide as possible, including fiscal offenses, which is frequently one of the reasons for restricting the offense to a list of predicate criminality. The new FATF standards follow that trend.17

179. Risk: any factor affecting the level of effectiveness logically has an opposite effect on the degree of risk. A crucial element in any AML/CFT system, also from a law enforcement point of view, is the search for and identification of the real beneficial owner, which in a financial center mainly attracting and managing foreign assets depends largely on a effective preventive CDD system and a solid arsenal of legal means for the judiciary to penetrate the secrecy created by complex corporate structures and stringent confidentiality rules that can easily be abused by mala fide persons. As highlighted in the relevant sections, there are some distinct vulnerabilities in the preventive system weighing on the law enforcement action that cannot fully rely on the reliability of the information from the relevant sectors. The mis- or inappropriate use of the legal privilege by lawyers and auditors protecting them from criminal procedure measures related to the collection of evidence, when in reality they are not acting in their specific professional capacity, is a continuous challenge.

180. In the criminal procedure and policy domain reliance on external factors and initiatives out of the control of the Liechtenstein prosecution office and courts creates a distinct risk of the law enforcement action not leading to a satisfactory result, if any, through inertia, disinterest, or capacity problems of the foreign judicial authorities.

3.1.2. Recommendations and Comments

181. Liechtenstein has made substantial progress in bringing the ML offense in line with the Convention and FATF standards. The extension of the predicate criminality to VAT fraud, although not (yet) an international requirement, is a positive sign of relaxation of the strict fiscal exception rules and demonstrates a greater openness to meet the changing standards in the fiscal domain. The Liechtenstein authorities should continue to prepare themselves for the implementation of the new FATF recommendations in this respect.

182. The effectiveness of the repressive approach is still under pressure considering its reliance on external factors and the high level of burden of proof. Therefore it is recommended to:

  • Pursue proactively money laundering as an autonomous offense, in order to create jurisprudence on the burden of proof to establish the predicate offense; and

  • Consider increasing the effectiveness of the repressive approach by attenuating the formal high level of proof by amending the list-based money laundering offense to an all-crimes offense.

3.1.3. Compliance with Recommendation 1

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3.2. Criminalization of Terrorist Financing (SR.II rated PC in Third Round MER)

3.2.1. Description and Analysis

Summary of the 2007 MER factors underlying the ratings and recommendation and progress since the last MER

183. In the previous MER, Liechtenstein was found deficient on following aspects:

  • No explicit criminalization of the financing of individual terrorists and not all instances of such financing are currently covered under the legal framework as required under SR.II;

  • The financing of terrorist organizations is not criminalized in all instances required by SR.II, Liechtenstein’s definition of “terrorist organization” referring to a definition of “terrorist acts” which does not cover all acts to be considered terrorist acts under the international standard;

  • Reference in Art. 278d PC to “criminal offenses” does not cover any other acts committed with the required intent to be terrorist acts;

  • No criminal liability of corporate entities; and

  • The lack of prosecutions and convictions for terrorist financing make it difficult to assess the effectiveness of the legal framework.

184. Liechtenstein responded to the third round recommendations to by amending the relevant articles to include acts committed by an individual terrorist and to criminalize the financing of all offenses covered by the FT Convention related Treaties as financing terrorist acts. The generic offense now refers to any act instead of criminal offenses. Corporate criminal liability was introduced.

Legal Framework:

  • Arts. 278b, c, and d PC;

  • Arts. 5 and 7PC;

  • Arts. 12 and 15PC;

  • Art. 64, para. 1.11PC; and

  • Arts. 74a-74g PC.

3.3. Criminalization of Financing of Terrorism (c. II.1)

II.1a

185. Terrorist financing is presently criminalized by Art. 278d PC, as amended by LGBI 2009 N° 49. Other novelties since the previous evaluation are the amendments to Art. 278b (terrorist group) and Art. 278c (terrorist offenses).

186. With the ratification of the 2005 International Convention for the Suppression of Acts of Nuclear Terrorism (in force since October 25, 2009), the Protocol to the Convention for the Suppression of Unlawful Acts against the Safety of Maritime Navigation (in force in Liechtenstein since July 28, 2010) and the Protocol of 2005 to the Protocol for the Suppression of Unlawful Acts against the Safety of Fixed Platforms Located on the Continental Shelf (in force in Liechtenstein since July 28, 2010), Liechtenstein is party to all international instruments relevant to SRII.18

187. Art. 278d, para. 1, a–g PC now criminalizes the sole financing (collection and provision) with the intent that they be used, even only in part, for the commission of following offenses (summary):

a) Aircraft hijacking and endangering aviation safety;

b) Kidnapping, including threatening to;

c) Attacks against internationally protected persons;

d) Endangering through misuse of nuclear material;

e) Attacks against airports;

f) Offenses against maritime navigation safety and fixed platforms;

g) Terrorist bombings.

thus including all offenses covered by the relevant Treaties referenced in Art. 2 (i) of the International Convention for the Suppression of the Financing of Terrorism (ICSFT) 1999.

188. Art. 278d, para. 1, point 1h PC19 criminalizes the generic offense of financing any act intended to cause death or serious bodily injury to civilians with the circumstances and intentions as specified in Art. 2 (ii) the FT Convention. By substituting “criminal offense” by “an act,” the legislator is now complying with the specific international standard.

189. Art. 278d, para. 1, point 2 PC now criminalizes the financing of an individual terrorist or a terrorist group in following terms: “Anyone who makes available or collects assets with the intent that they be used, even only in part…by a person or a group (§ 278b, para. 3) committing20 an act referred to in point 1 or participating in such a group as a member (§ 278b, para. 2), shall be punished…” The intent that the funds should be used for terrorist activity is no longer required.

190. Beside the financial support of a terrorist group according to Art. 278b, para. 2 PC which does not include the sole collection of funds), the financing of a terrorist group is now also covered by Art. 278d, para. 2 PC with reference to Art. 278b, para. 3 PC, defining such group as an affiliation of more than two persons intended to exist for an extended period of time and aimed at the commission of one or more terrorist offenses (Art. 278c PC) by one or more of its members.

II.1b–e

191. Art. 278d PC does not require a connection between the funds and a terrorist act, perpetrated or not. The attempt to commit FT is criminalized by Art. 15 PC, as for all offenses. Art. 12 PC generally covers participation as an accomplice (aiding and abetting, facilitating and counseling), stating a criminal offense is committed not only by the immediate perpetrator of the criminal offense, but also by anybody who incites another person to carry out the offense or who contributes to its perpetration in any other way. More specifically, participating as an accomplice, organizing and directing others, contributing to the commission of the offense by a group of persons acting with a common purpose, are covered by Arts. 12 and 278b PC combined (“Terrorist Group”). As for the moral element (willful) and the definition of “funds,”21 these elements are all covered, as already stated in the third round MER.

Predicate Offense for Money Laundering (c. II.2):

192. FT is a predicate offense to ML, Art.165 PC making an explicit reference to Art. 278d PC.

Jurisdiction for Terrorist Financing Offense (c. II.3):

193. As long as the financing activity takes place in Liechtenstein, it is irrelevant where the person committing the offense is located or where the terrorist activity itself takes place (jurisdiction ratione loci). Liechtenstein explicitly takes jurisdiction over FT committed in another country when the conditions of Art. 64, para. 1, 11 PC are met (Liechtenstein citizenship or foreigner in Liechtenstein who cannot be extradited).

The Mental Element of the FT Offense (applying c. 2.2 in R.2):

194. The free and sovereign appreciation of the evidence, including related to the moral/mental element or mens rea, by the judge is a fundamental principle in the civil law tradition. The Liechtenstein Code of Criminal Procedure (CPC) expressly confirms this rule in its Art. 205, para. 2.

Liability of Legal Persons (applying c. 2.3 and c. 2.4 in R.2):

195. Corporate criminal liability was introduced in 2010 with the Arts. 74a–74g PC, on top of and independent from the criminal liability of the individual author of the offense.

196. As for all crimes and misdemeanours, criminal liability is provided for FT when committed for the purposes of the legal person by a person with a leading position (Art. 74a, para. 1 PC) or committed by a person under its authority based on the lack of supervision or control of such a person in a leading position on the other (Art. 74a, para. 4 PC). The legal person is liable for offenses committed by a person with a leading position if this person acted illegally and culpably (Art. 74a, para. 1 PC).

197. Corporate criminal liability does not exclude liability or parallel proceedings which may result from the respective unlawful act (Art. 74a, para. 5 PC).

Sanctions for FT (applying c. 2.5 in R.2):

198. FT is punished with imprisonment of six months to five years, except if a different provision imposes a more severe sentence (Art. 278d, para. 1 and 2 PC). Financially supporting a terrorist group as a member of that group carries a penalty of imprisonment of one to ten years (Art. 278b, para. 2 PC). Comparison with the criminal sanctions provided for in other European countries (civil or common law) shows that only Austria and Switzerland apply sanctions in a similar range, all other examples carrying higher to significantly higher maximum sanctions for the basic offense,22 which raises issues with regards to the sanctions being proportionate or dissuasive. The effectiveness cannot be tested in the absence of judicial cases.

Statistics (R.32):

199. See statistical figures in section 1.2.2 above. Beside one (closed) investigation in 2011, no other law enforcement initiatives have been taken. The investigation, triggered by an FIU report, related to a covert investigation in another country, which was discontinued there for lack of evidence.

Effective implementation

200. The authorities took great care to ensure the technical implementation of the SRII criteria. All FT Convention Treaties have entered into force in Liechtenstein and, more importantly, the sole financing of all offenses covered by the relevant treaties is now punished as terrorist financing. The exemption on political grounds which pervades the Liechtenstein legal system, particularly the MLA regime, does not apply here as the criminal character outweighs the political nature and the Convention takes precedence anyway.

201. A remark can be raised in respect of the transposition of the offenses covered by the 1980 Convention on the Physical Protection of Nuclear Material: under Art. 278d, para. 1)1d) they relate to the financing of acts of willful endangerment, threat, obtaining, theft or robbery of nuclear material, while Art. 7.1a of the Convention is more specific (“receipt, possession, use, transfer, alteration, disposal or dispersal”). From the governmental explanatory works that accompanied the draft amendment of Art. 278d PC, it appears that the wording was deemed sufficiently broad to the acts as defined in the Convention. The issue may be rather academic as the “obtaining” could presumably be viewed as including possession (although not all forms of use) while from a perspective of the terrorist intent and the financing of the acts the essence seems sufficiently covered. Although this is a very minor shortcoming still, from a technical point of view, the wording is not precise.

202. Another important gap has been addressed in Art. 278d, para. 1) 2 PC, penalizing the sole financing of a terrorist individual or group without the intent of the funds being used for terrorist purposes (for instance for comfort or family support). To characterize the person or group as terrorist, the financing relates to an individual or group “committing” or “participating” in terrorist acts or groups (present and unconditional tense), which might give the impression that the person or group is already active in the terrorist domain. The authorities have however correctly referred to the FATF interpretative note on SRII, point 2b, which defines a terrorist as a natural person “who commits” etc…, using the same wording as Art. 278d, para. 1) 2 PC.

203. Financing of terrorism as such carries a punishment of imprisonment of six months to five years. The imprisonment term seems rather low compared to the sanctions imposed by a great majority of European countries, weakening their deterrent and dissuasive effect.

204. As for effective implementation, no assessment can be made in the absence of prosecutions and convictions. The only investigation was discontinued for valid reasons, while the sole case of freezing of assets under the Taliban Ordinance ended in a de-listing.

205. The risk factors valid for the AML domain similarly apply to the CFT system, with the important difference that the funds may very well have a licit origin, making the detection even more difficult. The complex legal structures, the culture of confidentiality, the extensive legal privilege protection, and the beneficial ownership identification issues could result in terrorist-related assets going undetected. It is however a positive sign of the alertness of the sector that relevant (though external) information was picked up by the reporting system in one case. All in all, the legal and institutional framework is adequate enough to capture any TF indication. There are however no sufficient concrete elements enabling to assess the efficiency of the proactive detection system.

3.3.1. Recommendations and Comments

206. The CFT regime has undergone major improvements since the previous assessment and is broadly compliant with the standard. To enhance the quality of the legal framework and the potential effectiveness of the criminal approach, it is recommended that:

  • The penalties be increased to enhance their deterrent effect.

3.3.2. Compliance with Special Recommendation II

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3.4. Confiscation, Freezing, and Seizing of Proceeds of Crime (R.3 rated LC in third round MER)

3.4.1. Description and Analysis

Summary of the 2007 MER factors underlying the ratings and recommendations and progress since the last MER

207. The previous MER came to following recommendations:

  • The criminal seizure and confiscation of the laundered assets as the object of the autonomous money laundering offense needs to be formally covered;

  • All (intended) instrumentalities must be made subject to seizure confiscation, irrespective of their nature;

  • R. 32.2: statistics should also comprise overall figures on criminal proceeds seized and confiscated and on criminal procedure based seizures and confiscations.

208. The legal framework governing the Liechtenstein seizure and confiscation regime has basically remained unchanged since the last mutual evaluation. In principle confiscation is conviction based, but civil in rem procedures are also provided for in case asset recovery is not possible by way of criminal procedure. Forfeiture of the object of money laundering is now specifically provided for.

Legal Framework:

  • Art. 20, 20b, and 26 PC;

  • Art. 92, 96, 97a, and 98a CPC;

  • Art. 253a CPC;

  • Arts. 353 to 357 CPC;

  • Art. 18 DDA;

  • Art. 879 CC; and

  • Art. 87.2 Organization of the Police Ordinance.

Confiscation of Property related to ML, FT. or other predicate offenses including property of corresponding value (c. 3.1):

209. The Liechtenstein confiscation system still distinguishes three distinct forms: deprivation of the economic benefit (“Abschöpfimg der Bereicherung”, Art. 20 PC), forfeiture of criminal property or proceeds (“Verfall”, Art. 20b PC) and confiscation of instrumentalities, (“Einziehung”, Art. 26 PC).

210. The three forms of criminal confiscation can be summarized as follows:

1) Abschöpfum der Berreicheruns (literally: “deprivation of enrichment”—Art. 20 PC) relates to all “pecuniary benefits” derived from a criminal offense or received to perpetrate such act. This confiscation is value based, which amounts to an equivalent value confiscation. On conviction the offender is ordered to pay an amount of money equal to the “unlawful enrichment”. If the amount of the enrichment cannot be determined readily, the court decides at its discretion (ex aequo et bono);

2) Verfall (forfeiture—Art. 20b PC):

  • Assets belonging to criminal or terrorist organizations (as defined in Art. 278a and 278b StGB) or being made available or collected in the context of terrorism financing (Art. 278d StGB), must be confiscated (Art. 20b, para. 1 PC). An important amendment to Art. 20b PC was introduced in 2009,23 explicitly providing for forfeiture of the predicate offense proceeds as object of the money laundering offense (“involved in money laundering”) (Art. 20b, para. 2, point 1 PC);

  • Assets derived from criminal activity performed in a foreign jurisdiction are also subject to confiscation even when the predicate offense is not punishable in Liechtenstein, except if it relates to a fiscal (tax) offense. In 2009, however, the possibility of forfeiture of the proceeds of a VAT fraud affecting the EU budget was introduced (Art. 20b, para. 2, point 2 PC).

3) Einziehunz: confiscation (Art. 26 PC) of objects intended to be or actually used to commit criminal acts (instrumenta sceleris), or that have been produced by such activity (producta sceleris), but only when these objects endanger the safety of persons, morality, or the public order (Art. 26.1 PC as amended), i.e., dangerous or illegal goods such as drugs, weapons, or forged documents. It is seen predominantly as a security measure, so confiscation of such objects is mandatory also in the absence of a prosecution or conviction (Art. 26.3). Instrumentalities that have been rendered harmless or unusable, or where an innocent third party lays legal claim to, with the guarantee that the object(s) will not be used for criminal activity, are generally exempted from confiscation (Art. 26.2).

211. The limitations to the confiscation of instrumentalities were marked as a deficiency in the previous assessment, prompting an amendment to Art. 26.1 PC. The new wording still seems to exclude “innocent” objects that are not dangerous to persons, morality, or public order per se, such as a car driven by a money launderer to transport illegal assets. The authorities however refer to Swiss legal doctrine and jurisprudence that gives an extensive interpretation of the legal possibility to confiscate ML and FT instrumentalities, quoting cases where a car was used to commit a crime and the house of a spy was confiscated as an instrumentality. The Liechtenstein Supreme Court recognizes Swiss doctrine and jurisprudence as an authoritative source of interpretation of provisions taken over from or inspired by Swiss legislation.24

212. As said, beside the criminal confiscation, the Liechtenstein confiscation regime also features a civil forfeiture procedure. Pursuant to Art. 356 of the Criminal Procedure Code (CPC), there is a special procedure to permit confiscation in the absence of a criminal conviction for forfeiture in rem, when there is no possibility for criminal confiscation. This procedure was systematically used for proceeds from a foreign predicate, because the assets could not be criminally confiscated until the law had introduced the possibility of forfeiting the assets as object of the money laundering offense, or when the deprivation of enrichment (Art. 20 PC) is excluded in the circumstances intended by Art. 20a PC (payment of victims, legal elimination). A civil forfeiture order or freezing order must then be issued by the Court of Justice upon the application of the Office of the Public Prosecutor. Civil forfeiture orders may be obtained against individuals or entities.

Confiscation of Property Derived from Proceeds of Crime (c. 3.1.1 applying c. 3.1):

213. Reference is made to the third round findings, which remain unchanged. The confiscation provision of Art. 20 PC covers all assets (“Vermögensvorteile” literally: “patrimonial advantages”) that are the proceeds of crime. There is no formal definition in the law of what is to be understood as “proceeds.” The wording is broad enough, however, to encompass not only the direct proceeds, but also any indirect ones, including substitute assets and investment yields.25 The ML offense text expressly refers to assets that “represent the value of the asset originally obtained or received” as object of the offense (Art. 165.4 PC). The confiscation measure covered by Art. 20 PC is formulated in such way as to translate every asset to its equivalent value. Once this order is issued, it is then executed against all assets of the convicted. As said, since 2009 assets “involved” in laundering activity are expressly made forfeitable as object of the offense (Art. 20b, para. 2 PC), thus remedying an important legal gap in the context of autonomous money laundering criminal proceedings.

Provisional Measures to Prevent Dealing in Property subject to Confiscation (c. 3.2):

214. Reference is made to the third round findings, which remain unchanged. The seizure regime is incorporated in Art. 96 (seizure of assets), 97a (freezing), and 98a (seizure of objects and documents) CPC and is used either for evidentiary purposes or to ensure effective forfeiture/confiscation. Distinction is made between the freezing measure of Art. 97a CPC which relates to assets and seizure according to Arts. 96 and 98a CPC relating to objects and documents. Freezing and seizure actions are systematically used to prevent the dissipation of assets. They require the involvement of the Court of Justice (investigating judge) pursuant to Arts. 92, 96, 97a, and 98a CPC. Freezing and seizure takes the items and assets into judicial custody.

Ex Parte Application for Provisional Measures (c. 3.3):

215. Reference is made to the third round findings, which remain unchanged. The Court of Justice issues freezing orders according to Art. 97a CPC without prior notification of the holder.

Identification and Tracing of Property subject to Confiscation (c. 3.4):

216. The Public Prosecutor can initiate an investigation on the basis of a simple suspicion raised by a variety of sources such as press articles, police intelligence, FIU reports, and foreign investigations.

217. The legal basis for identifying and tracing suspect assets is laid down in a variety of provisions, but essentially in Arts. 92, 96, 97a, 98a, 105, and 108 CPC. Art. 92 CPC allows a house search when there is a founded suspicion of the presence of a suspect or of evidentiary and other relevant objects. “Founded” suspicion exists when there are concrete indications or additional elements of such a presence. Beside information from the police, who is empowered to immobilize assets, documents and objects as conservatory measure in order to prevent their disappearance (Art. 25 National Police Act—NPA) FIU reports also mostly contain indications of where the suspect assets are or can be located.

218. Search warrants are issued by the Investigative Judge under Art. 92 CPC. Specifically in the event of ML and FT, predicate offense, or an organized crime investigation, Art. 98a CPC empowers the judge to query all banks, investment firms, insurance companies, asset management companies, and management companies for all CDD information and compel surrender of documents and other CDD-related instruments. Any refusal to provide the requested information causes the application of Art. 92 and 96 CPC (search and seizure), beside the application of other appropriate sanctions.

219. A vulnerability remains in the restriction of Art. 98a CPC in the sense that it does not cover information gathering with some relevant categories, such as payment system providers, e-money institutions, insurance mediators, and DNFBPs. The possibility of seizing documents according to Art. 96 CPC does not cover that lacuna. Particularly in the case of lawyers (acting as financial intermediaries or in other nonlitigation or legal advices circumstances), auditors, and trustees, substantial information may not be captured in seizable documents. The authorities explain this exemption on the grounds that Art. 98a CPC was specifically introduced to oblige banks and the other (prudentially supervised) institutions to disclose relevant data, usually held in electronic form in a database, without the necessity of invasive search warrants, and to allow the monitoring of accounts. In case of refusal the Art. 96 CPC seizure provision will apply. Consequently, expanding Art. 98a CPC to lawyers, trustees, and auditors would serve no useful purpose, as they do not keep accounts and relevant information can be obtained through the classical means of collecting evidence. However, the evaluators are not convinced about the rationale of this exemption, as databases are also used by DNFBPs.

220. Furthermore, Art. 108 CPC states that “Defense counsel, attorneys at law, legal agents, auditors, and patent attorneys” are entitled to refuse to give evidence, with regard to what has become known to them in this capacity. The judicial authorities do not perceive that as a problem, as they can still call them as witness under Art. 105 CPC to disclose the necessary (nonprivileged) information, or directly use the search and seizure possibilities of Arts. 92 and 96 CPC, discarding the pieces covered by privilege. Nonetheless, endowing the auditors with a legal privilege statute can hardly be reconciled with the ratio legis of such immunity, since the auditors do not engage in legal representation. This could hamper authorities’ powers to identify and trace property that is, or may become, subject to confiscation or is suspected of being proceeds of crime.

Protection of Bona Fide Third Parties (c. 3.5):

221. Reference is made to the third round findings, which remain unchanged. The relevant provisions do not specify any condition as to the location, possession, or ownership of the assets subject to confiscation. Consequently, in principle, it is irrelevant if they are in the hands of third persons or not. Arts. 20c and 26 PC provide for abstention from forfeiture and confiscation if the object or asset is legitimately claimed by a person who has not participated in the offense or in the criminal organization or in the terrorist association (Art. 20c PC) or for objects which are legitimately claimed by a person who has not participated in the offense, in which case they will only be confiscated if the person concerned does not guarantee that the objects will not be used to commit the offense (Art. 26, para 2 PC).

Power to Void Actions (c. 3.6):

222. Art. 20, para. 4 PC can be used to invalidate or prevent actions aimed at protecting the property from confiscation by physical or legal transfer to third parties. It states that the deprivation of enrichment also covers third persons benefiting unjustly and directly from an offense committed by another person, or from the economic benefit given for the commission of such an offense. These persons may also be ordered to pay an amount of money equivalent to these profits, without the necessity to prosecute them as an accomplice. This applies equally to legal persons and partnerships that have gained profits. In the case of the death of the person who has gained illegal profits, or if the legal person or partnership has ceased to exist, the profits are to be deprived from the legal successor insofar as they still existed at the moment of transfer of rights (Art. 20, para. 5 PC).

223. Voiding contracts that aim to frustrate seizure, confiscation, or forfeiture orders, is also possible in application of Art. 879 Civil Code (CC) stating as a general rule that contracts which violate existing (statutory) laws or which are contra bonos mores are null and void, e.g. when the contract was concluded with the intention to hinder the state‘s ability to recover legitimate financial claims. As yet, this has not been used by the Public Prosecutor, who as a rule does not involve the office in civil litigations and only makes use of the criminal law provisions and procedures.

Statistics (R.32):

Statistics Table 4.

On the number of search and seizures (not limited to ML/FT)

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*The high amount is the result of a final decision in the Abacha case, the assets having been frozen years before.

224. The apparent divergence between amounts frozen and confiscated is explained by following factors:

  • Freezing is rarely followed by confiscation in the same calendar year;

  • The threshold for freezing is low. Conservation of the suspect assets is seen as a priority to safeguard the confiscation action. Authorities estimate that approximately 40 percent of the freezing measures end up in a confiscation, although this is not immediately apparent from the statistics above.

  • Freezing is frequently executed at the request of a foreign judicial authority, which is then not being followed up by the requestor.

225. Notwithstanding the priority accorded to criminal confiscation according to Art. 356 CPC, the majority of the confiscation procedures are still in rem. Based on authorities’ estimates, over 80 percent of the assets confiscated in 2009–2012 are in rem confiscations (in terms of number of cases, the ratio between in rem and conviction based“ confiscations is also roughly 80/20).

Additional Elements (Rec 3)—Provision for a) Confiscation of assets from organizations principally criminal in nature; b) Civil forfeiture; and, c) Confiscation of Property which Reverses Burden of Proof (c. 3.7):

226. Assets at the disposal of criminal organizations are subject to confiscation according to Art. 20b, para. 1 of the PC.

227. Arts. 353–357 of the CPC authorizes civil (in rem) forfeiture proceedings if there is no criminal conviction possible (e.g. the author is unknown or has absconded).

228. Under Art. 20, para. 2 PC, the court can forfeit benefits (enrichment) that cannot be directly linked to a specified offense, based on a rebuttable legal presumption that assets a defendant holds derive from other, nonidentifiable offenses. This partially reverses the burden of proof. In this case, there is no need for the prosecutor to prove that the money is the proceeds of a specific offense. This applies with regard to:

  • A perpetrator who has committed crimes, such as ML (Art. 17 PC) continuously or repeatedly, and has obtained economic benefits from, or received for their commission and has gained during the same period further economic benefits. The statute provides that for such additional economic benefits, there is a presumption that these benefits derive from other crimes of the same nature. If the legal acquisition of the benefits are not made credible, they have to be taken into consideration in determining the amount of money to be deprived;

  • A perpetrator who is involved in a criminal organization (Art. 278a) or a terrorist group (Art. 278b) and who, during the period of membership, has gained economic benefits, if there is an obvious presumption that these profits derive from offenses and their legal acquisition cannot be made credible (Art. 20, para. 3 of the PC).

Effective Implementation

229. The new wording to Art. 26.1 still leaves a restrictive legal condition for the confiscation of instrumentalities. It is unfortunate that the legislator still has not taken an initiative in expressly lifting the restriction and at least leaving a decision margin to the judge. It reflects an underestimation of the importance of an instrumentality as a criminal tool, disregarding the penalty value of the measure and undermining any deterrent effect. The quoted broad interpretation given by the Swiss legal doctrine and jurisprudence, both authoritative sources for Liechtenstein courts, acknowledges the fact that instrumentalities can indeed represent quite significant means and conduits enabling the commission of large scale money laundering that should be subject to confiscation.

230. A strong point in the Liechtenstein approach is its focus on asset recovery. The statistics indeed reflect a substantial effort in that area, where confiscation and forfeiture take priority over criminal convictions. The civil in rem confiscation procedure is a powerful and effective tool in this respect, particularly in a criminal policy system that is quite reliant on foreign investigations and prosecutions. On the other hand, the number of seizures that do not lead to confiscation because of the inertia of the foreign authorities is not negligible and shows the downside of such reliance. Also the freezing and seizure tools are systematically and proactively wielded to prevent any dealings with the assets obstructing subsequent confiscation measures. The notable discrepancy between the high number of conservatory actions and the actual confiscations is without doubt partly due to the high level of proof of the originating offense, if not based on a foreign order or conviction. In this vein, the introduction by Art. 20b PC of the possibility to confiscate the assets as object of the offense is a significant improvement underpinning and reinforcing any future autonomous money laundering offense criminal policy.

231. It has to be noted that the burden of proof required by the courts to establish that the assets were acquired by the commission of a specific predicate offense is quite burdensome. In (mostly common law) jurisdictions that have the in rem procedure in their legal arsenal, it generally comes together with the principle of the sharing or reversal of the burden of proof on the illicit origin of the assets and come to a correct assessment of the amount of criminal proceeds. In Liechtenstein, this is only the case in the event of repeated and continuous behaviour involving crimes (Art. 17 PC) and in relation with criminal organizations and terrorist groups (Art. 20, para. 2–3 PC). An extension of these evidentiary rules to all serious offenses or crimes in all circumstances (repeated/continued or not) would be in line with other similar systems and would clearly add value to the confiscation regime.

232. Also from a criminal procedure point of view the effective tracing and identification of criminal assets is potentially challenged by an inappropriate application of the legal privilege protection. Because of the broad scope of the legal privilege including also auditors and the fact that in Liechtenstein lawyers often assume different roles (mostly that of a trustee), the authorities’ powers could be seriously hampered in practice.

233. The omission of lawyers, trustees, and auditors in the scope of Art. 98a CPC diminishes the possibility to obtain relevant information from these professions. For trustees the situation is clearer in the sense that their secrecy obligations cannot obstruct the application of Art. 105 and 108 CPC to be heard as a witness and give evidence. For auditors, who have been mistakenly included in the Art. 108 exemption (they have no legal representation function), and lawyers, there are distinct possibilities to wield the legal privilege protection to suit their purposes.

234. The culture of confidentiality that characterizes the professional and financial sector in Liechtenstein and the secrecy rules demand appropriate and adapted law enforcement legal instruments and means. As the evaluators could confirm on viewing a sample of production, search and seizure orders, the judiciary is not without response to this challenge. Firm jurisprudence is established that a trustee cannot use a lawyer’s capacity to refuse to comply with production or information requests or orders from the court or to be heard as a witness.26 The authorities stated that in cases where Art. 98a CPC cannot be applied, search and seizure is ordered by the judge on the basis of Arts. 92 and 96 CPC, while there is still the possibility to hear lawyers and auditors as a witness (Art. 105 CPC) on nonprivileged information, or if they have not acted in their privileged capacity. They also stated that where the lawyer has a double capacity, the presumption is that he has acted in his non-lawyer capacity until proof of the contrary. The responses from the sector are, however, quite diffuse, and the views that were expressed by the representatives of the private sector to the mission on this issue varied considerably, so the question is still open of how abuse of the legal privilege can be effectively countered.

235. Although in the MLA seizure and confiscation context steps have already been taken to streamline and simplify the appeal procedures that are sometimes used in a dilatory way (see Section 3.3.1), there are ample possibilities for delaying tactics, particularly in high profile cases. Dilatory recourse to the Constitutional Court is a frequent occurrence, also when no apparent constitutional or fundamental human rights are actually at risk. Interim decisions by the investigating judge, such as on the sealing of seized documents (whose regime has been recently affected by a decision of the Constitutional Court which may lead to reverting to past practices that proved to be burdensome), also give rise to open up all procedural possibilities from the Court of Appeal over the Supreme Court to the Constitutional Court. In the end, it gives the impression that Art. 15 on the jurisdictional competence of the Constitutional Court Act is interpreted in such a broad way as to turn the court into an alternative Court of Appeal judging over factual arguments. Such use of the procedural means has a negative impact on the duration and effectiveness of the seizure/confiscation regime. Therefore, this issue merits a serious reflection by the legislator to strike an appropriate balance between the protection of fundamental rights and a reasonable application of the procedures.

236. The risk factors general affecting the law enforcement action obviously apply to the confiscation regime as an integral part of the repressive AML/CFT regime. In the specific confiscation context, the procedural incidents and tactics, combined with high evidentiary requirements on the illicit origin, will undermine the approach in the long run that gives priority to asset recovery. In the international context, the identification and tracking of criminal assets, shielded by corporate structures or arrangements, presents a significant challenge for foreign law enforcement authorities.

237. All in all, however, and notwithstanding the elements that may hamper the performance of the system, the results of the implementation of the Liechtenstein regime must be underscored. The number of conservatory measures aimed at preventing the assets from dissipating, the systematic use of the in rem confiscation possibilities, and the overall amount of forfeited criminal assets reflect a particular focus on asset recovery with encouraging results for proceeds generating crimes. Statistics were not provided with specific regard to confiscation concerning ML, so assessors are not able to conclude whether, for this particular aspect, the system is effective or not.

3.4.2. Recommendations and Comments

238. The commitment of the Liechtenstein judiciary to effective asset recovery is evident. The confiscation figures are encouraging, even in the perspective of the amount of assets managed in Liechtenstein. There is still the inappropriate limitation of the instrumentality confiscation, as highlighted in the previous assessment, the reliance on varying external initiatives and the issue of the legal privilege abuse.

239. It is recommended that:

  • the incomplete coverage of Art. 98a CPC needs to be addressed to include all persons and entities subject to the DDA, more in particular lawyers, auditors and trustees;

  • the legislator examine effective countermeasures against abuse of the legal privilege protection in case of dual capacity;

  • as with the money laundering offense, develop autonomous procedures as a correction to the reliance on foreign factors;

  • the legislator considers extending the principle of the sharing or reversal of proof, now provided in Art. 20, paras. 2–3 PC, to all serious offenses or crimes in all circumstances in the context of an in rem procedure;

  • exclude the auditors, who have no legal representation function, from the scope of legal privilege regime envisaged by Art. 108 CPC

3.4.3. Compliance with Recommendation 3.

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3.5. Freezing of Funds Used for Terrorist Financing (SR.III rated PC in third round MER)

3.5.1. Description and Analysis

Summary of the 2007 MER factors underlying the ratings and recommendation and progress since the last MER

240. The previous assessment found significant deficiencies in the implementation of the UNSCR resolutions, recommending that Liechtenstein review its response to UNSCR 1373 and address the requirements accompanying a balanced freezing system outside the context of UNSCR 1267. It should also elaborate a procedure covering all specific aspects required by the standards of the exceptional freezing regime in respect of suspected terrorism related assets. Furthermore the Taliban Ordinance procedure required clarification in the sense that these measures also target assets indirectly controlled and partially or jointly possessed by the designated persons. Finally, review of the freezing measure or other appellate possibilities should also be provided for, when challenged by the affected persons or in case of confusion of identity.

241. Legislation has been introduced establishing clear, although not comprehensive, procedural appeal rules for de-listing, review, and other related requests, applicable to both the UNSCR 1267 and 1373 regime. Clarification has been brought in respect of the indirect control over assets and the concept of joint possession.

Legal Framework:

  • Enforcement of International Sanctions Act (ISA), December 10, 2008;

  • Ordinance on Measures against Individuals and Entities associated with the Taliban (Taliban Ordinance), October 4, 2011;

  • Ordinance on Measures against Individuals and Entities associated with Al-Qaida (Al-Qaida Ordinance), October 4, 2011.

Freezing Assets under S/Res/1267 (c. III.1):

242. Implementation of the United Nations Security Council (UNSC) resolutions imposing sanctions, such as UNSC 1267 and 1373, is presently governed by the Enforcement of ISA of December 10, 2008, in force since March 1, 2009. The ISA replaces the Law of May 8, 1991 on Measures Concerning Economic Transactions with Foreign States that previously provided a legal basis for the implementation of UNSC resolutions by way of ordinances issued by the government.

243. The ISA provides for compulsory measures that are aimed in particular at restricting transactions, movement of persons and/or scientific, technological and cultural exchange (Art. 1. 2a), and imposes prohibitions, licensing and reporting obligations (Art. 1.2b).

244. Besides the change of the general legal basis now provided by the ISA, the Osama bin Laden, Al-Qaida, and Taliban Ordinances 2000 has been repealed and replaced by the Taliban Ordinance and the Al-Qaida Ordinance, both of October 4, 2011, imposing the freeze of terrorist assets belonging to or controlled by persons designated by the UN Al-Qaida and Taliban Sanctions Committee.

245. As before, the names of the persons or organizations designated by the United Nations Al-Qaeda and Taliban Sanctions Committee are listed in the steadily updated annex of these ordinances. The lists are made public in the Liechtenstein Law Gazette and distributed in electronic format to the professional associations and via FMA website and newsletters to all financial intermediaries.

246. Both 2011 Ordinances continue and supplement the obligations and procedures originally established by the 2000 Ordinance:

  • All funds and economic resources in possession or under direct or indirect control of the natural and legal persons, groups, and organizations listed in the annex, are immediately frozen de jure and (implicitly) without prior notice (Art.2. 1);

  • Transfer of funds or otherwise directly or indirectly making funds and economic resources available to the designated natural and legal persons, groups, and organizations, is prohibited (Art. 2.2); and

  • Persons and institutions holding or managing funds or with knowledge of economic resources that may fall under the Ordinance measures, must report this to the FIU without delay (Art. 6.1).

247. The FIU plays a central role in this system: not only is it receiving the freezing reports (Art. 6.1.), it monitors the execution of the compulsory measures and advises on requests of exemption (Art. 5.1). This does not invalidate the concurrent DDA obligations imposing a suspicious transaction disclosure to the FIU. The FIU processing and analysis may then lead to a report to the public prosecutor, followed by law enforcement intervention and prosecution. This circumstance has however no impact on the specific and indefinite freezing regime as lay down by the Ordinance.

Freezing Assets under S/Res/1373 (c. III.2):

248. The ISA also provides for a general legal basis for the implementation of UNSCR 1373. A particularity of the ISA is stated in its Art. 1: beside compulsory measures by the government to enforce international sanctions adopted by the United Nations, such measures can also be taken to enforce sanctions adopted by “the most significant trading partners of the Principality of Liechtenstein.” This reference has its origins in the legislative history of the ISA, which was primarily designed to provide an improved legal basis for the enforcement of sanctions lists by the United Nations as well as by the European Union, but it still seems a rather controversial and discriminative approach of view unnecessarily narrowing the application of UNSCR 1373.

249. Apparently there has been no cause for Liechtenstein to establish its own terrorist list. There is no specific procedure in the event the circumstances would call for the drafting of such domestic lists, nor is it provided what conditions the list should meet. If the necessity should arise, the task of proposing a governmental decision in that sense would probably and logically fall to the AML/CFT Working Group PROTEGE.

250. Any suspicion of assets being related to terrorists or terrorist groups would in any case call for the application of the DDA and the CPC provisions, triggering a five-day freezing of the assets together with a SAR to the FIU, or a denunciation to the law enforcement authorities, as appropriate.

Freezing Actions Taken by Other Countries (c. III.3):

251. Although not an EU member, Liechtenstein does observe and implement the relevant EU regulations by way of ordinances. Banks generally adopt the U.S. OFAC list on a voluntary basis. On the other hand, except for the transposition by the ordinance of October 9, 2012 of a Swiss list of persons sanctioned in that country, Liechtenstein has not taken any legislative action in a cross-border context. Any request from another country would be met on an ad hoc basis but, until recently no procedure or conditions had been formalized on how this process was to be implemented. (On August 5, 2013, the PROTEGE working group, acting under its mandate given by the government by its decision of January 15, 2013, drafted a formalized procedure how to handle requests from foreign countries in the context of SR.III. According to this procedure, all incoming requests have to be immediately forwarded to the PROTEGE Chair. PROTEGE then decides on the measure to be applied. These measures may range from requesting additional information from the requesting state, to alerting all financial institutions by the FIU, to send the name list to all reporting entities by the FMA, to publish these names, or to request the government to include the names on a official list (with freezing effect), based on the relevant ISA provisions. Should assets be frozen, at least once a year, a review has to be conducted if this measure is still meeting the conditions.

252. The dissemination and ensuing procedures would follow the same line as with the UNSCR 1267 lists. Beside publication of the appropriate ordinance in the Liechtenstein Law Gazette, the FMA would ultimately be in charge of the dissemination of such lists, domestic or foreign, notifying all persons and enterprises subjected to the DDA by means of their website or newsletter. The subjected entities owning or controlling such funds are under the obligation to immediately freeze the assets.

253. According to Art. 3, ISA a general duty is imposed on the persons directly or indirectly affected by the compulsory measures to disclose relevant information to the competent executing authorities, i.e. the government and the designated administrative offices (Art. 15 ISA) “on request” to enable a comprehensive assessment or supervision. The existing ordinances specifically designate the FIU as the executing authority responsible for the monitoring of the implementation and to whom it is mandatory for the affected persons and entities to report to automatically.

Extension of c. III.1–III.3 to funds or assets controlled by designated persons (c. III.4):

254. The ISA does not define “funds,” only referring to “transactions involving goods and services, payment and capital transfers, and the movement or persons, as well as scientific, technological, and cultural exchange” as subject to compulsory measures. The 2011 ordinances are now explicit on the definition of funds and economic resources (Art. 3) and have clarified the term “control” as covering both direct and indirect control (Art. 2).27 The reference to “indirect control” covering also control by persons acting at the behalf or direction of the designated entities is now confirmed by Art. 2.1) b) of the Amendment of August 13, 2013 to the 2011 ordinances, entered into force on August 16, 2013.

255. The legislator still has not explicitly specified the term “possession” in the ordinances as also including partial and co-ownership, which was highlighted as a technical deficiency in the previous MER. Liechtenstein law however has a legal concept of “possession” including also “joint” possession (Liechtenstein Property Law (“Sachenrecht”), Arts. 25–33 of the Property Law (Gemeinschaftliches Eigentum”), so single person and joint possession are both covered by the term “possession” as referred to in Art. 2 of the ordinances. Legally, this makes sense and can be accepted. The concept also covers “partial” possession, which is now explicitly provided for in Art. 2.1 of the Amendment of August 13, 2013 to the 2011 ordinances (“teilweise”), in force since August 16, 2013.

Communication to the Financial Sector (c. III.5):

256. As before, the UNSCR 1267 and Taliban/Al Qaida Ordinances lists and changes are first published in the national newspapers and the Liechtenstein Law Gazette. Moreover, all relevant information is immediately communicated by the FMA to the professional associations for distribution to their members.

257. The FMA publishes all lists relating to the implementation of UNSCR 1267, UNSCR 1373, and the EU Regulations on its website (www.fma-li.li) and sends e-mail messages (FMA Newsletter) in the case of amendments to the lists. The FMA Newsletter currently has 1,287 subscribers, including all professional associations. The FIU website also refers to the sanctions lists.

Guidance to Financial Institutions (c. III.6):

258. Since the previous assessment and the adoption of the ISA the authorities did not feel the necessity to give further guidance, as the freezing rules were considered sufficiently ingrained in the system. The newsletters sent out by the FMA and the FIU guidance papers, such as on reporting requirements and NPOs (2013, occasionally contain references to the freezing regime.

De-Listing Requests and Unfreezing Funds of De-Listed Persons (c. III.7):

259. The ISA 2008 provides for appeal procedures against the administrative and governmental decisions and orders (Art. 9). These theoretically apply in relation to decisions taken in the framework of UNSC Res. 1373 (domestic lists). They can also be used in a UNSC Res. 1267 context, but then only in relation to the validity of the administrative measures transposing the UNSCR lists. There is always the fundamental right to directly address the Constitutional Court (Art. 15, para. 3 Constitutional Court Act) on violation of human or constitutional rights grounds. The de-listing itself falls however outside the jurisdiction of the Liechtenstein Courts.

260. Requests for de-listing from the Al-Qaeda and Taliban UN list now follow the approach outlined in UNSCR 1904 of December 17, 2009 as updated. All requests to be removed from the UN Consolidated list are addressed to the Office of the Ombudsperson at the UN. All Liechtenstein citizens or residents, including legal persons, who are affected by the freezing measures, can directly address the ombudsperson, which will help them to follow the appropriate procedure. Any such request related to other sanctions lists still would be addressed to the Focal Point (UNSCR 1730 2006). The request may also be appropriately processed by the Ministry of Foreign Affairs, who will examine if their request is founded, and if so, will address the Ombudsperson or, as the case may be, Focal Point for de-listing. No public guidance on this procedure exists yet.

Unfreezing Procedures of Funds of Persons Inadvertently Affected by Freezing Mechanism (c. III.8):

261. Confusion or errors on the identity of the alleged terrorist entity or on the owner/possessor of the assets, resulting in freezing measures prejudicing innocent third parties, can be brought before the appropriate administrative or judicial authorities, depending on the nature of the freezing. Administrative measures can be appealed with the government or Administrative Court within 14 days (Article 9 ISA). Lifting of the judicial freezing requires the intervention of the investigating judge or the Court of Justice, according to the CPC rules.

Access to frozen funds for expenses and other purposes (c. III.9):

262. Art. 2 ISA gives the government the power to make exceptions to the freezing regime out of humanitarian considerations or in the interest of Liechtenstein. This would apply both in a UNSC Res. 1267 and 1373 context.

263. Specifically for UNSC Res. 1267, the 2011 ordinances provide for such exceptions on humanitarian grounds (Art. 2.3) to be requested to the FIU, in conformity with the conditions set out in UNSC Res 1452 (2002) and its successors.

Review of Freezing Decisions (c. III.10):

264. As said, individuals or entities whose names have been included on the list of the 2011 Taliban/Al Qaida Ordinances may, in accordance with Art. 15, para. 3 of the Constitutional Court Act, lodge an individual complaint with the Constitutional Court on fundamental principle grounds. Persons or undertakings whose names have been included on the list of the Al-Qaida/Taliban Ordinance may also demand a copy of an order confirming that they are actually affected by the blocking of assets, which can be appealed to the Administrative Court (National Administration Act and Art. 9 ISA). These procedures can only relate to the administrative decisions transposing the UNSC list and procedural issues, not to the listing by the UNSC. If, however, the review would amount to a request of de-listing from the UNSC list, the above procedure would not be the appropriate one, because outside the jurisdiction of the Liechtenstein courts. In that case the process through the ombudsperson (UNSCR 1904) must be followed.

265. As for the UNSC Res. 1373 (domestic or foreign) related freezing, any review in principle falls under the jurisdiction of the Liechtenstein Administrative Court, insofar they are based on a government decision. If based on the DDA or CPC regime, the Court of Justice takes jurisdiction.

Freezing, Seizing, and Confiscation in Other Circumstances (applying c. 3.1–3.4 and 3.6 in R.3, c. III.11):

266. The provisions of the Code of Criminal Procedure (Art. 97a CPC) and the Criminal Code (Art. 20b PC) apply to the freezing, seizure, confiscation, and forfeiture of assets used for purposes of terrorist financing or other terrorist related funds.

Protection of Rights of Third Parties (c. III.12):

267. According to Art. 20c, para. 1(1) PC, forfeiture of assets is excluded to the extent that persons who are not involved in the punishable act, the criminal organization, or the terrorist group, have legal claims in respect of the assets concerned.

268. Outside the context of criminal procedure based seizure, there are no specific provisions on such protection in the ISA or Ordinances. To challenge administrative freezing measures, bona fide third parties have the option to rely on the administrative review procedures as outlined above under SRIII. 7 and 10).

Enforcing the Obligations under SR III (c. III.13):

269. The ISA subjects must cooperate with the competent authorities to enable a comprehensive assessment and supervision (Art. 3 ISA). These “executive authorities,” identified in the ordinances, have the power to enter and inspect the business premises of the persons who are under the disclosure obligation. The FMA, also on behalf of the FIU, uses this power when verifying compliance with the Ordinance in the framework of due diligence inspections.

270. The following sanctions are laid down in Arts. 10–13 ISA:

  • Willful violation of provisions of an ordinance related to punishable acts: up to three years imprisonment or fine of up to 360 daily rates; halved in case of negligent noncompliance (Art. 10);

  • Refusal to cooperate with the competent authorities and making false or misleading statements (Art. 11.1.a): Violation of provisions of an ordinance related to punishable acts if not punishable under another penal provision: 100,000 SFr or imprisonment up to six months (Art. 11.1.b); halved in case of negligence;

  • Corporate criminal liability alongside personal liability of the representative (Art. 12); and

  • Confiscation of the relevant property and assets, even outside the scope of criminal proceedings, if so imposed by international law (Art. 13).

271. The DDA, PC, and CPC provisions on noncompliance and sanctions apply in all instances related to other terrorism related assets.

Statistics (R.32)

272. As of January 2009, the overall amount of funds frozen pursuant to UNSC Resolution 1267 was CHF 90,200 (the measure was provoked by a bank receiving information of an on-going Swiss investigation). Due to removal of the person from the list by the UN in May 2011, no assets are still frozen or have been frozen since.

Additional Element (SR III)—Implementation of Measures in Best Practices Paper for SR III (c. III.14):

273. The authorities have not implemented the Best Practices.

Additional Element (SR III) — Implementation of Procedures to Access Frozen Funds (c. III.15):

274. Access to funds on humanitarian grounds and for basic expenses is provided for in Art. 2 ISA and the ordinances.

Implementation, effectiveness, and risk

275. The adoption of the Enforcement of ISA significantly amended and improved the legal framework governing the terrorist asset freezing regime in Liechtenstein. There are now clear-cut procedures in place for challenging or reviewing the administrative measures and governmental decisions on freezing listed terrorists’ assets, both in a UNSCR 1267 and 1373 context.

276. The restriction of the ISA to only enforce the sanctions adopted by the “most significant trading partners” can hardly be reconciled with the general purport of UNSCR 1373, which does not tolerate such limitation. Although it has not had any negative effect as yet considering the absence of any transposition request from another country and the Swiss list having been spontaneously adopted by Liechtenstein, it is unduly narrowing the implementation of the resolution from the very start.

277. As for the application of UNSCR 1267, there was only the technicality of the definition of “possession” not explicitly covering partial possession, the authorities having convincingly argued the legal notion of “possession” also covering joint possession situations. Besides addressing the issue of partial possession, the amendments of August 13, 2013 to the 2011 ordinances, in force since August 16, 2013, have clarified the reference to “indirect control” as covering also control by persons acting at the behalf or direction of the designated entities.

278. As for UNSCR 1373, there is still some work to be done. Although the appeal procedures are in place, and there is an explicit provision on humanitarian aid, neither the ISA nor any other legal text determines how to proceed in the event of the establishment of a domestic list. The procedure to be followed in relation to requests for domestic transposition of foreign lists was put in place as a result of the PROTEGE decision of August 5, 2013.

279. It is difficult to assess the overall effectiveness the system in the absence of actual cases of freezing (except for one instance in 2009, later de-listed) and transposition. The interested parties appear to be sufficiently informed of their duties. The one case of freezing under UNSCR 1267 since the last round seems to have received an appropriate treatment according to the rules. With the latest procedural additions, the system seems broadly geared to be able to take the required swift measures in case of detection.

280. Considering the attention given by the authorities and the sector to the UNSCR and other relevant foreign lists, the risk of noncompliance appears relative in terms of observance of the lists. The deficiencies and weaknesses noted on the application of the CDD, however, particularly in respect of the beneficial ownership, and the existence of complex legal structures and the weaknesses noted under R33 and 34 increase the possibility of targeted terrorist assets going undetected.

3.5.2. Recommendations and Comments

281. The authorities should see to it that:

  • The scope of application of the ISA 2008 is not restricted to certain countries by removing this general clause from the ISA;

  • Issue guidance on the procedures for de-listing from the Al-Qaeda and Taliban UN list.

  • Procedures to be followed for drafting domestic lists are elaborated.

3.5.3. Compliance with Special Recommendation III

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Authorities

3.6. The Financial Intelligence Unit and its Functions (R.26—rated LC in the 2007 MER)

Summary of 2007 MER Factors Underlying the Ratings and Recommendations and Progress since the last MER

282. In the previous assessment report, the deficiencies underlying the rating were mainly technical in nature. It was noted that the law did not expressly provide for the FIU’s access to all relevant information held by reporting entities. Additionally, the FIU Act had not been amended to include financing of terrorism.

283. Since the last assessment, the FIU Act has been amended to include financing of terrorism. The FIU has issued consolidated written guidelines on reporting and sector-specific reporting forms for banks, trustees, and insurance businesses to complement the existing general reporting form. Training and awareness-raising activities have continued to be provided, especially in the nonbanking sector. Within two months from the onsite visit, the DDO was amended to empower the FIU explicitly to issue guidelines and to request additional information from reporting entities and other concerned parties in the case of a SAR.

3.6.1. Description and Analysis

Legal Framework:

  • Law of March 14, 2002 on the Financial Intelligence Unit (FIU Act);

  • Law of December 11, 2008 on Professional Due Diligence to Combat Money Laundering, Organized Crime, and Terrorist Financing (DDA);

  • Ordinance of February 17, 2009 on Professional Due Diligence to Combat Money Laundering, Organized Crime, and Terrorist Financing (DDO);

  • Law of November 24, 2006 against Market Abuse in Trading of Financing Instruments (MAA);

  • Guideline for submitting reports to the Financial Intelligence Unit issued on April 1, 2013 (FIU Guideline); and

  • Law of April 21, 1922 on General Administrative Matters.

Establishment of FIU as National Centre (c. 26.1):

284. The FIU of Liechtenstein is an independent administrative agency within the Ministry of Presidency and Finance. It was established in 2001 by the ordinance of February 22, 2001, which was repealed and replaced by the FIU Act in 2002. The FIU Act governs the position, competences, and responsibilities of the FIU.

285. Art. 3 of the FIU Act establishes the FIU as the central administrative office responsible, inter alia, for obtaining and analyzing information necessary to detect money laundering, predicate offenses of money laundering, organized crime, and terrorist financing.

286. The competences and responsibilities of the FIU are set out in detail under Arts. 4 and 5 of the FIU Act. In addition to receiving and analyzing activity reports (SARs)on suspicions of money laundering, predicate offenses, organized crime, and financing of terrorism, the FIU also receives reports on market abuse28 (Art. 4, para. 4 FIU Act). Following receipt of SARs, the FIU conducts its analysis (Art. 4, para. 2 FIU Act) and compiles analytical reports for dissemination to the Office of the Public Prosecutor, where the analysis substantiates the suspicion of ML, predicate offenses, organized crime, and FT. In the course of the financial analysis of SARs, the FIU collects any information necessary for the detection of money laundering, terrorist financing, organized crime, and predicate offenses and cooperates with domestic and foreign authorities for such purpose.

287. In addition to its core functions, the FIU is responsible for the administration of data processing systems for the fulfillment of tasks set out under the FIU Act, compiling strategic reports for the government and other authorities, providing feedback to reporting entities and the general public, training public servants and reporting entities and providing technical assistance to lower capacity countries. As the central AML/CFT authority in Liechtenstein, it also chairs the national AML/CFT working group (PROTEGE).

Guidelines to Financial Institutions on Reporting STR (c. 26.2):

288. On April 1, 2013, the FIU issued consolidated guidance on the manner of reporting, including standard reporting forms and the procedure to be followed in the submission of suspicious activity (and other) reports to the FIU. The legal status of the FIU Guideline was not clear at the time of the on-site mission since the FIU Act did not empower the FIU to issue any form of guidance. Nevertheless, this issue was addressed within two months29 following the onsite visit by an amendment to the DDO. Prior to April 2013, guidance was provided in the form of annual reports, at meetings with professional organizations, public training activities, in-house training events, and in the form of public statements at press conferences or similar occasions. As indicated in the 2007 MER, given the size of the financial and nonfinancial sectors in Liechtenstein and the number of SARs submitted, guidance was also provided by the FIU (and still is) on a case-by-case basis through a form of de facto consultation with reporting entities. A standard reporting form was also available prior to April 2013.

289. The FIU Guideline provides comprehensive instructions on the process of reporting. In particular, it elaborates on the conditions on the basis of which a SAR is to be submitted. For instance, the guideline specifies that a potential link between the activity and a predicate offense is sufficient to trigger the obligation to report. Additionally, the guideline explains that the obligation may also arise even if the specific predicate offense from which the assets originate is not known. The guideline also stipulates that there are no special preconditions which should apply (such as a justified suspicion) for a SAR to be submitted. It is also emphasized that the reporting entity is not required to determine whether the suspicious activity could lead to coercive measures being undertaken by law enforcement authorities. The guideline also sets out the measures to be taken by the reporting entity after reporting. In order to assist reporting entities in determining when a suspicion arises, a detailed explanation of ‘suspicion’ within the context of money laundering, predicate offenses, organized crime and financing of terrorism is provided. The FIU Guideline specifies that a SAR must contain all information required for the FIU to evaluate the matter (Art. 17, para. 1 DDA and Art. 26, para. 3 DDO).30

290. As to the form of reporting, the guidelines require reporting entities to submit reports by completing a standard form31 in writing and to send it by post, courier, fax or e-mail. A clear indication of the postal and electronic addresses of the FIU and other useful contact information of the FIU are provided. Various reporting forms are available on the website of the FIU. Banks, insurance companies, trustees, and lawyers are required to complete a sector-specific form.

291. The reporting forms contain information fields which must be completed by the reporting entity. These include details of the reporting entity, an explanation of the facts which raised the suspicion, details on the type of business relationship, and the contracting party, information on all beneficial owners involved, total amount of assets involved in the business relationship, details on the accounts and financial transactions and the clarifications carried out by the reporting entity before submitting the report. The reporting form is to be accompanied by all CDD documentation obtained by the reporting entity when establishing the business relationship/carrying out the occasional transaction.

292. Although the use of reporting forms is standard, upon consultation with the FIU, it may be determined that the quality of the report can be improved if a standard form is not used. In such cases, all the records required in a reporting form must be submitted.

293. A report is considered to have been submitted if it is complete and has been confirmed by the FIU. The FIU Guideline provides that as soon as the SAR reaches the FIU, receipt of the SAR is confirmed in writing. The confirmation includes a reference number, the name of the responsible officer, and an indication of when the freezing of assets ends.32 The FIU reviews the contents of the report to ensure that it is complete and requests missing records, where necessary. The reference number must always be quoted in communications with the FIU.

Access to Information on Timely Basis by FIU (c. 26.3):

294. The FIU Act contains various provisions which provide the legal basis for the FIU’s access to financial, law enforcement and administrative information: however Art. 4 of the FIU Act limits the access to the information as it states that the “FIU shall obtain information necessary to detect money laundering, predicate offenses of money laundering, organized crime and terrorist financing, subject to legal provisions relating to the protection of secrecy.” The impact and scope of this provision is discussed in more detail below. Art. 5 provides that the FIU shall be responsible for obtaining information from publicly available and nonpublicly available sources that is necessary to detect ML, predicate offenses, organized crime, and FT and to cooperate with the National Police for obtaining information necessary to detect ML, predicate offenses, organized crime, and FT. Art. 6 empowers the FIU to request domestic authorities to transmit information necessary to combat ML, predicate offenses, organized crime, and FT.

295. The DDA also contains a provision dealing with access to information. Art. 36 of the DDA states that domestic authorities, in particular the courts, the Office of the Public Prosecutor, the FMA, the FIU, the National Police, and other authorities responsible for combating ML, organized crime, and FT are required to provide all information and transmit all records to each other that are necessary for the enforcement of the DDA. It is doubtful whether this provision could be resorted to by the FIU to obtain information in the context of criterion 26.3 (“to properly undertake its functions, including the analysis of STRs”), since the exchange of information envisaged under Art. 36 of the DDA is limited to the enforcement of the DDA which does not make reference to the functions of the FIU (set out in the FIU act). Moreover, as discussed under Recommendation 4, it is debatable whether the FMA would have the power to share information with the FIU, as it appears that the FMA may only share information with other supervisory authorities. This limitation deprives the FIU from access to, among others, information on the structure and activities of licensed entities, information on AML/CFT supervisory findings pursuant to inspection visits and other information that licensed entities are required to file with the FSA on a periodic basis.

296. None of the provisions dealing with access to and exchange of information stipulate that information is to be provided to the FIU on a timely basis. Nevertheless, the assessors were informed that the response time is extremely short when these requests are made. In a large majority of cases, the information is received on the same day.

297. Art. 9, para. 1of the FIU Act provides for the FIU’s direct online access to certain databases. On the basis of this article, the national authorities are required to provide the FIU, on request, with the information necessary to fulfill its responsibilities. In order to fulfill its responsibilities, the FIU is entitled to access certain registers of the administrative offices of the National Public Administration by means of an online retrieval procedure. Once the relevant administrative office has given its consent, the FIU may access the records concerned. The government shall specify by ordinance which register the FIU may access. However, no such ordinance has ever been issued.

298. In implementing Art. 9, para. 1 the FIU has established direct online access to the Zentrales Personenverzeichnis which contains the following data:

  • Commercial registry data: data on legal entities, such as company name, legal form, address, and status (active, inactive, in liquidation, deleted). More detailed extracts from the commercial registry (including information on the subscribers of the legal entity; issued, allotted, and paid-up share capital; information on the directors; company secretaries and other involved parties; legal and judicial representation of the legal entity etc.) have to be requested via phone/e-mail/fax. Usually, extracts are delivered very shortly (within hours) after the request has been submitted;

  • Citizens’ registry data: complete data of natural persons that are or have been resident in Liechtenstein (surname, first name, data and place of birth, place of civil origin, citizenship and address);

  • Employers’ records: employment data of natural persons (current employer, former employer).

299. The FIU also has direct online access to the CARI system which contains data on vehicles.

300. The FIU may also request information from the Liechtenstein National Police pursuant to Art. 6 of the FIU Act. Such information would include criminal records, information on ongoing and concluded investigations, assets frozen or seized by the police, formal and informal requests for international cooperation, etc. According to the FIU, information requested from the National Police is accurate and provided on a timely basis. In order to enhance access to law enforcement information, at the time of the onsite mission, discussions were taking place between the FIU and the police to install a new IT tool which would provide mutual access to relevant data through a “hit-no-hit solution.” This would enable each authority to determine whether a person is registered in the other authority’s database. Where a hit is identified, further information, within the parameters of the law, would be requested.

301. The FIU can also request data from the Steuerverwaltung (tax administration). The evaluators were informed that information exchange has been limited so far, given the high percentage of SARs that concern foreign residents and given the limited number of tax offenses which are considered as predicate offenses for ML (only VAT fraud to the detriment of an EU country is considered as a predicate offense).

302. The FIU may obtain information on immoveable property indirectly upon a request to the property registry. Information on business entities may be obtained indirectly from the FMA if it relates to a licensed entity or the Office of Economic Affairs for other business entities. Information on VAT numbers and other relevant tax data can be obtained from the tax administration.

303. During the onsite mission, the FIU pointed out that the domestic databases are very rarely relevant for the analytical work of the FIU. It is only in exceptional cases that Liechtenstein residents are the subject of a SAR. In view of this, no statistical data is maintained on online requests and requests that are directed to other authorities. However, the assessors were informed that the response time is extremely short when these requests are made. In a large majority of cases, the information is received on the same day. It is the view of the evaluation team that all the provisions in the FIU Act which provide for the FIU’s access to financial, administrative and law enforcement information (except to some extent Art. 933) are restricted by Art. 4 of the FIU Act which sets out the competences of the FIU. More specifically, Art. 4, para. 3 states that the FIU shall obtain information necessary to detect money laundering, predicate offenses of money laundering, organized crime and terrorist financing, subject to legal provision relating to the protection of secrecy.

304. The authorities pointed out that the power to obtain information of the FIU derives from a combined reading of Art. 4, para. 1 and Art. 5, para. 1 (c). Art. 4, para. 1, which refers to the FIU’s receipt function, makes reference to Art. 5, para. 1, that includes, inter alia, the power to obtain information from publicly and nonpublicly available sources (para. c). The power under Art. 5, para. 1 (c) is not restricted by provisions relating to the protection of secrecy. The authorities assured the assessors that in practice Art. 4, para. 3 does not prejudice the power of the FIU to obtain information from nonpublicly available sources. However, the evaluation team concluded that Art. 4, para. 3 sets out the general competence of the FIU to obtain information, while the other provisions in the FIU Act provide for the more specific responsibilities, (obtain information from publicly and nonpublicly available sources—Art. 5) and administrative assistance (the FIU may request domestic authorities to transmit the information—Art. 6).

305. In conclusion, the existing legal framework could limit the access of the FIU to financial and law enforcement information that it requires to properly undertake its function because of: (i) the express limitation to the competence of the FIU to obtain information necessary to detect money laundering, predicate offenses, and terrorist financing to the legal provisions relating to the protection of secrecy; (ii) the limitations that the FMA has in providing confidential information to the FIU, and (iii) the fact that there is no obligation for the FMA or law enforcement to provide the FIU with the requested information.

Additional Information from Reporting Parties (c. 26.4):

306. During the onsite visit (and as noted in the previous MER), the power to request additional information from a reporting entity other than the one submitting the SAR was not expressly stated in the law. The situation was addressed following an amendment to Art. 26 of the DDO within two months of the onsite visit. Now, pursuant to Art. 26 of the DDO, the FIU may request additional necessary information in relation to a suspicious activity report not only from the reporting entity but also from other parties concerned, after the receipt of the suspicious activity report. Such information is to be submitted without undue delay and if necessary the FIU can set a deadline for its submission. The authorities explained that in this new provision “parties concerned” refers to, for instance, banks to which a payment has been made from another bank that has submitted a SAR, a trustee (that has not submitted a SAR) who is an involved party in a Liechtenstein company that featured in the SAR of a bank, or an insurance company from where payments have been made to a bank which has submitted the SAR. It was indicated that the term “concerned” is interpreted in a very wide sense to encompass any entity that is in possession of information that the FIU needs to conduct its analysis. This also applies to reporting entities that are only indirectly concerned, as long as the request of the FIU is justified by analytical needs. Considering that this provision was only enacted very recently, it was never tested in the period under review. The authorities pointed out that prior to the amendment to Art. 26, the FIU had regularly requested reporting entities (other than the one which had submitted the SAR) to provide additional information. A number of sanitized examples were provided to the assessment team of requests for information sent by the FIU prior to the amendment to reporting entities and the responses to these requests. However, most of the reporting entities interviewed stated that they had never received such requests from the FIU.Some also stated that they would not provide the requested information to the FIU.

307. Notwithstanding the newly established power of the FIU to request additional information from reporting entities following the receipt of a SAR under the DDO, as explained under Criterion 26.3, Art. 4, para. 3 of the FIU Act restricts the ability of the FIU to obtain information subject to legal provisions relating to the protection of secrecy. The authorities assured the assessors that in practice Art. 4, para. 3 does not prejudice the power of the FIU to obtain additional information from reporting entities. However, for the avoidance of any doubt and in the light of the position expressed by some reporting entities, the assessors are of the view that reference to protection of secrecy in the context of the FIU’s power to obtain information can pose a legal challenge to the FIU’s power to obtain information subject to secrecy from reporting entities and should be removed.

308. There are no specific sanctions in the DDO for failure to provide additional information when so requested in terms of Art. 26. In these cases, the authorities explained that Art. 48 on the Law on General Administrative Matters would apply. Pursuant to the procedure set out under Art. 48, the FIU would issue a formal decision ordering the reporting entity to provide the requested information. In terms of Art. 117 of the same Act, failure to comply with the order in a satisfactory manner would be subject to a fine of up to CHF 5,000. Where a legal person is concerned, the competent organ of that legal person (e.g. the Board of Directors of a Bank) may also be subject to the fine (Art. 117(2)). Where the law is breached repeatedly, the fine may be increased to CHF 10,000 or to imprisonment of up to three months (Art. 117(3)). While taking note of the provisions in the Law on General Administrative Matters, it is the view of the evaluation team that a specific provision dealing with failure to provide information as requested under Art. 26 should be specifically provided for (especially since specific sanctions apply for breaches of all other requirements under the DDA and DDO, including for failure to provide information requested by the FMA).

309. The evaluators were informed that additional information from reporting entities may be obtained indirectly through the FMA in terms of Art. 36 of the DDA. Nevertheless, as explained in other sections of the report it is doubtful whether this provision could be resorted to by the FIU to obtain additional information, since pursuant to Art. 28, para. 4 of the DDA, the FMA may only obtain information from persons subject to due diligence for supervisory purposes. More in general, it is debatable whether the FMA is in a position to exchange information with the FIU, due to conflicting provisions on confidentiality referred to under Recommendation 4.

Dissemination of Information (c. 26.5):

310. Where following the analysis of a SAR, the suspicion of ML, a predicate offense, organized crime, or FT is substantiated, an analytical report together with the SAR itself is forwarded to the Office of the Public Prosecutor for investigation (Art. 5, para. 1, letters b and g of the FIU Act). The assessors are of the view that the FIU should not be required to transmit the SAR itself to the PPO, as this may expose the identity of the reporting entity and may therefore discourage reporting entities from submitting a SAR. As a result and considering the low numbers of STRs noted under the analysis of R13, this could have an impact on the effectiveness of the receipt function of the FIU.

311. Following the analysis of a case, the case analyst, together with the Deputy Head of the FIU or in his absence the Head of the FIU, determines whether the case is to be sent to the Office of the Public Prosecutor. The final decision is taken by the deputy director or, in his absence, the director, in accordance with the internal procedures of the FIU.

312. A discussion on the practical implementation of this criterion is found under the Effective Implementation Section.

Operational Independence (c. 26.6):

313. The FIU is a government agency situated within the operational structure of the Ministry of Presidency and Finance. Although the FIU Law does not expressly provide for the FIU’s independence from any other authority, the FIU has a separate budget, is situated in detached premises and operates its own IT infrastructure. The budget of the FIU is a separate line in the budget of the Ministry for Presidential Affairs and Finance. It is elaborated by the head of the FIU and agreed by the prime minister. The annual budgets of all public entities, including the FIU, are published in the annual activity report of the government.

314. The Director of the FIU reports directly to the prime minister. The director, the deputy director, and the heads of departments are all appointed by the government through a public administrative procedure. All other staff holding nonmanagerial positions is formally employed by the Public Office of Human and Administrative Resources through a procedure which is initiated and elaborated by the director of the FIU. It is the view of the assessors that the FIU has sufficient operational independence and autonomy and is free from undue influence and interference in the performance of its functions.

Protection of Information Held by FIU (c. 26.7):

315. The FIU has established and maintains its own data processing systems. Various security measures were put in place to protect information held at the FIU’s premises. In 2011, the government invested a substantial amount of funds to increase the physical security of the FIU premises and to provide for a fully autonomous FIU database. The FIU database is integrated in a confidential internal operational IT concept. Both the premises of the FIU and the FIU database were inspected by the assessor on-site and they were satisfied with the level of security measures which have been implemented.

316. Every analyst has individual access to three separate workstations: one for SAR data which is completely autonomous from the other networks, one for access to the state information network, and another one for queries to be conducted on open source which is programmed to ensure that any footprints left cannot be traced back to the FIU.

317. In terms of Art. 38 of the State Personnel Act government employees, including FIU staff, are required to maintain confidentiality concerning matters relating to their service, where such matters are to be kept secret by their nature or according to special provisions. The requirement applies indefinitely, even after termination of service. Furthermore, pursuant to Art. 310 of the Criminal Code, the disclosure of confidential information by government employees constitutes a criminal offense and is punishable by up to three years imprisonment. The FIU Act also contains provisions dealing with dissemination of information held by the FIU. Under Art. 10, dealing with the right to information, upon application and in accordance with the Public Information Act, the FIU shall release information to affected parties regarding data stored about their person only to the extent that no predominating public or private interests oppose the release of such information. The release of information under Art. 10 is subject to strict conditions which are set out under Art. 11. For instance, information may not be disclosed where the functions of the FIU or information sources would be jeopardized or the release of information would endanger public security or otherwise harm the welfare of the country.

Publication of Annual Reports (c. 26.8):

318. The FIU issues reports on its activities on an annual basis. These reports include information on statistics and typologies. The release of the annual reports receives considerable media attention since they are issued through a press conference hosted by the prime minister and the director of the FIU. On the day of the press conference, hard copies of the annual report are distributed to all business associations (11), all licensed banks (17), neighboring and German-speaking FIUs (Swiss, Austrian, German, and Luxembourg), all Liechtenstein embassies and Permanent Missions worldwide (8), and a few selected authorities from neighboring countries as well as NGOs (13). On the same morning, soft copies are made available as PDF downloads on the FIU’s website.

319. The FIU informed the assessors that reporting entities regularly refer to the annual report, especially with regard to typologies provided in the report.

Membership of Egmont Group (c. 26.9):

320. The FIU joined the Egmont Group in 2001. It participates very actively in the activities of the Egmont Group including by chairing working groups and has acted as a membership sponsor for a number of other FIUs.

Egmont Principles of Exchange of Information Among FIUs (c. 26.10):

321. The FIU may request information from foreign FIUs where this is required for any purpose referred to under the FIU Act. The FIU may also, on a reciprocal basis, provide official, nonpublicly available information to foreign counterparts, provided that a number of conditions set out under the FIU Law are met. Art. 7, para. 2, letter (lett.) a) provides that the information requested must be in accordance with the provisions of the FIU Act and must not violate ordre public, other essential national interests, and matters subject to secrecy or fiscal interests.

322. The authorities clarified that the last condition is intended to protect the fiscal interests of Liechtenstein and not those of the person in whose regard the request for information was made. In support of their position, the authorities referred to the clarifications provided by the Prime Minister of Liechtenstein in the parliamentary process leading up to the adoption of the FIU Act in 2001, where the purpose of this condition was explained in more detail. The FIU also explained that it has never refused to provide information on the basis of fiscal matters concerning a suspect. Examples of requests for information involving tax matters were made available to the assessment team for inspection. No similar discussion was undertaken during the parliamentary debate concerning the condition on secrecy. It is therefore unclear what the scope of this condition is. The authorities however pointed out that Art. 7, para. 2, lett. a) is intended to protect state secrets rather than financial or other information concerning a person subject to request. This is supported by the fact that the FIU regularly exchanges confidential information with other FIUs. To avoid ambiguity, the evaluation team is of the view that the reference to secrecy conditions in Art. 7 should be clarified further (with a specific reference to “state or official secrecy”).

323. Conditions applicable to the requesting FIU must also be met. Before proceeding to exchange information, the FIU in Liechtenstein must ensure that the requesting FIU would grant a similar request from the FIU in Liechtenstein and guarantee that the information will only be used to combat ML, predicate offenses of ML, organized crime, and FT. Additionally, the Liechtenstein FIU must be satisfied that the information exchanged will only be forwarded after consultation with the Liechtenstein FIU and that the requesting FIU is subject to official and professional secrecy. Requests for information may only be acceded to where the Law on International Mutual Legal Assistance in Criminal Matters does not apply

324. The restriction emanating from Art. 4(3) of the FIU Act on the FIU’s ability to obtain information subject to legal provisions relating to the protection of secrecy could also have an impact on the FIU’s adherence to Egmont Group’s Principles for Information Exchange Between Financial Intelligence Units (July 2013). This is the case, in particular, with respect to paras. 12 and 13 of the Principles which mirror the requirements under criterion 26.4 and 26.3 respectively.

325. In order to facilitate the exchange of information, the Director of the FIU may, after consultation with the Minister of Finance, conclude a memorandum of understanding (MoU) with other FIUs, subject to the approval of the government. The existence of a MoU is not, however, a prerequisite for the exchange of information with other FIUs. The FIU has so far signed a MoU with Belgium and Monaco (both in 2002;, Slovakia, Croatia and Lithuania (in 2003); Poland and San Marino (in 2004); Georgia (in 2004); Switzerland and Russia (in 2005); Romania and Chile (in 2006); France (in 2007); Ukraine and Canada (in 2008); and South Africa and Japan (in 2013). The FIU is currently negotiating MoUs with Australia, Serbia, Singapore, and the Republic of Moldova, as well as Bosnia and Herzegovina. The FIU is not subject to any compliance procedure in Egmont and has the full capacity to share financial and other kind of information in its possession with other Egmont FIUs.

Adequacy of Resources—FIU (R. 30)

326. The structure of the FIU is shown in the diagram below.

327. The FIU is headed by the director with the assistance of the deputy director. The main units of the FIU are the Strategic Analysis Unit and the Operational Analysis Unit. The Operational Analysis Unit is headed by the deputy director and is composed of four analysts. The Strategic Analysis Unit is composed of two analysts. An analyst from each unit is also assigned responsibilities within the other analysis unit. The International Affairs Unit is composed of one person. The FIU also includes a secretariat with one administrative officer. The total number of persons employed by the FIU is 10. The current staff constitutes a 40 percent increase since the last evaluation in 2008.

328. The internal structure of the FIU is defined by the director, and endorsed by the prime minister. It is incorporated within the overall system of structures of all government agencies by the public Office of Personnel. There is a specific process for this activity and respective software run by the Office of Personnel that manages the structuring process to ensure its legality and transparency. The FIU is an organizational unit (agency) with the same status as the Public Prosecutor’s Office, the Office of Justice, and the Office of Foreign Affairs or the National Police. The budget of the FIU is a separate line in the budget of the Ministry for Presidential Affairs and Finance. It is elaborated by the head of FIU and agreed by the prime minister. The budget for every subsequent year is discussed and agreed upon six months in advance. The budget is proposed by the head of the FIU, who takes into consideration the salaries, training requirements, IT tools, and other resources of the FIU for the coming year. No cuts were imposed on the FIU’s budget. The annual budgets are published in the annual activity report of the government, alongside with all other agencies. The rent of the premises is paid by the government from the central budget. During the onsite visit, the evaluators inspected the premises of the FIU and found that the FIU is provided with sufficient technical and other resource to properly conduct its functions.

329. All FIU employees are public officials employed on an indefinite basis. All staff has access to the necessary IT infrastructure, the FIU has access to commercial databases (LexisNexis, World-Check) and has developed, jointly with the Basel Institute on Governance, the Asset Recovery Intelligence System (ARIS) which allows for additional use of open source information and the detection of relevant networks.

330. The FIU conducts a pre-selection procedure with potential candidates with the aim to select competent and loyal staff members. It can conduct background checks with the police. The formal hiring procedure is conducted via the Office of Human and Administrative Resources in accordance with the rules for hiring public servants in the principality. The recruitment procedure is merit based and open also to foreign citizens. In fact, the current and all previous FIU directors and deputy directors were Swiss nationals. The background of the staff members reflects the operational needs of the FIU: lawyers and economists, police officers and experts with a university degree in international affairs, and staff with experience in compliance in the private sector. The staff fluctuation in the FIU is low; some current staff members had already joined the FIU at the date of its establishment. Foreign languages spoken by staff members include: English, French, Spanish, and Bosnian. The compensation of Liechtenstein public servants is adequate, and there is no competition with salaries in the private sector in this regard.

331. The FIU regularly conducts internal training courses for its staff members. The operational analysts have also attended the Swiss Criminal Analysis Course and the Swiss Police Institute in Neuchâtel (Switzerland).

332. For example, in 2012, the following specific in house training was organized (also attended by AML professionals of other agencies, such as the Office of the Public Prosecutor, the National Police and the FMA):

  • Insurance Wrappers and related AML/CFT risks;

  • Alternative Investment Funds Mechanisms (AIFM);

  • Interbank Bank’s payment systems; and

  • Asset Recovery Intelligence System (ARIS).

333. The analysts attended training organized by third parties on:

  • Business English and

  • Open Source Intelligence.

334. On March 14, 2013, the ICQM (Institute for Compliance and Quality Management), jointly with the FIU, organized the Liechtenstein “Due Diligence Day” with presentations from the FIU, the FMA, the Office of the Public Prosecutor, a judge, and representatives of the private sector. The event was concluded by the Prime Minister. The FIU intends to organize this conference on an annual basis.

Statistics Table 5.

Statistics (R.32) for Suspicious Activity Reports

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Effective Implementation

335. Overall, the FIU has well-established procedures and sufficient resources to conduct its functions properly, including staff which is highly experienced and professional. Since its establishment, the FIU has constantly evolved in response to ongoing developments in the ML/FT landscape.

336. As the national authority for ML/FT purposes, the FIU receives SARs from the financial and nonfinancial sector. Most SARs are received either by registered mail or delivered manually by the reporting entity. The FIU stated that the envelope containing the report does not always contain protective markings. The FIU Guideline provides a clear indication of the postal address where the report is to be sent and other useful information on the procedure for reporting. As mentioned previously, the FIU Guideline was issued in April 2013, two months before the onsite mission (with the legal basis for issuing guidance being introduced in August 2013). As a result, the assessors could not determine the effective implementation of this new, consolidated FIU Guideline. However, previous ad hoc guidance on the manner of reporting provided by the FIU has proven to be effective since all the reporting entities met onsite were aware of the procedure to be followed when submitting a SAR.

337. Upon receipt of a report, it is passed on to the deputy director or, in his absence, the director. The deputy director carries out a brief search in the database of the FIU to determine whether the SAR is connected to either a previous or an ongoing case. Where this is the case, the SAR is assigned to the analyst having worked or working on that case. Otherwise, the SAR is assigned depending on which analyst is present in the office and on the workload of each analyst.

338. When the SAR is assigned, the analyst inputs the case in the case management system which generates a reference number that is referred to in all communications with the reporting entity. A case is opened for every SAR received, even where another case relating to the same persons or transactions is ongoing. The SAR is reviewed in detail and searches are conducted in the FIU database to establish any links with other persons in the database.

339. At that stage, a preliminary analysis is carried out to prioritize the case. Various criteria are used in the prioritization process, which are not being reproduced for confidentiality purposes. The prioritization of the case determines the urgency with which the case is to be analyzed and the timeframe for the conclusion of the case. Cases with a high priority are always brought to the attention of the director and the deputy director.

340. One of the main criteria used for prioritization relates to the possibility that a court order be issued to freeze funds or assets. As explained in more detail under Recommendation 13, upon the submission of a SAR, the reporting entity is required to freeze any account it holds for the customer and is prohibited from taking any measures which may prejudice an eventual freezing order issued by the court. This requirement applies for a five-day period from the receipt of the SAR by the FIU unless the FIU decides to lift the freeze which it can do at any time and within a very short time. In light of this requirement, the primary concern of the analyst within the five-day period from the receipt of the SAR is to determine whether any suspicious funds or assets are at risk of being transferred out of Liechtenstein. In such cases an expedited analysis is carried out. This involves the gathering of information from various sources, including from foreign FIUs, to substantiate the suspicion and forward the case to the OPP with a view to submitting an application for a freezing order to the investigating judge.

341. Where the SAR does not trigger an expedited analysis, the analysis is conducted in accordance with the level of priority assigned to it during the preliminary analysis. In all cases, within the same day of the receipt of the SAR, a confirmation is sent to the reporting entity having filed the SAR and an indication of the expiry of the five-day freezing period is included. In general, the analysis of cases which are not assigned a high priority does not take longer than six months.

342. The letter of confirmation would also generally include any requests for further information from the reporting entity. The FIU explained that the cases where the reporting entity is requested to provide additional information have decreased over time, as a result of an improvement in the reporting forms designed by the FIU. As stated previously, banks, insurance companies, TCSPs, and lawyers are required to complete a specific reporting form, which is tailored specifically for the information that is maintained by such entities. All other entities are required to complete and submit a general reporting form. Where additional information is requested, Art. 26, para. 2 states that such information shall be submitted without delay. The FIU pointed out that it had never encountered instances where such information was not provided within the time required by the FIU.

343. Information received in the SAR and any subsequent additional information is input manually in the database. This is often a laborious process, especially when bank account information is involved, which may take up valuable analytical time and may adversely affect the prompt analysis of certain urgent cases. The FIU agreed that the current procedure is not ideal, and more efficient alternatives are being considered, although they did note that the manual input of data may have its benefits as the analyst would be familiarizing himself with and assimilating the data during the process.

344. The analysis is initiated during data input. The analysis also involves gathering information from different public and confidential sources to build up a profile of the customer and establish links between different entities involved. Transaction flows are also analyzed in detail to determine the origin and destination of funds. Any links to predicate offenses are also established, where they are clear. The analysts have at their disposal various IT tools to facilitate the analytical process, including I2, ARIS, WorldCheck, and LexisNexis. In most cases, the data entered in the FIU databases is migrated into I2 to create visualization charts.

345. The FIU remarked that one of the major challenges in the analytical process is the significant reliance on a large number of cases on the receipt of information from foreign FIUs. Such information is not always provided on a timely basis and may as a consequence delay the conclusion of a case.

346. As mentioned previously, the FIU did not have an express power to obtain additional information from other reporting entities until an amendment was carried out to Art. 26 of the DDO two months after the onsite visit. The FIU maintained that the previous provision was sufficient to enable the FIU to obtain additional information and stressed that requests for additional information to reporting entities were sent regularly. The regularity of such requests could not be confirmed since statistics on this matter are not maintained. Examples of documentary evidence indicating that such requests are made were provided to the assessors for inspection. In the example provided, the reporting entity replied to the FIU within a short period of time (seven days). The FIU stated that in all instances where a request for additional information was sent to an entity other than the entity having filed a SAR, information was invariably provided. Nevertheless, during the onsite mission, most of the reporting entities interviewed stated that they had never received such requests from the FIU. They also pointed out that they would not provide such information since the legal basis for requests of such nature was unclear (prior to the amendment of Art. 26 in August 2013).

347. The deputy director holds weekly meetings with all the analysts collectively to discuss the ongoing analysis of cases. During the meetings discussions are held to determine how the analysis of each case is to proceed and whether any particular measures are warranted. Given the varied background of the analysts (banking, economics, law enforcement, law, and accountancy) the pooling of ideas often serves to enhance the analysis. Meetings also serve to discuss new ML/FT trends, typologies, and vulnerabilities.

348. Upon the conclusion of the analysis, the analyst drafts an analytical report. A template report is used in all cases. The report is divided into various sections and contains information on the facts of the case, reference to any additional information gathered or obtained by the FIU, the analysis, and conclusion. The analysis part contains the outcome of the analysis process, including the evaluation by the FIU, an indication of possible predicate offenses, and possible methods and trends. The conclusion refers to the validation of the suspicion and contains recommendations and requests (e.g. to open a criminal investigation, to freeze an account, etc).

349. The analytical report is discussed between the analyst and the deputy director. The ultimate decision on whether a case is to be forwarded to the OPP rests with the deputy director. During discussions held onsite, the assessors enquired whether analytical reports always contain an indication of the underlying predicate offense and whether this is needed to substantiate a ML/FT suspicion. In response, the FIU referred to cases where the suspicion was based on an analysis of transaction patterns, which although were not directly linked to any criminal activity, clearly indicated that existence of ML activity.

350. A number of SARs are received by the FIU following a foreign request for mutual legal assistance which alerts the reporting entity to possible suspicious activities of the customer. The assessors enquired whether any additional value is added to the SAR by the FIU through the analytical process. Reference was made to a case, where the analyst identified a person who had been receiving funds from the suspect. This person had not been previously identified by the foreign authorities. The intelligence on this person was forwarded to the PPO for onward transmission to the foreign authorities.

351. Where an analytical report is disseminated to the OPP, the report is accompanied by various annexes including, the visualization charts, transaction overviews and documents of FIU research.

352. The table below indicates the number of cases forwarded by the FIU to the Office of the Public Prosecutor.

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353. The percentage of SARs forwarded to the Office of the Public Prosecutor in relation to the number of SARs received was very high in 2009 and 2010. Although the percentages decreased in successive years, the figures are still relatively substantial, especially when compared to the situation in other countries. The FIU explained that in 2009–2010, the level of filtering that was conducted through the analytical process was not sufficiently extensive. As a result, a large majority of SARs generated an analytical report which was submitted to the Office of the Public Prosecutor, notwithstanding the fact that the analysis had not substantiated the ML/FT analysis to the required degree. Upon the initial investigation, following the receipt of such reports, the prosecutor could not pursue these cases further as there was no sufficient indication of a predicate or ML offense in Liechtenstein. Since 2011, following discussions between the FIU and the OPP, the analytical process of the FIU has been enhanced to address the matter. This resulted in fewer analytical reports being disseminated to the OPP, which contained sounder and more concrete conclusions.

354. During discussions held onsite, the representatives from the OPP expressed satisfaction with the improvement of the analytical process of the FIU. They indicated that the quality of analytical reports has increased over the years. In some cases, although the suspicion of predicate/ML offense could already be identified, the analytical report was referred to the OPP too early in the process and had to be sent back to the FIU to be substantiated with further information. The representatives of the OPP referred to instances where the FIU had identified new phenomena that the OPP had not been aware of. For instance, a case was referred where the FIU had identified a network of money mules channeling funds through Liechtenstein. Such a case had never been previously identified. The case is still under investigation.

355. In addition to the ongoing informal cooperation between the OPP and the FIU, the representatives from the OPP also referred to formal meetings held with the FIU on a regular basis (on average bimonthly). In these meetings, specific cases are discussed with a view to identifying any issues relating to analytical matters and measures to address those issues. These meetings also serve as a platform for the discussion of new trends, typologies and vulnerabilities in ML/FT and to share best practices.

356. Referring to the figures in the table above, although, at a first glance, the number of investigations compared with the number of SARs sent by the FIU to the OP appears to be rather low—both the representatives of the OPP and the FIU explained that an investigation case file would often contain various analytical reports which are connected. The representatives of the OPP explained that their statistics are case driven and that 90 percent of the SARs lead to an investigation. This explains the difference between the number of investigations and the number of notifications by the FIU. The assessors were informed that the OPP provides systematic feedback in writing on every case opened by the OPP, in addition to the discussions held at regular intervals referred to in the previous paragraph. An in-depth analysis was conducted to evaluate the dissemination process, which led the FIU to revise the criteria for dissemination. This has resulted in an improvement of the quality of notifications disseminated to the OPP.

357. During the onsite, the assessors expressed some concerns regarding the number of indictments and absence of convictions based on a notification by the FIU. The authorities, as in the previous assessment, cited the absence of territorial jurisdiction to prosecute since a large majority of cases referred by the FIU concern a foreign person and a predicate/ML offense which has taken place abroad. It is the view of the FIU that, in light of the fact that most of the cases that are processed involve a nonresident person, the effectiveness of the FIU’s role should not simply be measured against the number of prosecutions and convictions in Liechtenstein, but should also be viewed in the context of the successful pursuit of criminal activity by foreign authorities following assistance by the FIU to foreign FIUs. However, it was noted that the FIU does not regularly request feedback from foreign FIUs to determine the usefulness of information provided.

358. In addition to tactical and operational analysis, the FIU also conducts strategic analysis through its Strategic Analysis Department (consisting of two analysts). The FIU pointed out that strategic analysis is conducted on an ongoing basis. All cases are reviewed to determine whether any links exist. These cases are then extracted and analyzed in more detail to identify any emerging patterns relating to ML/FT typologies or methods. Strategic analysis is also utilized to understand whether the flow of funds is connected to any particular jurisdiction or an individual reporting entity, whether patterns in predicate offenses exist, etc. Reports, which are confidential in nature, are issued regularly and communicated to the government. The outcome is also generally shared with other competent authorities, including the OPP, the police, and the FMA. Reporting entities are sometimes also alerted to certain risks and vulnerabilities identified through strategic analysis. This is generally done either through training programs, meetings with reporting entities, and also through the publication of the annual reports. The assessors were satisfied that the FIU is properly structured, funded, staffed, and provided with sufficient technical and other resources to perform its functions effectively. The staff of the FIU was found to be appropriately skilled and maintains high professional standards. The procedure for the employment of FIU staff ensures that they are persons of high integrity and suitably qualified. Adequate training to the officers of the FIU is provided on an ongoing basis. It was also noted that the statistics maintained by the FIU are in line with the requirements under Recommendation 32.

3.6.2. Recommendations and Comments

  • The FIU should take measures to ensure that when SARs are submitted they always contain protective markings;

  • The provisions in the FIU Act which deal with the FIU’s access to information from other competent authorities should require that such information is provided on a timely basis;

  • The provisions (in sector-specific laws) restricting the exchange of information between the FMA and the FIU should be revised;

  • Art. 6 of the FIU Act should be amended to clearly state that competent authorities are required to provide information to the FIU when they are so requested;

  • The reference in Art. 4, para. 3 of the FIU Act which restricts the power of the FIU to obtain only information which is not subject to legal provisions relating to the protection of secrecy should be removed to avoid any ambiguity. The authorities should also consider introducing a provision in the law which states that any information that is provided by reporting entities to the FIU for any purpose shall not be subject to any legal provisions on secrecy;

  • The authorities should consider including specific sanctions in the DDO for failure to provide additional information when requested by the FIU;

  • The FIU should consider implementing a system whereby information provided by reporting entity is submitted electronically and integrated automatically into the IT system of the FIU;

  • The FIU should not be required to disseminate the SAR itself to the OPP as stated in Art. 5, para. 1, lett. b) of the FIU Act;

  • Authorities could consider conducting a review to determine whether the low number of prosecutions and absence of convictions resulting from FIU notifications is related to the quality of the disseminated reports. The FIU should regularly request feedback from foreign FIUs on the quality and usefulness of information provided;

  • Reference to secrecy and fiscal matters within the power of the FIU to exchange information with foreign FIUs should be clarified.

3.6.3. Compliance with Recommendation 26

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3.7. Cross-Border Declaration or Disclosure (SR.IX—rated NC in the 2007 MER)

Summary of 2007 MER Factors Underlying the Ratings and Recommendations and Progress since the last ME

359. The 2007 MER noted the lack of a disclosure or declaration system to detect the physical cross-border transportation of currency and bearer negotiable instruments that are related to money laundering or terrorist financing. In June 2011, Liechtenstein introduced a disclosure system; previously, a framework treaty was concluded between Liechtenstein and Switzerland on police cooperation in the border area (2009/217: hereinafter: framework treaty). The agreement entered into force on December 19, 2011. On December 18, 2012, the National Police and the Swiss Border Guard Corps signed an implementing agreement based on the aforementioned framework treaty. In June 2006, Liechtenstein concluded the negotiations for an association with the Schengen system and the adoption of the Schengen acquis.

3.7.1. Description and Analysis

Legal Framework:

  • Police Act and

  • Framework treaty between Liechtenstein and Switzerland on police cooperation in the border area, and implementing agreements.

Mechanisms to Monitor Cross-border Physical Transportation of Currency (c. IX.1):

360. Liechtenstein relies on a disclosure system, introduced in June 2011, but, because of delays in the Schengen membership process, it has been operational only since January 2013, with the entry into force of an implementing agreement between Switzerland and Liechtenstein, as part of the framework treaty on police cooperation at the border between Liechtenstein and Austria.

361. In 1923, Liechtenstein entered into a customs treaty with Switzerland, which established a Customs union between the two countries. Based on this framework, most competencies and tasks in relation to Liechtenstein’s customs and border controls are delegated to the Swiss authorities, and Swiss customs laws made directly applicable in Liechtenstein.

362. The Police Act (Art. 25e) has introduced cash controls and empowered the National Police to demand from any person information on the origin and intended use of the cash, as well as the beneficial owner, in the case of import, export, and transit information of cash in the amount of at least CHF 10,000 or equivalent in foreign currency.35

363. The definition of “cash” 36 includes also “bearer negotiable instruments,” in line with the definition of the FATF Glossary. It is not clear whether the disclosure system would apply in the case of shipment of currency through containerized cargo or to the mailing of currency. As far as mail is concerned, authorities stated that all incoming/outgoing mail and freight go through the Swiss mail/freight distribution centers. However, there is no clear requirement underpinning this interpretation.

364. There is a form that is required to be filled and that includes the identification data and the amount/type of currency.

365. Based on the framework treaty with Switzerland on police cooperation in the border area, and the associated execution and implementation agreements (2008 and 2012), the National Police has delegated its cash control powers to the Swiss Border Guard Corps (SBGC). Art. 1(c) of the 2012 implementing agreement stipulates that the SBGC is empowered, in application of Art. 25e of the Police Act, to carry out cash controls along the Liechtenstein border with Austria and to apply the SBGC’s service regulations in that regard.

366. There are no cash controls made by the SBGC at the border with Switzerland. Authorities explained that this is because of the 1923 customs treaty, which, for customs purposes, considers Liechtenstein as a Swiss “Canton.” However, there are no provisions in the customs treaty that would prevent or explicitly prohibit cash control at the border between the two countries, since cash controls are envisaged by the Police Act as requirements to prevent ML and FT, and not as customs-related requirements. Hence, the disclosure requirement is de facto not applied at this border.

Request Information on Origin and Use of Currency (c. IX.2):

367. The National Police is empowered to demand information concerning the origin and intended use of cash as well as the beneficial owner (Art. 25e, para. 1(c) and (d)). In the case of suspicion of money laundering or terrorist financing, information may also be demanded if the amount of cash does not reach the threshold of CHF 10,000 (para. 2).

Restraint of Currency (c. IX.3):

368. There are provisions in place that empower the police to seize cash for the purpose of securing evidence for criminal proceedings as well as in view of confiscation, to prevent, inter alia, the commission of a crime or to avert a risk.37 These provisions are more restrictive than the broader power to “stop or restrain”; the scope of application is also different than the two circumstances envisaged by SRIX (a. suspicion of ML or FT or b. when there is a false declaration or disclosure). The provisions have never been tested in practice safe for one case in which two foreigners were stopped with 25,000 euros in cash (but then released as the police could not confirm that the currency was proceeds of crime).

Retention of Information of Currency and Identification Data by Authorities when appropriate (including in Supra-National Approach) (c. IX.4)

369. Art. 1(c) (2) and (3) of the implementing agreement provide that in the case of a truthful disclosure the control form is transmitted to the National Police (which stores it in a database and might use it as appropriate); whereas in the case of false or lack of disclosure (including when there are suspicions of ML or FT) the National Police must be called in. Since the refusal of information and the false provision of information result in charges filed with the Office of the Public Prosecutor (Art. 36(c) of the Police Act), these data are available to the prosecution authorities (as well as to the FIU, to which is reported by the National Police).

Access to Information by FIU (including in Supra-National Approach) (c. IX.5):

370. Art. 25e, para. 4, requires the National Police to notify the FIU without delay of all suspicious cases, and to report such cases to the Office of the Public Prosecutor. The provision is very broad (“suspicion” is not defined), but authorities clarified that this would apply to both the case of lack of/false disclosure as well as the case of suspicions of ML/FT.

Domestic Cooperation between Customs, Immigration, and Related Authorities (c. IX.6):

371. Given that the disclosure system has become operational only since January 2013, and that there have been no cases of disclosure,38 it is not possible to determine whether, in this specific area, cooperation is adequate or inadequate. The legal framework for cooperation is in place.

International Cooperation between Competent Authorities relating to Cross-border Physical Transportation of Currency (including in Supra-National Approach) (c. IX.7):

372. There are no specific international measures concerning cash controls (such as ensuring that the information on cash disclosures is shared internationally with foreign competent authorities), however there is a broad framework for international cooperation: the tri-lateral police cooperation treaty between Liechtenstein, Switzerland, and Austria on cross-border cooperation between police and customs authorities of April 27, 1999 covers the prevention of danger and the suppression of crime, including cooperation with respect to requests and the transmission of information without requests, special cross-border investigative measures such as controlled delivery (e.g. of cash and bearer negotiable instruments) and cross-border observation, the use of joint control, observation, and investigation groups, and joint search operations.

373. The 2009 framework treaty between Liechtenstein and Switzerland on police cooperation in the border area and the associated execution agreement govern border police cooperation and powers as well as mutual exchange of information with the Swiss Border Guard Corps, which controls Liechtenstein’s external borders.

374. Art. 35 et seq. of the Police Act (international administrative assistance) authorize the National Police to exchange information with the competent foreign law enforcement authorities also on the findings of cash controls—with the exception of pure fiscal matters, which do not fall within the competence of the National Police. Since the National Police is the only police authority in Liechtenstein that exchanges information internationally with other police authorities, this framework could be also used to ensure that cash control information is shared with foreign investigation authorities where needed. However, the disclosure system has only become operational since January 2013, and there have not been disclosures, so, with specific regard to SR.IX, there are not specific examples of concrete cases.

Sanctions for Making False Declarations/Disclosures (applying c. 17.1–17.4 in R.17, c. IX.8):

375. Where persons refuse to provide information on cash or provide false information, the National Police files charges with the Office of the Public Prosecutor for an infraction, based on Art. 36(c) of the Police Act. The infraction may be punished with CHF 5,000 or, if the funds are uncollectible, an alternative term of imprisonment of up to one month for natural persons. Since violations of cash control-related provisions constitute infractions, these penalties are not applicable in the case of legal persons (legal persons are only subject for criminal responsibilities concerning crimes and misdemeanors). Sanctions are not proportionate as they do not take into account the amount of the undeclared or falsely declared funds. No violations of the cash control requirements have ever been detected (since the regime became operational in January 2013), hence it is not possible to establish whether sanctions are effective or dissuasive.

Sanctions for Cross-border Physical Transportation of Currency for Purposes of ML or TF (applying c. 17.1–17.4 in R.17, c. IX.9):

376. If the cross-border transportation of the currency consists of actions that constitute criminal conduct under the CC provisions on ML or FT, the authorities may institute criminal proceedings and the sanctions are those that apply in the case of ML and/or FT. Those sanctions are addressed under Criterion 2.5 in R. 1 (2007 MER) and Criterion II.4 in the section on SR.II.

Confiscation of Currency Related to ML/FT (applying c. 3.1–3.6 in R.3, c. IX.10):

377. If the cross-border transportation of the currency consists of actions that constitute ML or FT has occurred, the powers to freeze assets and to confiscate the currency are those that are available under the CC and CPC provisions in criminal cases. These are addressed in the discussion of R.3 (Criteria 3.1–3.6).

Confiscation of Currency Pursuant to UN SCRs (applying c. III.1–III.10 in SR.III, c. IX.11):

378. If assets carried by persons who are physically moving currency or bearer negotiable instruments across the border are those of designated persons or entities, the assets are subject to freezing under the laws and procedures set forth in the discussion in this report in relation to SR.III. The deficiencies noted in relation to SRIII apply accordingly.

Notification of Foreign Agency of Unusual Movement of Precious Metal and Stones (c. IX.12):

379. There are no specific notification mechanisms concerning unusual movements of precious metals and stones; in these circumstances, if the movement gives rise to a suspicion of ML or FT or other illegal activities, international cooperation provisions would apply. However, such a case has never been detected, so these provisions have not been tested in practice.

Safeguards for Proper Use of Information (including in Supra-National Approach) (c. IX.13):

380. Police information systems have to be protected by adequate technical and organizational measures according to article 9 of the data protection/security act in connection with Art. 9–12 of the Data Protection Ordinance. The National Police issued at October 27, 2011 the Police Instruction No. 2011–006 on ‘The Use of IT-Information Systems, Data Safeguards and Data Protection” in order to be comply with data protection legislation.

Training, Data Collection, Enforcement and Targeting Programs (including in Supra-National Approach) (c. IX.14):

381. The cash control requirements are operational only since January 2013 and, except for one case which occurred after the onsite visit, no other disclosures have been made. No specific targeted training programs exist with regard to cash couriers; however two designated National Police Officers have been trained on AML/CFT.

Supra-National Approach: Timely Access to Information (c. IX.15):

382. Not applicable.

Additional Element—Implementation of SR.IX Best Practices (c. IX.16):

383. No SR.IX best practices are being implemented.39

Additional Element—Computerization of Database and Accessible to Competent Authorities (c. IX.17):

384. The incoming data concerning cash controls are to be maintained by the FIU and the National Police in a database.

Statistics (R.32)

385. There is only one case of disclosure, which authorities have reported happened after the onsite visit. There are no statistics on the number of cases in which the SBGC has requested persons crossing the border to disclose whether they were transporting currency in excess of the threshold.

Adequacy of Resources—Customs (R.30)

386. Liechtenstein does not have customs. The responsibility for implementing cash control related requirements is of the SBGC and the National Police. For the National Police, see analysis under Recommendation 30.

Effective Implementation

387. The cash control requirements have only become operational in January 2013. As mentioned earlier, these requirements are, de facto, not applied at the border between Liechtenstein and Switzerland. Only one disclosure (after the onsite mission) has been made since the requirements are operational, and the relevant legal framework has not been tested in practice. No statistics are available on the number of cases in which the SBGC have asked persons crossing the border between Austria and Switzerland, whether they are carrying currency in excess of the threshold.

388. Authorities are of the opinion that physical transportation of currency is rare, as cash transactions are looked at suspiciously by financial institutions. However, meeting with the private sectors indicated that the use of cash is not uncommon in the case of legal entities formation, where often nonresidents bring the startup capital to Liechtenstein in cash (this is the case of foundations—the required minimum capital is CHF 30,000). All these elements suggest that the system is not effective and that the risk of cash being transported into Liechtenstein is not negligible. The authorities stated that have no evidence of such instances and strongly believe that the deposit of the startup capital of a foundation is very rarely done in cash. In addition, the authorities refer to the fact that the amount of new foundations has been drastically reduced in the last years.

3.7.2. Recommendations and Comments

389. Authorities should:

  • Apply the requirements to containerized cargo and to the mailing of currency;

  • Align the seizure requirements to fully comply with the power to stop or restrain the currency when there is a suspicion of ML/FT or when there is a false disclosure;

  • Introduce sanctions that are proportionate to the undeclared amount of funds (for example by adding, to the existing fixed sanction, a pecuniary sanction expressed in percentage to the undeclared amount) and establish sanctions in the case of legal persons;

  • Ensure effective implementation of the disclosure requirements at the border with Switzerland;

  • Establish training program and implement SR.IX best practices.

3.7.3. Compliance with Special Recommendation IX

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4. Preventative Measures—Financial Institutions

4.1. Customer Due Diligence and Record Keeping

Law, Regulation, Other Enforceable Means

390. The framework that regulates CDD requirements and preventive measures for AML/CFT consist mainly of the following documents:

  • The Due Diligence Act;

  • The Due Diligence Ordinance;

  • FMA Guidelines 2013/1 on risk based approach in accordance with the DDA; and 2009/1 on inspections by mandated due diligence auditors and the FMA;

  • FMA Communication on Third Countries with Equivalent Regulations; and

  • Various sector specific instructions issued by the FMA to assist FIs/DNFBPs in implementing the provisions of the DDA and DDO.

391. As discussed in the 2007 MER, the DDA constitutes primary legislation and government ordinances such as the DDO have the status of secondary legislation. Guidelines and communications issued by the FMA, in particular guidelines 2013/1 about the risk-based approach to the application of due diligence requirements provide further clarification on how the DDA and DDO are to be interpreted. Both under the DDA and the FMAA, the FMA may issue orders, guidelines and recommendations for purposes of the DDA and with respect to all types of FIs and DNFBPs. Under the FMAA, this power is set out through Art. 4, which grants the FMA express responsibility to supervise and execute the provisions of the DDA. While Art. 28 (1) and (3) of the DDA grant the FMA the power to issue such guidelines, Art. 31 does not set out any sanctions for failure by FIs or DNFBPs to comply with the obligations set out in an FMA guideline. The authorities are of the view that the sanctions set out in the DDA could be applied in case of a violation of the FMA guidelines, as the purpose of the guidelines is to further specify obligations set out in the DDA. At the time of the assessment, however, any violations of the FMA guidelines occurred and thus were sanctioned only in tandem with a violation of a DDA or DDO provision. Authorities stated that they have not detected cases in which the conduct of an FI/DNFBP violated a specific obligation that was set out in the FMA’s guideline, but not the DDA or DDO. Accordingly, the authorities view that guidelines are independently sanctionable based on the provisions of the DDA has so far not been confirmed through practical cases. Art. 25 (3) of the FMAA also grants the FMA the power to “issue decrees, guidelines and recommendations,” but only FMA decrees imposing a monetary fine are considered enforceable. Accordingly, the FMA guidance is not considered binding and enforceable and thus does not constitute “other enforceable means” for the purpose of this assessment.

392. In addition to national laws, EU Directives and EC Regulations that have been taken over into the EEA Agreement apply to Liechtenstein. EC Regulations are directly binding, whereas EU Directives have to be transposed into national law.

Scope

393. Liechtenstein has previously prescribed the scope of the DDA based on a two-pronged test. First, the law only covered persons/institutions that held one of the licenses specified in the law. Secondly, an otherwise covered person/institution would be subject to the law only when carrying out or facilitating a specified activity/transaction. This approach has been changed in 2008. In most cases, the application of the law is now determined based on the type of license a person/institution holds. Only in few instances is the application of the law limited to circumstances where an otherwise covered FI/DNFBP carries out specific transactions or provides specific services. The scope of the DDO is defined widely to cover any person who is licensed to carry out financial activities as defined under the FATF standard.

394. The table below indicates for each financial activity as defined under the FATF standard the FI that may perform such activity in Liechtenstein:

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395. The table below indicates the number of FI in each category, and the total assets held by such entities:

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4.2. Risk of Money Laundering or Financing of Terrorism

396. Art. 4 sets out the following scope limitations of the DDA. Accordingly, the following entities/persons/activities do not fall under the DDA:

  • Paragraph (a): An institution/person that is otherwise covered under the law but operates exclusively in the field of occupational old age, disability, and survivors provision;

  • Paragraph (b): contractual relationships of a management company of an undertaking for collective investment in transferable securities or of an investment undertaking for other values or real estate which neither keeps unit accounts nor issued physical units and thus does not itself accept any assets; and

  • Paragraph (c): persons who engage in activities referred to in Art. 3 only on an occasional and very limited basis and where the risks of ML and FT are low, provided that the activity carried out is not the main activity, but is supplementary to the main activity, the activity is only offered to contracting parties in connection with the main activity but is not offered to the public in general, and the individual activity does not exceed the value of CHF 1,000 and no more than 100 transactions per year are carried out.

397. In practice, the exemption under para. (b) all but two investment undertakings from the obligations under the DDA, as the majority of them do not maintain share registers and client accounts. The scope limitation is also in line with the wording under the Third EU Directive on money laundering, which exempts collective investment undertaking that do not market their shares or units from the preventive measures regime. For exemptions under para. (c) the authorities indicated that there had so far been only one case in which an Art. 4 exemption was claimed, and thus they would not consider this exemption as very relevant in practice.

398. In addition Art. 10 of the DDA prescribes a list of persons/business transactions to which CDD measures do not have to be applied. As discussed under Recommendation 5 below, while Art. 10 of the DDA is headed “simplified CDD,” the language of Art. 10 clearly goes beyond establishing simplified CDD procedures. Persons subject to the law are exempted from carrying out identification and verification measures on the contracting party and beneficial owners, from establishing a risk profile, and from monitoring the business relationship in accordance with Art. 5 (1) of the DDA. This understanding is also confirmed in FMA Guideline 2013/1 on risk-based approach. Accordingly, in terms of substance, Art.10 sets out a blanket exemption for the application of CDD measures and is to be treated as a scope limitation for at least parts of the DDA. A person subject to the law that is otherwise covered by the exemption under Art. 10 still has to apply the full range of CDD measures in case of a suspicion of ML, a predicate offense, organized crime or FT, or in cases involving a higher risk pursuant to Art. 11 of the DDA. However, the assessors wonder how likely it is that in practice a person subject to the law forms a grounded suspicion in the absence of any CDD information, and how a person subject to the law could possibly identify a high risk situation without any identification and verification information on the contracting party or beneficial owner.

399. The authorities indicated that the exemptions under Arts. 4 and 10 were not defined on the basis of a national or sector-specific risk assessment or on the basis of a finding of low risk in relation to each item listed under the provisions, but were taken over from relevant EU Directives. The authorities indicated that, based on Liechtenstein’s size, it would be more efficient to adopt the findings of an EU-wide risk assessment rather than to carry out an isolated risk assessment for Liechtenstein. The assessors recognize the practicality of this approach, but still consider it important that Liechtenstein reviews and, if necessary, custom tailors any potential scope limitations of its AML/CFT framework in light of the specific features of Liechtenstein’s financial service industry. To simply adopt the findings of supranational risk assessments does not seem to be in line with the FATF standard. In addition, it should be noted that Art. 10 of the DDA ignores an important safeguard that is set out in the EU Directive, which is that in all cases FIs and DNFBPs must first gather sufficient information about a potential customer to establish whether any of the narrowly defined exemptions for CDD applies. Under the Directive, all customers are thus subject to a certain minimum CDD process.

400. Specific references to “risk” are found throughout the various provisions of the DDA and further prescribed in the DDO and FMA Guideline 2013/1. Persons subject to the law are required to establish a risk-based business profile for each customer, to categorize each customer and transaction as low, medium, or high risk, and to monitor each business relationship and transaction based on the risks involved. Risk-based elements are also set out with respect to the identification and verification measures for beneficial owners. In the course of an onsite inspection, FMA-nominated auditors are required to determine whether the risk assessment conducted by an FI/DNFBP is appropriate. The FMA indicated that there have not been many instances in which the risk assessment was found to be inappropriate, but that there was still room for improvement also in terms of the auditor’s level of experience in making such judgment calls.

401. According to the DDA, non-face-to-face customers, PEPs, cross-border correspondent banking relationships and business relationships, and transactions with contracting parties or beneficial owners in high-risk countries, or involving complex structures, complex and unusual transactions, or transactions without any apparent or visible lawful purpose are in all cases to be considered high risk. Apart from these mandatory cases, the law leaves it up to each FI or DNFBP to determine the specific risks involved in a business relationship or transaction. FMA Guideline 2013/1 advises that risk is to be evaluated by each individual FI/DNFBP and on a regular basis. Pursuant to Art. 23 of the DDO, higher risk scenarios shall be identified based on the registered office or place of residence of the contracting party or beneficial owner, or their nationality; based on the contracting party’s or beneficial owner’s business activity; the nature of the products or services requested, the level and type of assets deposited, the level of inflows and outflows of assets, the country of origin or destination of payments, and on whether the contracting party of beneficial owner is a PEP. Pursuant to the FMA guideline, the categories based on which risk is to be analyzed must at a minimum include “countries,” “customers,” and “products/services.” The analysis of further categories is encouraged by the FMA. In addition, the law sets out a list of criteria for determining cases for determining high or low risk. The indicators are categorized according to “general indicators,” “cash indicators,” “bank accounts and custody accounts,” “fiduciary accounts,” “insurance transactions,” and “terrorist financing.” While the various categories address both customer and service/product risks, they are phrased in very specific terms and thus target very specific circumstances. For example, the involvement of foreign asset management vehicles or companies with nominee shareholder or bearer shares are not, per se, listed as high risk indicators, but only in cases where the a legal entity is not entered in the public registry and from which no certification or other document of probative value of its existence can be obtained. Equally, private banking relationships are also not listed as high risk indicators. The FMA stated that the basic CDD requirements applied under Art. 5 of the DDA would go beyond what the international standard requires for “normal risk scenarios.” For example, while the FATF standard would require that FIs/DNFBPs establish the source of wealth and the source of funds only with respect to customers and beneficial owners identified as PEPs, the DDA set out such a requirement for all contracting parties and beneficial owners. Therefore, while not labeled as “enhanced due diligence measures,” the minimum CDD procedures applied to all contracting parties and beneficial owners are in fact “enhanced due diligence measures” and thus would clearly take into account the overall higher risks inherent to Liechtenstein’s financial services.

402. Country risk is addressed by the FMA through Communication 1/2012, in which the FMA provides a list of countries that are subject to Directive 2005/60/EC or are considered to have AML/CFT measures in place that are equivalent to those under the Directive. Annex 2 of the DDO lists countries which Liechtenstein considers to have a high risk of ML/FT, or strategic deficiencies in their AML/CFT frameworks. The list includes 15 countries. The authorities stated that the list would be revised every time the FATF issues a public statement. The last revision took place in February 2013.

403. While private sector participants seemed to be aware of and rely on the country risk indicators, other risk indicators set out in Annex 2 of the DDO seem to be less frequently used. It was stated that this was mostly due to the fact that the risk indicators would target very specific situations and would only be marginally helpful in setting up the various risk categories for potential and existing clients, business relationships, and services. While the assessors appreciate that it would not be helpful to indicate all forms of private banking, or business relationships involving asset management vehicles as high risk given the features of Liechtenstein’s financial market, it is exactly the higher risk nature of Liechtenstein’s business that necessitates the formulation of highly practical and more broadly defined risk indicators. Any notable change in risk should result in a review of the categorization of risk for a given customer, business relationship or service. The issuance of more practice oriented risk indicators would also contribute to a better understanding amongst the industry as to what “risk” is and a more consistent approach to defining the various risk categories.

4.3. Customer Due Diligence, Including Enhanced or Reduced Measures (R.5–8)

Customer Due Diligence (R 5—rated PC in the 2007 MER)

4.3.1. Description and Analysis

Legal Framework:

  • Due Diligence Act and

  • Due Diligence Ordinance.

Summary of 2007 MER Factors Underlying the Ratings and Recommendations and Progress since the last MER

404. In 2007, Liechtenstein’s PC rating for R.5 was based on a number of shortcomings with respect to the obligation to identify and verify the beneficial owner, as well as a lack of requirement to transmit originator information with domestic wire transfers and to apply enhanced CDD for high risk customers, and based on over reliance by domestic FIs/DNFBPs on foreign third party intermediaries to carry out CDD, while at the same time failing to consider such introduced business as high risk. The law also provided for certain exemptions to the application of CDD measures that are not allowed under the FATF standard.

405. Both the DDA and DDO have been revised since 2007, the last time in February 2013. The last round of revisions related mostly to penal and administrative sanctioning powers. Earlier revisions of the law were aimed to address the recommendations resulting from the 2007 assessment as well as to implement the requirements under the Third EU Directive on the Prevention of the Use of Financial Systems for the purpose of Money Laundering and Terrorist Financing, the Commission Directive of 2006 on the definition of “politically exposed person” and the technical criteria for simplified customer due diligence procedures and for exemption on grounds of a financial activity conducted on an occasional or very limited basis. The DDA and DDO provide for comprehensive identification and verification measures, record keeping obligations, suspicious transaction reporting and internal control obligations.

Relevant Characteristics of the Liechtenstein Financial System

406. The financial landscape in Liechtenstein is, to some extent, dominated by the banking sector. Although asset management companies, investment undertakings and life insurance businesses are also active, their total share of the assets under management in Liechtenstein accounts for less than the share held by the banking sector individually.

407. Through interviews conducted as part of the assessment, assessors learned that a significant part of the banking business in Liechtenstein is introduced to banks by trustees (hereafter “trustees”) or trust and company service providers or persons with a certificate under Art. 180a PGR (hereafter referred to as TCSPs) situated in Liechtenstein or other countries. The allowable provision of services by TCSPs will be discussed under the appropriate recommendation. In a typical scenario, the customer of an FI (or “contracting party,” in the terminology of the DDA) is a natural or legal person, often introduced by a lawyer, trustee, or other TCSP. In the case of a legal person or arrangement (foundation, company, ansltalt, or trust, such structures often form part of a broader legal structure consisting of legal entities or arrangements set up in different parts of the world), this would be typically set up by a trustee or TCSP who would also act as the director or administrator of that legal structure. Hence, the trustee would generally represent the legal structure, acting as the trustee of the trust or the administrator of the foundation, as the case may be, and would open a bank account with a Liechtenstein bank in the name of the trust or the foundation, which is the “contracting party” represented by the trustee. So, for CDD purposes, the focus is generally on the trust or the foundation as represented by the trustee, while the customer of the trustee, who very often directs and controls the relationship and is very often a nonresident person, is in turn treated by the bank as the beneficial owner of the business relationship. The trustee of the trust or the foundation obtains the information regarding the beneficial owner.

408. This situation, especially when the customer of the trustee is a nonresident (or even more so when there is a broader international corporate structure involved), might have serious implications for the CDD procedures implemented by financial institutions. In these situations the FI very seldom gets to meet the beneficial owner and has to rely on the trustee at all times. The trustee does not appear to provide sufficient information to enable the bank to understand the beneficial owner and broader legal structure. For instance, the trustee would simply present a declaration of who is the beneficial owner (in line with Art. 6(1)(a) of the DDO), without providing information on how the foundation in Liechtenstein fits into a larger corporate structure. This may result in the FIs’ limited insight into the customer in the common situation in which the beneficial owner is the driving force, which could prevent the FI from truly understanding the customer relationship, including potential risks. It follows, then, that if an FI is unable to effectively assess customer risk, it is also unable to effectively manage that risk. This problem is partially mitigated when the TCSP is a Liechtenstein entity subject to DDA; however, such mitigation would not apply to foreign TCSPs. Similarly, it would not apply in situations where TCSPs rely on business introduced by foreign TCSPs, who perform the CDD. Moreover, domestic TCSPs are not subject to a full prudential regulatory regime, and therefore not subject to a fit and proper test. In addition to grave implications for the effectiveness of implementation of R.5, this issue has a cascading effect throughout implementation of some other preventive measures.

Prohibition of Anonymous Accounts (c. 5.1):

409. Art. 13 of the DDA sets out a prohibition for persons subject to the law to keep passbooks, accounts, or custody accounts that are anonymous or issued in bearer form, or that are issued in a fictitious name. The authorities stated that 398 bearer passbook still existed as of 2011, with a total amount of approximately CHF 8 million of deposits. Authorities indicate that the average amount per passbook is CHF 20,424. This represents a decrease from 789 passbooks with CHF 19 million in 2007, and 2,098 passbooks with CHF 45 million in deposits in 2002.

410. When the bearer of such a passbook approaches an FI and requests an outflow of funds, and where the balance exceeds CHF 25,000, the FI is expected to identify and verify the identity of the bearer and the beneficial owner before transferring the assets. The FIs interviewed stated that their policy is to perform due diligence when a passbook is presented, regardless of the balance. Further, with respect to these situations, representatives stated that they inquire with the bearer as to the history of the passbook. However, these instruments continue to present an inherent vulnerability due to the fact that the financial institution may have no insight into the history of physical transfer of the passbook, as the only interaction with the FI occurs when the passbook is presented by the prevailing bearer.

411. The law does not address or prohibit numbered accounts. The authorities indicated that in practice, numbered accounts still exist, but that such accounts have to be and are treated like any other account and are thus subject to all customer due diligence measures.

Implementation

412. The authorities stated that numbered accounts still exist; however, through discussions with industry representatives the assessors came to understand that such accounts are not “numbered accounts” in the traditional sense as these accounts are subject to CDD, including customer identification, but that the file is maintained under a number and access to the full CDD information is limited.

413. Interviews performed by the assessors confirmed that numbered accounts are not uncommon, but the authorities were unable to provide any estimate data points relating to the quantity or aggregate value of such accounts. According to interviews with FIs, the same due diligence procedures, including identification and verification of the identity of the customer and beneficial owner, apply to numbered accounts as they do to any other relationship. In the case of a numbered account, however, the complete due diligence file is only accessible to certain employees of the financial institution, including representatives of the compliance function. Additionally, as warranted, authorities and auditors have access to this information. In interviews with auditors, representatives stated that, in performing their duties as inspectors, they have access to the underlying due diligence information and documentation associated with numbered accounts.

When is CDD required (c. 5.2):

414. Art. 5 (2) of the DDA prescribes that CDD has to be carried out whenever a person subject to the law:

  • Establishes a business relationship. The term “business relationship” is defined under Art. 2 to extend to any “business, professional or commercial relationship which is connected with the professional activities” of the person subject to the law and which is “expected, at the time when the contract is established, to have an element of duration;”

  • Carries out an occasional transaction amounting to 15,000 Swiss francs (approximately US$16,000 or 12,000 euros) or more, whether the transaction is carried out in a single or several operations that appear to be linked. The term “occasional transaction” is defined in Art. 2 as any “cash transaction, especially money exchange, cash subscription of medium-

  • term notes and bonds, cash buying or selling of bearer securities, and cashing of checks, unless the transaction is carried out via an existing account or custody account;”

  • Where there are doubts about the veracity or adequacy of preciously obtained data on the identity of the contracting party or the beneficial owner; and

  • Where there is a suspicion of ML, a predicate offense, organized crime, or FT, regardless of any derogations, exemptions or threshold.

415. In addition, Regulation (EC) No 1781/2006 on information on the payer accompanying transfers of funds (which is directly applicable in Liechtenstein, as explained earlier) requires FIs to undertake CDD measures when carrying out occasional transactions that are wire transfers. A more detailed discussion of the requirements under EC Regulation 1781/2006 is provided under SR.VII below.

416. The assessors noted that the obligation to carry out CDD on occasional transaction is limited to cash transactions and thus narrower than the definition under the FATF standard, which encompasses all types of occasional transaction. In practice, with respect to the characteristics of the Liechtenstein financial landscape, this limitation seems to be materially irrelevant as it is difficult to think of occasional transaction that can be carried out without using cash, in the situation defined under the DDA as “occasional transactions” could include transactions carried out with prepaid credit cards or purchases of or transactions carried out through use of a personal check or credit card, which would not be covered under Art. 5 (2) of the DDA.

Implementation

417. The FIs interviewed by assessors noted that their customer on-boarding process includes identification and verification of the identity of the customer and the beneficial owner, along with collection of documentation, at the time the relationship is established. The FIs interviewed generally described their customer base as being managed by relationship managers, who are responsible for certain clients and facilitate interaction between the customer and the FI. Generally, the FIs interviewed stated that they have in-person contact with the customer as part of establishing the relationship. However, it is important to reemphasize that the customer is often a professional representing a legal entity or legal arrangement, relied upon for the purpose of the CDD process. Some FIs noted that their customers are often referred from existing business partners and relationships, including relationships with lawyers and TCSP, and described such a referral policy as providing the financial institution with an added sense of comfort with respect to KYC of new customers. Some institutions noted that, in the case of nonresidents, their policy is to accept only customers who are referred from existing customers or from business relationships or trustees or lawyers. Industry representatives generally described the process for establishing a new relationship as taking a certain length of time and interaction.

418.