The Principality of Liechtenstein is a small country enclosed between Austria and Switzerland; it has only 33,500 inhabitants and ranks as one of the smallest countries in the world. But it is also wealthy and has been ruled by the same aristocratic family for centuries, making it one of the most politically stable nations in the world.
Not long ago, a popular saying in German-speaking Europe was: “In Switzerland, bankers don’t speak. In Liechtenstein, they don’t have languages.” But all that has changed. After Interpol reports that the trails of virtually all white-collar crime committed in Europe led to Liechtenstein, the OECD’s Financial Action Task Force placed this small country on its money laundering “black list” in 2000. Rapid and painful changes followed. Declaring that “Liechtenstein is facing the greatest internal and external political crisis since World War II,” Liechtenstein’s ruling prince spearheaded sweeping financial reforms that gave the government far greater powers to investigate suspicious financial transactions, seize laundered assets, and cooperate with authorities. from other countries in the investigations. of serious crimes.
While Liechtenstein retains a culture of privacy and bank secrecy laws remain on the books, it now has the same know-your-customer rules that are in place almost everywhere in the world. However, Liechtenstein remains uncooperative in foreign tax investigations. Any foreign tax official inquiring about an account in Liechtenstein is politely shown the door.
Until the new laws came into force, it was possible to hire a lawyer to form a company or trust in Liechtenstein and then operate a bank account for that entity without the bank knowing the identity of the owner. The lawyer was required by law never to reveal the identity of his clients. It was the ultimate tool for anyone who wanted true anonymity. Liechtenstein was the last place in Europe to offer such a service, and it attracted many billions of dollars as a result. With a near monopoly for such deals, Liechtenstein’s banks had an easy life. So easy that they even had the guts to charge customers a percentage for cash deposits. Think of a store that asks you for a percentage of what’s in your wallet before you’re allowed to buy anything! Life could not have been more profitable.
Even better, until the early 1990s, there was no competition. Only three banks existed in Liechtenstein. They shared businesses with each other, the locals got well-paying jobs, and no one had to work particularly hard. Foreign banks eventually pressured Liechtenstein to allow them to establish themselves, but even today there are only 16 active banks in the country.
Given this state of affairs, when the laws changed in 2000, a major crisis ensued for Liechtenstein’s banks. Many trusts and companies closed their anonymous accounts instead of identifying their beneficiaries. Some banks lost up to 20% of their clients. Money inflows slowed and, at the same time, the dot-com boom ended, dragging stock markets down with it and deeply slashing bank commissions and custody fees. It seemed that the world had conspired against the banks of Liechtenstein, with everything going wrong at the same time.
But in retrospect, the hard times did Liechtenstein a lot of good. The new laws forced banks to stop being fat and lazy. They were forced to cut costs and fees to provide competitive services. They also learned a lesson on how to focus on a single market, asset management, and how to market their services effectively. In short, Liechtenstein’s banks were re-launched as a safe and clean place to store funds.
One of the three original banks in Liechtenstein is Verwaltungs und Privatbank. The majority of VPB’s voting shares are controlled by a trust established by Liechtenstein’s ruling family, headed by Prince Alois. VPB offers the full spectrum of banking services, but the focus is on asset management and related services for wealthy clients. Of the fat and lazy banks in Liechtenstein, VPB was one of the fattest and laziest. But financial realities forced a change. Profits fell more than 80% between 2000 and 2002, due to shady but profitable clients closing their accounts, falling stock markets, and high costs. VPB’s share price was also affected, falling from its all-time high of CHF380 in 2000 to a low of CHF117 in 2003. In Vaduz, Liechtenstein’s only city, the official currency is the Swiss franc (CHF).
But during this time, VPB laid the groundwork for a fresh start, cutting costs and, for the first time, actively marketing its services. These changes are now paying off. The appeal of VPB is security. A growing number of foreign investors are eager to stash money in a safe haven where it won’t be taxed or confiscated. In other words, a place like Liechtenstein, where public finances are so strong that personal income tax was abolished because there was nothing to spend the money on. Individual liberty and privacy are sacrosanct and there is no history of confiscation by the government to obtain legitimate funds.