At Large

Liechtenstein Lifts Its Skirts

A tax haven for the very rich announces it's "ready to adopt European standards."

By 9.12.08

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With worldwide financial markets fluctuating wildly, there is hardly anywhere that the truly rich can count on their wealth being safe. Up till now a numbered account in Liechtenstein was a great place to keep away prying eyes.

One of the big problems that rich people have is making sure they don't pay a great deal of money in taxes. They go to great trouble to accomplish this, and do it secretly. Here's where the nice people of Liechtenstein come in -- or at least used to do so.

Secrecy laws in this tiny state nestled conveniently between Switzerland and Austria have provided the wealthy of many countries a tax haven that kept their riches strictly a matter between them and the authorities in Liechtenstein. Now this "bank-of -banks" has decided to go legit. Quel dommage! Was ist los? Che cosa e questo? Weh ist mir! I say, old chap! Holy crap!

The hereditary ruler of this hard working micro-nation, Prince Alois, no slouch at finance, himself, has made it clear that his mind is made up. His prime minister, Otmar Hasler, has been working since 2000 to move the country into the financial mainstream, so the recent pronouncements do not come as any great surprise.

Mr. Hasler was interviewed by the Financial Times, "We are ready to adopt European standards," he said. Prince Alois had already made clear that financial information on foreign accounts would be made available to other states on a "need to know" basis if Liechtenstein's authorities were convinced their clients would not be excessively penalized. Or as the Prince diplomatically put it, the foreign states were "willing to find sensible solutions."

THERE IS A LOT of old and new money dashing about looking for different homes. But one need not feel too sorry for these untaxed rich or for poor little beautiful Liechtenstein. According to its economically savvy prime minister, the financial sector of his country's gross domestic product is only about 29%, while manufacturing that runs the gamut from concrete products to high tech amounts to 39%. The rest of the domestic economy is made up of various aspects of tourism and agriculture.

The tax haven foundations and trusts have a bit of a problem. Where to go, where to go? Prince Alois may be right that some can work out a deal with their countries of origin -- wherever that might be. Sounds like a good idea, but a bit iffy. "Excuse me Mr. Tax Collector, I have this loose 75 million bucks that I've accumulated over the last twenty-odd years, and I'd like to bring it home. How much do I have to give you to stay out of jail?"

It's not that there aren't places in the world to which one can shift one's assets. The Organization for Economic Cooperation and Development (OECD) keeps an up-to-date list, if anyone really wants to know. And yes, the Grimaldis' little principality, Monaco, is one of them, if you were wondering. By the way, Panama and Singapore, among others, have some clever ways of "limiting exposure," according to international financial managers.

Terrorism really must be hated by the tax-avoiding super rich. International cooperation on money movements has come under far greater scrutiny since 9/11. There was a time when "reputable" financial houses always could find a comfortable way to handle arms money, drug money, and plain old embezzlement proceeds. They have found the heat too great now that the Western intelligence agencies on counter-terrorist missions have turned to ferreting out "funny funds."

YES, THE OLD DAYS are swiftly passing. The time is disappearing when a decent chap with good club credentials could pop over to Vaduz, Liechtenstein -- or perhaps that smugglers' haven in the Pyrenees, Andorra -- and pass a cashier's check to a fluent "any language-speaking" bank manager.

In exchange one could receive a number and instructions on how to retrieve principal and dividends relatively tax free. Of course there would be a rather steep carrying charge, but far less than home country taxes would be. A million or two here, a few more there -- it all adds up. And Liechtenstein does have excellent skiing in season.

Some say that because of the filthy rich Russian oligarchs who didn't want to let their tax police -- or anyone else -- know what they have, the private banks of tax havens have overflowed with cash. This, along with the terrorist financing issue, has brought special attention to what was once an accepted privilege of the decorous affluent.

To be fair, one would have to note that it has taken one of Europe's oldest noble families to begin to bring accountability to an ancient banking privilege. Good show, Alois!

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About the Author
George H. Wittman writes a weekly column on international affairs for The American Spectator online. He was the founding chairman of the National Institute for Public Policy.