Steven Kay: "Liechtenstein and the Spirit of Impunity"

The Liechtenstein Institute of Trustees and Fiduciaries never tires of pointing out that there are few black sheep in its industry. Greedy beneficiaries are to blame for the legal disputes. "Is that true?" asks international criminal defense attorney Steven Kay on finews.ch .

Too often, the same pattern emerges: The trustors of a trust want to secure their family's financial future and are encouraged to use Liechtenstein trust structures. Despite serious breaches of trust, Liechtenstein courts support domestic trustees at the expense of foreign clients.

This has led to a sense of impunity among some trustees —and I have witnessed it—that they can get away with it, protected by the local courts.

Transparent rules are missing

As a lawyer specializing in international criminal law, I have now worked on several legal disputes based on the same problem: A trustor believed a trust structure had been established that aligned with his intentions. But despite the clarity of those intentions, subsequent events caused by disputes with his trustees completely frustrated his wishes. The lack of clear and transparent rules is obvious!

This year's amendments to the Liechtenstein Trust Act attempted to close some of the gaps, for example, in cases of conflicts of interest. However, Liechtenstein courts have rarely found a conflict of interest to exist. Liechtenstein judges often disregard the trust relationship, which is fundamental to the founder, and thus favor the trustees in court.

No duty to the public

With a flimsy justification, the new edition also failed to provide more transparency. In short, the obligation to inform the public only exists in very rare cases or only when the damage is significant.

Beneficiary rights—especially the essential rights to audit accounts—remain weak. Many beneficiaries (sometimes even the settlors themselves) see their family trusts emptied, either through decantation into another trust or structure or through insolvency.

This grossly discriminatory legal situation must be corrected. One might ask, why was it ignored? The comments on the legislative amendment reveal who fought most fiercely against progressive reforms. And the remaining amendments still leave considerable room for interpreting rules in favor of trustees, thus prolonging the multi-organ failure of trust governance.

The essence of the problem

Although some of the changes – such as the transfer of responsibility for control mechanisms from the Liechtenstein Professional Council of Trustees to the FMA – are a step in the right direction, the core of the problem lies somewhat deeper.

For years, the spirit of impunity was tolerated in trust circles. The trust industry essentially regulated itself and was not subject to any serious accountability to any institution, which doesn't work in any country in the world, including Liechtenstein.

System must build trust

Only after the US-Swiss dispute over banking secrecy and a series of high-profile individual cases did some movement begin in an industry whose last remnants are now concentrated in the Liechtenstein Institute of Trustees and Fiduciaries. The Princely House has long since recognized that the future and the business lie elsewhere, and so the trustees are fighting a rearguard action.

The right thing to do now would be to show courage. Instead of big words and small actions, we need the independence of the authorities in the interests of trustors and beneficiaries, full transparency towards the FMA, clear corporate governance rules, and better protection mechanisms for all involved, especially for whistleblowers who want to come clean. Without trust, the system cannot deliver what it claims to deliver.

Steven Kay QC is a British criminal lawyer and Chairman of Chambers at 9 Bedford Row, a long-established London bar association. Kay has gained international recognition, including for his defense of Slobodan Milosevic, the former President of Serbia and convicted war criminal. Kay specializes in fraud and corruption in international cases. He is a well-known lawyer in the Swiss and Liechtenstein jurisdictions .