How founders are expropriated in Liechtenstein

Many a resourceful investor has hidden his money from the tax authorities in the past through a Liechtenstein foundation. Some are now in for a rude awakening, not because of data leaks, but because they are being banned from the foundation by the other foundation board members.  

Johannes Fiala, lawyer from Munich, on unpleasant surprises in Liechtenstein foundation law

Data leaks and increased revelations of tax evasion involving Liechtenstein foundations have led to the withdrawal of thousands of foundations and billions in foundation assets from Liechtenstein. The lucrative business of serving as trustees and foundation boards, which has helped many former Liechtenstein mountain farming families prosper, is thus threatened with a significant decline.

Liechtenstein lawmakers have responded and, since 2009, have significantly tightened the requirements for foundation trustees. Many former trustees now have only limited licenses. However, quite a few trustees secure their income by ousting unpopular foundation boards and foundation presidents – including the founder themselves.

Removal of foundation boards

The removal of foundation boards who stand in the way of the remaining trustees and foundation boards looks something like the following extract from the minutes of a foundation board meeting of a non-profit foundation held in Vaduz in September 2012. Two co-founder members, K and G, the former a trustee, dismiss the chairman of the foundation board, X, who is also the economic founder:

"Motion of the foundation board member K: Dismissal of X as a member of the foundation board. Resolution based on Article 5, Paragraph 4 of the Articles of Association. The foundation board adopts its resolutions and conducts its elections with a majority of all members present. Majority: two votes in favor, one vote against. X is thus removed from office as a member of the foundation board with immediate effect. His position as chairman is therefore no longer valid for the remainder of the foundation board meeting. From now on, the meeting will be chaired by the foundation board member K. K is instructed and authorized to apply to the land and public register for the implementation of this resolution (deletion of X as a member of the foundation board)."

Office of Justice Fails to Give Legal Hearing.

The Office of Justice in Liechtenstein, established at the end of 2012 as the foundation supervisory authority, implements such resolutions and deletes the dismissed foundation board member X from the public register without even notifying him in advance and without offering him the opportunity to be heard. Rather, it proceeds purely on the basis of the records, i.e., upon presentation of the meeting minutes. These minutes are then simply implemented. After the deletion, the former foundation board chairman X is only a third party. He may file a complaint, but is simply referred to the ordinary courts without any substantive review by the Office of Justice. 

Misleading foundation statutes

The foundation's statutes were drawn up by K, the later trustee and foundation board member. In Germany, such a case would be a matter for the public prosecutor due to a conflict of interest – in Liechtenstein, however, this may be considered common practice. The statutes made no mention of the removal of foundation board members. Therefore, the founder assumed that this could only be done by a court in justified, serious cases. For example, if the foundation board had stolen funds. The founder never dreamed that this could be done simply by a majority vote.

However, the statutes regulated other resolutions, even the election of foundation board members, and the bylaws also provided for a right of veto for the foundation's trustee – the founder's wife. Regarding the hidden – because not explicitly stated – possibility of dismissing the foundation board by simple majority vote, the drafter of the statutes, trustee K, who later became a co-founder, simply "forgot" this – and thus it was not missed.

However, since the introduction of the new foundation law in Liechtenstein on April 1, 2009, it has been practically mandatory that foundation statutes must also contain explicit provisions for the dismissal of foundation board members. However, there was no legal obligation to adapt the statutes, as the old law continues to apply to existing foundations.

An adaptation to the new foundation law suggested by the founder was not implemented. Had the founder been, the founder would naturally have insisted on the trustee's right of veto against this, and taking over the foundation by dismissing the president would have been foreseeable from the outset.