The Liechtenstein fiduciaries

The trustee guild regularly causes scandals in the principality, and even new legislation has done little to change that.

In the Ländle region, decanting isn't just about aerating a wine. Decanting also means pouring the contents of one foundation into another. The original founder or their beneficiaries remain as the sediment. The trustee can then freely manage the new foundation.

In 2018, the Princely Supreme Court ruled for the first time that such a decantation was legally invalid and reversible. This was a slap in the face for the Marxer law firm involved, which was long considered a secret Ministry of Justice in Liechtenstein. The law firm is also implicated in the Crypto AG scandal; it helped conceal the actual ownership structure.

The channels and official procedures are short in Vaduz. After the proven business model of setting up foundations or trusts as stashes of illegal money failed, the number of foundations shrank by two-thirds. This made the need to offset losses with commissions, kickbacks, retrocessions, and hefty administrative fees all the stronger. Or criminal methods were resorted to. Lorenz K. , former president of the banking supervisory authority, received eight years in prison for embezzling 36 million Swiss francs from a foundation. The princely legal counselor Harry G. is in prison for embezzling up to 50 million Swiss francs. The flamboyant Mario S.*, in whose bar Esquire lavish parties were held until he stopped putting on airs and was remanded in custody on charges of embezzling up to 25 million Swiss francs, was another shining example of the Liechtenstein fiduciary and asset management profession.

After tough battles and long labor pains, a revised version of the Liechtenstein Trustee Act saw the light of day in early March 2020. It will enter into force in July, unless a referendum is called. It shifts oversight from the Professional Committee of the Liechtenstein Institute of Trustees and Fiduciaries to the Financial Market Authority (FMA). Trustees are now required to prepare an annual report, and the FMA also has the right to examine conflicts of interest and the trustees' risk management practices.

However, this amendment only appears to provide for increased princely supervision and control. According to the text of the law, "no personal dealings" are permitted. This means that trustees may not channel foundation funds into companies in which they are involved. However, court practice shows that this term is interpreted very liberally; for example, being a board member of such a company is not sufficient to imply a conflict of interest, the Princely Supreme Court ruled in February.

Neither the requirements for the annual report nor for risk management represent a significant improvement over the current situation. Above all, the position of foundation beneficiaries has not been improved. They continue to have no party status in legal proceedings, no right to information, and no party status in criminal proceedings against trustees. This means that they remain at the mercy of the princely prosecutors and their whims. After all, anyone who feels cheated or deceived must be able to present evidence and circumstantial evidence for initial suspicion.

Much to the dismay of parliament, government, and the prince, another potential embezzlement scandal is about to explode. Apparently following a tip-off from a bank managing the accounts, an investigation has been launched against attorney NT* for allegedly embezzling millions of dollars in client funds. The former president of the Examination Commission for Trustees and Lawyers has built a small empire over the many years of his practice.

Despite all his various activities, T. still found time to build what is arguably the most exclusive and complete Rolls-Royce collection. A fine example of the value of setting simple goals. T. simply wanted one example of every Rolls-Royce ever built. Goal achieved; then all T. had to do was build a box around it – and let people admire it.

In short: "The name T. has stood for trust, quality, discretion, individuality, and competence for 30 years," the CEO touts himself. At least the discretion has come to an end. However, the Principality's public prosecutor's office does not want to provide any information on the proceedings "at this time." The Chief Public Prosecutor's response to a list of questions was succinct: "I will not comment on this." The Liechtenstein Chamber of Trustees and Fiduciaries "can confirm that we are investigating a case that is also the subject of investigations by the public prosecutor's office." However, "the disciplinary proceedings must be suspended if criminal proceedings are initiated in this matter."

The person under investigation has his lawyer, Franz Josef Giesinger, state: "All allegations against my client are baseless, as the investigation will also reveal." Instead of advising his client to respond to the questions posed to him, the lawyer decrees: "My client expressly prohibits you from conducting any identifying reports." As if the word in Vaduz wasn't already heard from the battlements of the princely palace, Giesinger adds threateningly: If this is not adhered to, "my client will assert claims for damages and compensation."