Liechtenstein's white facade is crumbling

The principality has portrayed itself as a clean financial center for years. Now, new scandals are shaking up its self-image. They involve mafia dealings and embezzled state funds from Venezuela.

Vaduz Castle serves as a status symbol for the royal ruling family. But the reputation of the Principality of Liechtenstein is suffering.

On August 15, the Catholic feast day of the Assumption of Mary, the royal ruling family welcomes its subjects in front of their castle high above Vaduz. This year, the celebrations are being scaled back due to the coronavirus pandemic. For the first time, the state ceremony will take place without guests from home and abroad and will be broadcast online only.

Normally, the national holiday also marks the end of Liechtenstein's quiet holiday season. This summer, however, there's no peace at all, and it has nothing to do with the coronavirus. Rather, Liechtenstein is once again proving to be a central theater of international financial crime.

Abysses open up

An Italian mafia clan and a gang that apparently plundered Venezuela's coffers are alleged to have laundered dirty money on a large scale in Liechtenstein for years. On top of that, five of Liechtenstein's 14 banks are experiencing severe turmoil, partly triggered by questionable business dealings.

The events are damaging the reputation of the principality, which had recently distanced itself from international scrutiny after numerous tax fraud scandals. The government, the princely house, and representatives of the financial industry have been claiming at every opportunity for years that it has reformed and is now a clean, "white" financial center. But behind the clean facade, chasms lie.

The public prosecutor's office and financial supervisory authorities have plenty to do right now, both in Liechtenstein and in other countries. For example, there's a case involving a clan of the Calabrian 'Ndrangheta. Seventy-six members of the mafia organization were arrested in July during a major raid in Switzerland and Italy.

Sometimes large sums of cash were withdrawn and transported to Italy.

Traces also lead to Liechtenstein. Undercover investigators infiltrated the clan testified that dirty money was temporarily stored in an account at a Liechtenstein private bank. Larger sums were sometimes withdrawn in cash and transported to Italy by car. Millions of dollars in proceeds from drug, weapons, and other illegal activities are being discussed.

Liechtenstein was equally helpful in the dealings of the so-called Venezuela Connection, which allegedly illicitly smuggled billions of dollars in state funds from the South American country abroad. The public prosecutor's office in Miami suspects a Swiss lawyer of having laundered $4.5 billion for the fraudsters. Investigators say a major Liechtenstein bank and a trustee were also involved here.

For example, a high-ranking Venezuelan government official is said to have temporarily stored 250 gold bars in a high-security bunker in the village of Triesen and later sold them. Venezuelan business dealings also play a role in official investigations into the small Union Bank in Vaduz.

Dismissed boss and self-report

It is not the only bank in Liechtenstein facing difficulties. For example, Sigma Bank AG has been involved in shady dealings. Since March 2019, it has been an independent subsidiary of Sigma Kreditbank AG, which in turn provides microloans of up to 7,500 euros without requiring significant collateral. The customers are particularly often from Germany, according to Vaduz. Among them are those whose loan applications fail the creditworthiness check, it is said. Both Sigma banks are owned by the flamboyant billionaire Martin Schlaff, one of Austria's richest and most influential individuals.

Until its takeover in 2019, Sigma Bank AG operated as Volksbank and was a branch of Volksbank in the Austrian state of Vorarlberg. The "compliance deficiencies" (originally from Sigma Bank) allegedly date back to this time. As a result, the bank turned itself in and dismissed its CEO, Stefan Wolf, and another member of the management team with immediate effect.

Neither the bank itself nor spokespersons for the Financial Market Authority (FMA) and the public prosecutor's office in Vaduz are willing to comment on the specific "compliance deficiencies," citing ongoing investigations. The newspaper "Wirtschaft regional" reported systematic money laundering on a large scale. Criminal customers had deceived the bank, which specializes in investment advisory and asset management, with false information. Security measures clearly failed. The former owner of Sigma Bank, Volksbank Vorarlberg, denies any responsibility.

Hectic on the financial market

Alpinum Bank was also accused of a lack of due diligence in certain transactions. Since 2018, it had been threatened with the revocation of its banking license. The FMA has now discontinued the corresponding proceedings, albeit subject to strict conditions. The reasons for the surprise dismissal of two top bankers at VP Bank, the third-largest financial institution after the princely LGT and Landesbank, remain completely obscure. And the much smaller Mason Private Bank is fighting for survival in the face of red figures and a crisis at its parent company in Hong Kong.

Things are hectic in the financial center, to which the principality, with a population of just 38,000, owes a large part of its prosperity. Measured by per capita income, the Alpine microstate is one of the richest countries. The financial center specializes in asset management. The 14 banks manage a total of €161.5 billion in customer deposits; including foreign transactions, the figure is even higher at €325 billion.

Now, concerns about reputation and business are growing. "We note with concern the ongoing investigations against individual institutions, or rather their representatives," says Simon Tribelhorn, Managing Director of the Liechtenstein Bankers Association. "Should the ongoing investigations reveal irregularities, those affected must be held accountable and sanctioned."

So it's not just the coronavirus that's dampening the festive mood. At least every citizen receives a free national flag to hoist on the national holiday. So that the Principality of Liechtenstein at least looks colorfully decorated.