Wild West justice in the Ländle

Beneficiaries of foundations, be afraid! These days, you can simply be dismissed.

Every foundation in Liechtenstein requires a local foundation board. This income-generating measure for the few dozen trustees and lawyers is required by law.

In a foundation model, it is of utmost importance that the beneficiary of the foundation also sits on the foundation board.

Only in this way can he avert the danger of the foundation being plundered, decanted, and its contents taken away from his grasp. Not least for tax reasons, there is an article in the foundation charter that usually states:

“The Board of Trustees has the authority to determine the beneficiaries, the conditions for such a benefit, and its content, and to withdraw it at its sole discretion.”

In English, this means: If father Müller sets up a foundation in Liechtenstein for his two sons, which is to be used first for his own benefit and after his death for the benefit of his sons alone, he would be well advised to have the beneficiaries also sit on the foundation board.

On the one hand, this distance between the foundation and its beneficiaries has tax advantages. For example, if the foundation manages billions of dollars worth of assets, such as those of the Bacardí rum dynasty, the beneficiaries are only liable to tax on the amounts they withdraw.

Specifically: If the foundation makes a profit of 100 million, but the beneficiary Bacardí subsidiary only needs 1 million as pocket money, then she only has to pay taxes on that amount. Unless she's completely ripped off, but that would be a different scandal.

The latest scandal consists of the words "appearance of a possible conflict of interest," as opposed to "manifesting a massive conflict of interest."

This may seem like a no-brainer to the layman, but it's the difference between the rule of law and the Wild West.

Because, understandably, the manifestation of something massive requires concrete proof. Thus, Müller, a foundation board member and beneficiary, exploited his position to gain an advantage over other beneficiaries, for example, by simply dipping into the coffers, without providing any explanation or disclosure.

This could lead to his removal from the board of trustees.

The situation is somewhat different with the "appearance of a possible conflict of interest." An appearance is not a fact, and a possibility is not a reality.

To apply this example: If the board of trustees gives the impression that they might be digging into the coffers, that is enough to justify their removal.

That would be absurd? That was absurd. Until the ruling of the Princely Regional Court of March 2, 2021. This supported the motion to remove a foundation board member due to the "appearance of a possible conflict of interest."

This arose because the foundation board had demanded accounting for withdrawals from the foundation's assets. The court drew a sharp conclusion: If this resulted in a repayment, the foundation board would benefit as the beneficiary – a conflict of interest.

That a mere request for accountability does not mean repayment, that such a repayment would not be an enrichment of the foundation, but rather the return of a previously unjustified withdrawal – so what?

Now, the layperson might think that such an absurd ruling would be overturned by the higher courts even in Liechtenstein. But that's not likely until September 22, 2021, at the latest.

The Princely Supreme Court upheld the first-instance decision. But there is still the Liechtenstein State Court, where justice is administered at the highest level.

Or maybe not. In a secret session at the end of June 2022, this Princely Court also confirmed the miscarriage of justice—and then occasionally communicated it to the dismissed foundation board.

Two Liechtenstein lawyers now serve in his place as foundation board members, providing themselves with generous monthly fees of around 50,000 euros.

They don't do much to address this, but they react rather harshly to criticism of their work. They even wave the relevant foundation regulations, which could even remove the dismissed foundation board member as a beneficiary.

Anyone who says this is just bad luck for one individual is mistaken. Since this new jurisprudence, foundation law in Liechtenstein has once again become a Wild West affair.

This puts every founder and every beneficiary at risk, who thinks they are on the safe side by also sitting on the foundation board.

This is a popular safety measure to prevent a foundation from decanting.

If the beneficiary has no insight into the decisions of the foundation board, it has happened more than once that he is confronted with the unpleasant news that the foundation's assets unfortunately no longer correspond to the million paid in, but have miraculously shrunk to zero.

Where did it go? The board of trustees shrugs regretfully. Attorney-client privilege. Trade secrets. Trustees are bound to confidentiality. No, there's no access to the files either.

If the victim turned to the judiciary, the public prosecutor's office informed him that without documents and evidence, there was unfortunately no initial suspicion, and without that it would be difficult to start a criminal investigation.

However, if the founder sits on the foundation's board, he can prevent such criminal behavior. Unless he is kicked out, due to the "appearance of a possible conflict of interest," to which anyone can fall victim.

This has recently been protected by royal jurisdiction. It's like when a caught thief calls the police. And they take away the night watchman who raised the alarm.

There appears to be a possible conflict of interest, as the person could perhaps profit from the stolen goods.

The injustice that befalls one individual here is a threat to everyone. Not just to Bacardí, not just to the German Birkenstock family, but to all those who believe that foundation law in Liechtenstein is governed by law and order.

Because ultimately, the country is a principality. Where, in the final analysis, only what the prince approves or permits happens. It's high time for His Highness to take action.