Combatting Money Laundering in Liechtenstein
The fight against money laundering and terrorist financing is of the utmost importance to the Liechtenstein financial centre, as it is for most financial centres with an international reach. The legal, structural, and organizational efforts necessary to maintain the international standards on an ongoing basis are substantial. In its Offshore Financial Centre Assessment in October 2003, the IMF praised the efforts undertaken by the Liechtenstein financial centre by certifying its ‘high level of compliance’.
A credible strategy for combating criminal machinations enhances the reputation and thereby also the attractiveness and security of a financial centre. This strategy includes in particular a systematic identification of contracting parties, complete identification of the beneficial owner with no break in the timeline, ongoing monitoring of business and, in the case of suspicion of money laundering or terrorist financing, the immediate and unreserved notification of the competent State authority, i.e. the Financial Intelligence Unit (FIU), a reporting authority for money laundering. The modern Liechtenstein Due Diligence Act serves as the foundation in this regard and has continually been adapted to current demands.
The FIU is an administrative entity (in contrast to a police or justice authority) and, as such, is directly subordinate to the Prime Minister through the Minister of Finance. It performs no supervisory functions as such. These functions are the responsibility of the Financial Market Authority (FMA) Liechtenstein. On average, the FIU has received between 150 and 250 reports each year over the past five years. A majority of the reports arise from internal compliance work in the financial sector. It is a ‘subjective’ reporting system (analogous to the Swiss system), since ultimately the suspicion of the financial intermediary determines whether a report is submitted. The focus is therefore on early detection. The FIU analyzes the suspicious activity reports received and, if the suspicion is substantiated, forwards them to the Office of the Public Prosecutor for initiation of the necessary prosecutorial measures. By submitting a suspicious activity report to the FIU, the financial intermediary automatically blocks the assets involved in the reported business relationship. To prevent ‘tipping off’ at an institutional level (prohibition of disclosing information to third parties about submission of the report), the FIU has the legal power to release the blocked assets where necessary. As part of the implementation of the 3rd Money Laundering Directive in Liechtenstein, special attention is paid to politically exposed persons (PEPs).
Moreover, good co-operation with the supervisory authorities is essential. For two years, Liechtenstein has had an independent and integrated Financial Market Authority (FMA). The establishment of this authority was based on models in the EU, namely the Austrian, German, and British models. However, the FMA is not only an important partner in the supervision of anti-money laundering legislation, but especially so in the entire area of prudential supervision.
The work facing the financial centre in this area is enormous. In particular, the implementation work arising from frameworks, such as Basel II or MiFID, are of such complexity that small jurisdictions reach the limits of their capacities. To find state-of-the-art solutions to these challenges, two factors are important.
First, the supervisory authorities and the private sector must work very closely together with respect to the legislative process, in order to utilize synergies and conserve resources under the motto ‘together, we are strong’. It is precisely this good co-operation that constitutes the particular strength of the financial centre, given the manageable size of the country and the flexibility afforded by short channels.
Secondly, close attention must be paid so that no ‘gold plating’ occurs in the implementation of European and international standards. The following maxim applies: what we implement, we first and foremost implement in high quality. Combating abuse of the Liechtenstein financial centre has the highest priority for all of its actors.
In this context, we support all efforts that can be summarized under the umbrella of ‘better regulation’. We have learned from experience in Liechtenstein that only stable and predictable laws are actually complied with. This contradicts neither the demand for combating abuse of financial centres nor the interests of investors and consumers – on the contrary, transparent and sensible norms established for the long run ultimately serve everyone. This is what we are continuously working on.