"A journey from haven to hell" is an article from Nick Mathiason in The Observer, to found in http://www.guardian.co.uk/business/2008/mar/02/tax.personalfinancenews.
"The tiny, rich, pristine country of Liechtenstein, one of the world's most notorious tax havens, is threatened with doom. German investigators have robbed it of its most precious commodity - secrecy.
Two handsome, suited, thirtysomething Brazilians have lunch with a woman old enough to be their mother. The venue is a hotel restaurant in the pristine, rich-beyond-words Alpine town of Vaduz, capital of Liechtenstein.
Over chocolate mousse, arrangements are made in hushed tones concerning significant amounts of cash resting in a tiny slither of a country.
As coffee arrives, one of the tanned financiers says to the woman: 'You are the only trustee I trust.' They laugh nervously. After all Liechtenstein, described by one investigator as 'Switzerland's garbage can', is a place where trust and secrecy are perhaps more valuable than mere money. Liechtenstein, population 35,000, is the beating heart of Europe's most secretive tax haven. A shelter for £130bn of other people's money - nearly treble the amount held in Monaco. Only now is the true worth of trust and secrecy clear.
Six years ago a slow-burning financial fuse was lit. Two weeks hence it caused an explosion with devastating consequences. In 2002, a data archivist working for LGT, a vastly profitable private bank with 77,000 account holders and controlled by the crown prince of Liechtenstein, stole from under the noses of his bosses a CD-Rom containing the names of more than 1,250 super-rich customers.
Heinrich Kieber, a 42-year-old now thought to be living under a new identity in Australia, allegedly used the information to bribe Liechtenstein authorities into reducing a prison sentence he faced. Liechtenstein obliged, the discs were returned, and it thought the matter ended there. The problem was that Kieber made copies of the files. In 2006, he touted the data to the UK Inland Revenue. Strangely, it refused to buy the information.
But last June the German secret service paid €4.2m for the discs. The information was shared with US authorities. Seven months later, on Valentine's Day, German investigators made their first move with the arrest of one of the country's most prominent businessmen. There will be many more.
Europe's tax haven of choice for the past 90 years is now threatened with closure, say senior investigators. The Observer understands that German detectives believe some accounts may be linked to organised crime. Liechtenstein drug police officers are now contacting their German counterparts for more information. If links are proved it could spell the end for the principality. German banks are discussing arrangements to pull out of Liechtenstein in a sign that the country is becoming a pariah financial state. The first could go next week. At the very least it is facing the prospect of losing its essential calling card: secrecy.
Perhaps more significantly, world governments and multilateral institutions are stirring. Tax authorities from every continent have received details of hundreds of suspected tax evaders with the proof that until now has eluded them. Determined to crack down on tax shelters draining exchequers of funds, the imprisonment of some of Europe's most prominent business figures is now a distinct possibility.
As investigators trawl through 1,250 names with a collective fortune in the tens of billions, London bankers fear being drawn into criminal proceedings, not surprising given the regularity with which English accents are heard on the streets of Vaduz. Among the 100 alleged British tax evaders are those with 'sensitive political connections', say sources close to senior figures connected to the investigation.
This week Alistair Darling will face questions from Liberal Democrat shadow chancellor Vince Cable over whether any of those investigated, who have yet to be named, claim non-domicile status or have given political donations and why the Revenue initially refused to buy the information.
Perched on a mountain overlooking Vaduz, where the west and east Alps meet, lies the family seat of Liechtenstein's royal family. As you walk the path towards it, there is a sign in gothic letters which says: Du Gott, siehest mich (You God, see me). For decades, god was just about the only outside force that could have seen details of bank account holders in Liechtenstein. It was why the state is one of two blacklisted by the powerful Organisation of Economic Co-operation and Development (OECD). The other is Andorra. But by paying a bank staff member for information, German investigators have effectively incentivised data theft. No tax haven's secrets are safe.
Liechtenstein officials are furious that their cover has been blown. They believe that Germany has declared economic war on a practice that under Liechtenstein law is perfectly legal. This is helped in part by the fact that while Crown Prince Alois is Liechtenstein's ultimate law enforcer, he also runs the country's most powerful bank.
Sources close to the government say people feel 'steamrollered', although you wouldn't know it speaking to Michael Lauber, the personable young chief executive of the Liechtenstein Bankers' Association. 'Angry?' he says, referring to the fact that private information was stolen and subsequently sold. 'I think it's called workplace violence and workplace violence is about the security of data, the security of the employee and how you control it. This is not a Liechtenstein issue, it's not a banking issue; it's a worldwide issue for all enterprises.' But he added: 'The fact they paid may encourage others. You can't exclude that... The personal enrichment incentive could be a big threat.'
Inside the corridors of power in Liechtenstein, tensions are rising. Meetings in the country's newly built parliament stretch late into the night. In her tidy, minimalist office, Liechtenstein's foreign minister, Rita Kieber-Beck, 50, appears nervous and strained. She is flanked by two assistants who offer regular prompts and reads from assorted prepared scripts - these are clearly difficult times. 'Of course it's a serious situation. We're not used to neighbouring countries treating us like this,' she said.
Asked if Liechtenstein has successfully prosecuted anyone for tax evasion over the past decade - or helped any other country to do so - Kieber-Beck said: 'It's in the legal system that people pay their tax in their own country. We don't ask people to do that.'
And that goes to the heart of Liechtenstein. Here tax evasion is not a criminal issue, it is an administrative matter. Liechtenstein's laws mean it has no obligation to share any financial information with any country's authorities. This secrecy is augmented with what is the most advantageous trust law in Europe - if you happen to be a company or individual who wants to keep their fortune away from the taxman.
A trust in Liechtenstein, called stiftung or foundation, is an independent entity which holds assets anonymously. There is no requirement for information about beneficiaries or trustees to be made publicly available. The only entity associated with each of the 77,000 or so foundations is a solicitor. It is claimed that banks therefore have no knowledge of who really owns assets. 'If Swiss banking secrecy is strict, it's even stricter in Liechtenstein,' said an admiring financier. 'Its privacy and asset protection laws are arguably the world's strongest.'
Yet Liechtenstein law enforcers believe they effectively stamp down on any suspicious money movements. Since 9/11, new information-sharing protocols from the OECD placed new responsibilities on tax havens. In 2006, the Liechtenstein authorities filed 163 suspicious activity reports, of which 113 were forwarded for prosecution.
Kieber-Beck, when asked whether the country was one of the easiest places in the world to stash gains from drugs and crime as well as evade tax, countered: 'We were the only country that gave back assets from Saddam Hussein. It was one airplane that was confiscated. There have been drug money accounts blocked, and we gave back the money. That was our financial intelligence unit spotting movements.'
But that's just one or two cases. 'Regarding a country of 35,000 and the size of our financial centre you must see it in comparison to the huge centres. In percentage terms it's OK.'
Contrary to the belief of tax planners worldwide, the head of the bankers' association, Lauber, insists that all accounts are monitored. 'There are no anonymous accounts or foundations. Everybody has to know who is the beneficial owner. Every foundation. Every bank account has its profile. Everywhere there is continuous surveillance with business relations. This stems from anti-money laundering frameworks which are completely standardised. The transparency issue that remains is in discussion and this is the part of the international exchange of information with tax matters.'
Officials concede that it is likely it will soon share information on bank account clients with revenue officers. This could happen as early as June when the OECD holds a high-level tax conference. Negotiations have begun.
Yet one senior anti-fraud official here warned: 'Money is a very shy animal. The biggest mistake politicians are making is that they think if they dry up an oasis the camel won't walk to the next one. Look at the number of East Asian locations - Macao, Hong Kong, Singapore, Labuan - that European high net worth individuals have already settled on. Why has HSBC set up in these places with European clients? It's because their European clients flee areas that Europe can influence. You can't say it will go to east Asia. It already has. We have seen this.'
In Liechtenstein, some are wondering whether this is the end. 'This goes very deep,' said one senior figure. 'Everybody knows someone who is a trustee. People are scared about what is going to happen.' But the country's senior figures are desperate to put out a message that Liechtenstein is on a path of reform. Five years ago, it hired Wolff Olins, the international branding consultant, to improve its image.
The Liechtenstein scandal comes as a growing number of global authorities are increasingly alarmed by the ease with which the super-rich and multi-billion-pound businesses are sidestepping tax obligations. Angel Gurría, secretary-general of the OECD, said last week: 'Jurisdictions characterised by strict bank secrecy and a policy or practice of non-co-operation with law enforcement in other countries prosper by attracting brass plate banks, anonymous financial companies and asset protection trusts. But they do so to the detriment of the integrity of the world financial system and such behaviour is no longer acceptable.'
This year, in Doha, Qatar, world governments will meet to establish how to finance ambitious anti-poverty measures for the developing world. There is an increasing sense that cracking down on tax havens once and for all could generate huge sums not only to finance those goals but to restore faith in the international financial system. Tax havens face the most serious threat yet to their existence.
Chill wind for Jersey
It wasn't Senator Frank Walker's finest moment. To the astonishment of those watching BBC2's Newsnight last week, the chief minister of Jersey denied accusing a whistleblower who drew attention to child abuse in its care homes of destroying Jersey's reputation, despite viewers having witnessed the outburst.
As the island is mired in an alleged cover-up over the murder and abuse of children, Walker has to face up to further problems affecting Jersey's future as an offshore financial centre.
Under his tenure, the island has boomed. It is estimated that the international super-rich have stashed assets worth $491bn in Jersey in order to 'legally avoid tax'. Thanks to targeting such high net worth individuals, Jersey has enjoyed an unprecedented growth spurt.
As its financial sector grew, Walker's government has put in place ambitious expansion plans. The latest is a 500,000 sq ft waterfront development aimed at encouraging more banks and related professionals to the island.
But there is concern that the scheme may be mistimed. Last year's credit crunch trimmed banks' expansion plans but, more seriously, the implosion at Northern Rock has sparked a contraction of a market Jersey was hoping to expand into - securitisation.
Jersey sees securitisation - the selling of income streams to the financial markets - and other off-balance sheet, money-raising devices as a lucrative area. But since last September, this has almost completely dried up.
Jersey will survive the current market malaise but like other financial centres it faces serious issues. Foremost is the challenge posed by widely respected US Senator Carl Levin, chairman of the Senate investigations committee which led the inquiry into the fall of Enron. He cited Jersey, Guernsey and the Isle of Man among 34 jurisdictions in his bill to stop tax haven abuse published last year - a move that has won support from presidential frontrunner Barack Obama in a Democrat-dominated Senate.
Jersey and others were included in Levin's bill after '[US] Inland Revenue Service court filings in numerous recent court proceedings in which the IRS sought permission to obtain information about US taxpayers active in the named jurisdictions'.
Tax havens also face a fresh inquiry by the International Monetary Fund into whether they have adequate checks in place to combat money laundering, fraud and terrorism.
Interview: what the minister said
Observer: How many cases of tax evasion has Liechtenstein successfully prosecuted in 10 years?
Rita Kieber-Beck (Liechtenstein's foreign minister): It's not a question of avoiding things from other countries. It's in the legal system that people pay their tax in their own country. We don't ask people to do that.
Observer: OK. But how many cases of tax evasion have centred on Liechtenstein in 10 years?
Kieber-Beck: As I'm not minister of justice...
Observer: Can you give us some kind of indication?
Adviser: Is it a question of tax evasion in Liechtenstein? For us in Liechtenstein, it's not a criminal act.
Observer: That goes to the heart of the problem. If Liechtenstein doesn't see tax evasion as a criminal act...
Adviser: It's an administrative issue. It's very much as you would have it defined in Switzerland, which you're right is at the heart of the matter...
Observer: Do you recognise that there's a growing movement concerned with corporate tax evasion, the ability of kleptocrats to siphon cash out of poor countries using accountants and lawyers in the northern hemisphere? Do you realise that the super-rich can sidestep tax the rest of us have to pay, and that these are the reasons why you are now under more scrutiny?
Kieber-Beck: I think we're all in the same boat. It's important that we're very concerned about what's going in the world but legal assistance is given with criminal matters with anti-fraud agreements.
We give assistance with anti-fraud concerns. I don't understand what's different about Liechtenstein than with other countries.
Observer: I would say the same thing to the Jersey foreign minister...
Kieber-Beck: We have a very strict diligence law. It's much stricter than any regulations in Europe. People have to investigate where the money comes from. Therefore I would ask to have a level playing field.
You can't just put pressure on one country as long as other countries don't have the same strict laws.
Observer: You might say Liechtenstein has the least strict laws?
Kieber-Beck: The independent financial authority was created in 2005. We have had the financial intelligence unit since 2001.
Liechtenstein doesn't have the least strict laws. It has the strongest.
We were the only country that gave back assets from Saddam Hussein. There have been drug money accounts blocked and we gave back the money. That was our financial intelligence unit spotting movements.
http://banksit.blogspot.com
http://internationaltax1.blogspot.com
http://assetprotection.wordpress.com
http://proteccionactivos.wordpress.com
http://proteccionbienes.blogspot.com
