Liechtenstein: an emerging scandal

Germany appears to have what Suddeutsche Zeitung has called the republic's "biggest tax scandal in its history" on its hands. This involves about 700 people who are under investigation, and a possible 3.4 billion Euros at stake - as well as a prince whom we have recently written about. He is, as we described him,

Prince Hans-Adam (Johannes Adam Ferdinand Alois Josef Maria Marko d'Aviano Pius von und zu Liechtenstein to you, or "His Serene Highness") and he owns the Liechtenstein Global Trust (LGT), with $100 billion in assets.

We also noted, among other things, his rather large conflicts of interest leading to a wholesale subversion of democracy in this vicious little tax haven. In 2003 a referendum was called to allow Prince Hans-Adam II (who already had powers to dissolve parliament and call elections) to hire and fire governments at will. Ahead of the referendum, Sigvard Wolhwend of the country's Democratic Secretariat Party, warned that granting the prince more power could turn Liechtenstein into a dictatorship. State capture by offshore interests is a hallmark of secrecy jurisdictions like Liechtenstein.

Suddeutsche Zeitung quoted Handelsblatt as saying:

The investigators have received loads of files from LGT Bank. The newspaper quoted an investigator as saying: “We have cracked the whole bank”

and added that "Liechtentenstein is favoured by tax dodgers because the country very rarely assists German investigators."

In a related story, Reuters reports that Klaus Zumwinkel will resign as chief executive of German mail and logistics group Deutsche Post after prosecutors said they suspected him of dodging about a million euros in taxes by transferring money to Liechtenstein. This micro-state was rocked by another scandal just a week ago, when Liechtenstein-based LLB Bank issued a statement saying that it has been the target of a blackmail campaign since 2003 after an employee threatened to publish the secret account details of German clients.

If Swiss banking secrecy is strict, it's even stricter in Liechtenstein. Germans evade an estimated 30 billion Euros in taxes each year, the German Tax Union estimates. It is interesting in this case to note that Finance Minister Peter Steinbrück admitted paying an informant for the information that allowed them to crack the scandal, with Der Spiegel newspaper saying that investigators had handed over five million euros to an informer who contacted the BND secret service in early 2006 (see Richard Murphy's comments on the ethics of this here.) This shows how helpless the German authorities are in general, in the face of this state-sponsored criminality: they have to rely on unusual subterfuge to get the information.

The FT quotes TJN's Richard Murphy as saying that Liechtenstein was "completely committed to secrecy and ignores all international norms." John Christensen, director of TJN, said:

Liechtenstein has for years resisted cooperation with the OECD – one of only three countries still listed as one of the OECD's non-co-operating jurisdictions. It is an international disgrace that these tiny jurisdictions continue to abuse their privileged status. Liechtenstein is a clear example of a pirate state. We have a prince running his own bank, and Lichtenstein where he wields power is clearly and systematically abusing its offshore secrecy status to undermine the German republic and abuse its people.

When élites remove themselves from the tax regime, they subvert democratic processes and undermine respect for the integrity of laws and institutions. Tax evasion is theft of public assets, and it is corruption at its worst.

This reminds us of the words of American Senator Carl Levin, co-sponsor with Barack Obama of the Stop Tax Haven Abuse Act. Tax havens, Levin said, have "in effect declared war" on honest taxpayers.

This story will grow, and we will be following it.