Swiss banks fear fall-out from Liechtenstein scandal

Liechtenstein police Keystone

Switzerland's banking system risks being tarred with the same brush as that of Liechtenstein, following a series of money-laundering scandals in the tiny alpine principality. But, so far, the Swiss government is paying little heed to the threat.

Switzerland’s banking practices are again in the international spotlight, after a series of high-profile arrests in Liechtenstein. The scandal broke earlier this month, when a member of the principality’s parliament, or Landtag, Gabriel Marxer, was arrested on suspicion of money laundering. Six others have since been arrested, including Rudolf Ritter, brother of Liechtenstein’s vice-president, Michael Ritter.

The close links between the two countries mean that a banking in scandal in Liechtenstein is certain to focus international attention on Switzerland as well. Indeed, the boss of the anti-corruption unit of the Organisation for Economic Cooperation and Development, Mark Pieth, has warned that: “If the world is now ready to take action against Liechtenstein, Switzerland has to contemplate the moment when it may face similar stiff action.”

The warning is all the more timely since the OECD is considering measures to try to force off-shore banking centres to comply with international rules.

However, the Swiss government has dismissed the scandal as a purely internal affair of “another sovereign country”. Those were the words of a leading official with Switzerland’s banking supervisory body, who refused to be quoted by name, “because the matter doesn’t even concern us”.

Little is known about the origins of the money that has allegedly been laundered through one of Liechtenstein’s financial institutions. According to the Geneva-based daily “Le Temps”, the scandal concerns a large fraud case in the United States at the beginning of the 1990s.

The investigation is being led by Kurt Spitzer, an Austrian prosecutor working for the Liechtenstein government. His appointment follows allegations by the German secret service that Liechtenstein is a “money launderer’s paradise”.

The banking systems of Switzerland and Liechtenstein have close links. Liechtenstein’s controversial trust companies are clients of Swiss banks. For its part, the Swiss banking system uses Liechtenstein “a bit like banks in the United Kingdom would use the off-shore centres in the Channel Islands”, according to one close observer.

However, Switzerland does have tighter banking laws than Liechtenstein, and is better at implementing them.

Liechtenstein famously does not require trust companies to identify people with signatory powers, and it turns a blind eye not only to tax evasion (as does Switzerland), but also to cases of tax fraud. The result is that countries which prosecute alleged criminals for tax fraud are unlikely to be given legal assistance in Liechtenstein.

Most importantly, laws that do exist and have been certified by experts to comply with international standards are not being implemented.

A parliamentary report last year criticised the huge backlog of cases accumulated by the Vaduz court responsible for prosecuting money laundering and granting international requests for legal assistance. A member of that court, incidentally, is the brother of the MP Gabriel Marxer who was arrested last week.

Marc Pieth of the OECD’s anti-corruption unit says Switzerland cannot avoid being closely compared to Liechtenstein. He warns that even though Swiss banking laws are more strict in some instances, and almost always better implemented, Switzerland attracts large sums of dubious origin, if only because it accounts for a third of the world’s total private banking.
Complicating matters for Switzerland is the fact that tax havens are coming under increasing pressure to do away with banking secrecy.

The Zurich business monthly, Bilanz, recently reported that a French parliamentary commission, trying to blacklist Liechtenstein, is casting its eyes towards Switzerland. And Germany’s Chancellor, Gerhard Schröder, told Bilanz that all of Europe’s tax havens should be “abolished”.

Experts say Switzerland needs to act now by putting pressure on Liechtenstein to introduce new laws – perhaps Swiss ones – and take steps to improve their implementation.

If Liechtenstein doesn’t cooperate, say experts, Switzerland could threaten to withdraw Liechtenstein’s prerogative to use the Swiss franc.

by Markus Haefliger