German Chancellor Attacks Liechtenstein Banking Secrecy

Christopher Owen

21 February 2008

German Chancellor Angela Merkel attacked Liechtenstein's traditional banking secrecy and demanded an information sharing accord similar to that in place with the US under the Qualified Intermediaries scheme. Her comments followed talks with Liechtenstein's Prime Minister Otmar Hasler. "What is possible with the US should be possible with the European Union," Ms Merkel told reporters. The Chancellor also insisted Liechtenstein sign up to EU protocols on money-laundering and "waste no time" in heeding calls from the OECD for greater banking transparency and a clear commitment on fighting fraud. Mr Hasler said "an agreement on fighting fraud" that his country is negotiating with the EU "goes in the direction" of German demands. Prior to the meeting, Liechtenstein pledged to tighten tax laws but denied the step was linked to the unfolding scandal in which investigators are targeting some 1,000 Germans suspected of hiding assets in its banks. The German government says it believes some 45,000 trusts based in the principality encourage tax evasion among Europe's high net worth individuals. It emerged that the Munich branch of Swiss bank UBS has been raided as the country's unprecedented tax evasion crackdown spreads its wings. "There has been a raid at our Munich branch," a UBS spokesman confirmed to The Times. "There has been an investigation into an individual case rather than the bank itself." The investigation has also provoked a strong reaction from the Liechtenstein royal family, with acting head of state Crown Prince Alois accusing Germany of failing to respect his country's sovereignty. This followed Germany's admission that it had paid an informant €4 million for information on German tax evaders hiding assets in Liechtenstein banks and had been spying on its banks for some time. At a press conference aired on German television, Prince Alois accused Germany of using “draconian methods that defy the rule of law", adding that Germany had "the worst tax system in the world". “Germany has clearly failed to understand how one behaves towards a friendly state," he said. "We are a small country and we want good relations with our neighbours but we are also a sovereign state.” The royal family owns LGT bank which was identified by justice authorities in Liechtenstein as the source of the informant. State prosecutor Robert Wallner said the man was a former employee at LGT, who worked at the bank between April 2001 and November 2001, and "abused his position of trust to compile information about clients". He was convicted in 2004 for fraud, attempted blackmail and withholding evidence and handed a suspended prison sentence. The fraud charges stemmed from business dealings in Barcelona and the blackmail conviction from attempts to obtain a false passport in exchange for not giving out the confidential banking information.