Liechtenstein defends its banks in German tax-evasion inquiry

VADUZ, Liechtenstein: It's not exactly the Mouse that Roared, but maybe the Mouse that Resisted.

After weathering days of criticism from Germany over a spectacular tax evasion case, this tiny Alpine principality is digging in for what experts say may a prolonged battle to defend its lucrative tradition of banking secrecy against what it views as attacks from a larger European country.

In a defiant news conference Tuesday, the crown prince of Liechtenstein, Alois, said his country would take legal steps to protect banking clients from German investigators, who have mounted a campaign to expose wealthy people suspected of sheltering money here to avoid paying taxes.

"We are a small country dependent on friendly neighborly relations," Prince Alois said in this normally sleepy capital. "But we are also a sovereign state and - we hope - do not live in an era when might makes right, rather than international law and international agreements."

Branded as an uncooperative tax haven by the Organization for Economic Cooperation and Development, Liechtenstein tried to seize the moral high ground by focusing on the fact that Germany's intelligence service paid an unidentified informant for stolen banking data.

"Such actions would be legally unthinkable in Liechtenstein and many other nations," Prince Alois said. "Here, fiscal interests cannot be placed ahead of the rule of law."

The criticism of the German government's methods was echoed by lawyers in Germany, some of whom predicted that the courts would not admit data from a stolen computer disc as evidence in criminal trials. "Of course, we know that secret services pay for information," said Eberhard Kempf, a leading German defense attorney. "But in this case, to pay for stolen data to be used in a legal case is unthinkable."

Kempf said it was difficult to imagine a court putting a defendant in jail based on stolen evidence. As it is, most tax-evasion cases in Germany tend to end in fines rather than prison terms.

Liechtenstein's royal family spoke out as the government and the financial industry here tried to contain the fallout from the German investigation. Prosecutors in Germany widened their net, with raids on the Munich offices of Dresdner Bank and UBS of Switzerland.

They also issued an arrest warrant for a brother of Klaus Zumwinkel, the former chief executive of the German postal service, according to German news reports. Zumwinkel resigned his post last Friday, after becoming the first high-profile target of the crackdown.

Bankers in Liechtenstein say they have been calling clients to reassure them about the security of their accounts, amid indications that the information being used by the German investigators stems from a data theft six years ago at LGT Group, a bank owned by the ruling family.

Prosecutors in Liechtenstein said they believed the data were stolen by someone employed at the bank in 2001 and 2002. They did not say whether he had sold the information to Germany. The man's name is Heinrich Kieber, according to people close to the bank.

On Tuesday, Standard & Poor's said it had cut its outlook for LGT to "negative" from "stable," a sign of a possible downgrade, amid "risks to the bank's reputation from an investigation by German fiscal authorities." "Political pressure could also mount on the principality to modify its legislation," it said, "which could diminish the competitiveness of Liechtenstein's banks with respect to those in other financial centers."

In Vaduz, residents have reacted with bemusement at the German, Swiss and Austrian television news crews wandering their tidy streets, as well as concern over the threat to their privileged position.

Wealth management has been a lucrative business for Liechtenstein, converting it from a rural backwater to a cosmopolitan financial center. Its 35,000 citizens have one of the highest per capita incomes in the world. Unemployment is less than 3 percent and thousands of people commute to work from Austria or Switzerland, which encircle the principality with jagged Alpine peaks.

Vaduz, a mix of farmhouses, 19th-century bourgeois houses and modern, marble-and-glass bank blocks, might seem like an unlikely store of great wealth. Black BMWs belonging to bankers are sometimes followed down the main street by tractors pulling loads of manure.

As other tax havens have been shut down or persuaded to adopt global standards on banking transparency, Liechtenstein has thrived. Assets under management at banks based in Liechtenstein, which uses the Swiss franc as a currency, have risen to about 200 billion francs, or $183 billion, from about 67 billion francs in 1996, according to the banking association.

The discussion for this article is now closed. View 8 previous comments

Lohan assumes the pose:
Monroe's final sitting

Also in Culture:

• Who is in control of Britney Spears' estate?
• Celebrity: A one way ticket to disaster
• Video: Independent film at the Berlinale

Blogs: Managing Globalization

Search

Subscriptions
Sign Up  |  Manage