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Banks and other financial institutions operating in the United States are advised to give enhanced scrutiny to all financial transactions originating in or routed to or through the Principality of Liechtenstein, or involving entities organized or domiciled, or persons maintaining accounts, in Liechtenstein. The need for such enhanced scrutiny is discussed in the remainder of this Advisory.
Liechtenstein is a small country bordered by Switzerland (with which it forms a customs and currency union) and Austria. The population of Liechtenstein is approximately 32,200.
Liechtenstein is home to a well-developed offshore financial center. The country has chartered 15 banks, three non-bank financial companies, and 16 public investment companies. Its 230 licensed fiduciary companies and 60 lawyers serve as nominees for, or manage, more than 75,000 entities, primarily corporations, anstalts, and trusts, most for non-residents of Liechtenstein.
The counter-money laundering regime embodied in the legal, supervisory, and regulatory systems of Liechtenstein suffers from serious systemic problems.
Some of the problems arise because of particular defects in Liechtenstein.s existing legislation or supervisory and enforcement mechanisms.
Other weaknesses in Liechtenstein.s counter-money laundering programs result from the interaction of particular rules in a way that can vitiate formal anti-money laundering requirements.
These weaknesses combine to create a system in which knowledge of transactions is compartmentalized and layered so that formal reporting requirements or potential liability for violation of the nation.s law or supervisory regime may mean little in practice. In this context, it can be very difficult for compliance officials or criminal investigators to reconstruct the financial trail of non-resident transactions by investigators, except in the most obvious of situations.
These deficiencies, among others, have caused Liechtenstein to be identified by the Financial Action Task Force on Money Laundering (the .FATF.) as non-cooperative .in the fight against money laundering.. The FATF, created at the 1989 G-7 Economic Summit, is a 29 member international group that works to combat money laundering.
Liechtenstein has indicated an awareness of deficiencies in its counter-money laundering systems. It has created a special task force under the supervision of an Austrian prosecutor to investigate money laundering within the Principality. It has drafted legislative changes that, if enacted, could remedy many of the structural deficiencies described above, in response to a review of its counter-money laundering programs by the Council of Europe.s counter-money laundering experts and by the FATF.
Nonetheless, the legal, supervisory, and regulatory systems of Liechtenstein at present create significant opportunities and tools for the laundering and protection of the proceeds of crime and allow criminals who make use of those systems to increase significantly their chances to evade effective investigation or punishment. Liechtenstein.s commitment to bank secrecy and the compartmentalization of information and responsibility that those laws allow increase significantly the risk that transactions involving banks or other entities created and accounts maintained in Liechtenstein will be used for illegal purposes.
Thus, banks and other financial institutions operating in the United States should give enhanced scrutiny to any transaction originating in or routed to or through Liechtenstein, or involving entities organized or domiciled, or persons maintaining accounts, in Liechtenstein. A financial institution subject to the suspicious transaction reporting rules contained in 31 C.F.R. 103.18 (formerly 31 C.F.R. 103.21) (effective April 1, 1996), and in corresponding rules of the federal financial institution supervisory agencies, should carefully examine the available facts relating to any such transaction to determine if such transaction (of $5,000 or more, U.S. dollar equivalent) requires reporting in accordance with those rules. Institutions subject to the Bank Secrecy Act but not yet subject to specific suspicious transaction reporting rules should consider such a transaction with relation to their reporting obligations under other applicable law.
It should be emphasized that the issuance of this Advisory and the need for enhanced scrutiny does not mean that U.S. financial institutions should curtail legitimate business with Liechtenstein.
To dispel any doubt about application of the .safe harbor. to transactions within the ambit of this Advisory, the Treasury Department will consider any report relating to a transaction described in this Advisory to constitute a report of a suspicious transaction relevant to a possible violation of law or regulation, for purposes of the prohibitions against disclosure and the protection from liability for reporting of suspicious transactions contained in 31 U.S.C. 5318(g)(2) and (g)(3).
United States officials stand ready to provide appropriate technical assistance to Liechtenstein officials as they work to remedy the deficiencies in Liechtenstein.s counter-money laundering systems that are the subject of this Advisory.
James F. Sloan
FinCEN Advisory is a product of the Financial Crimes Enforcement Network, Department of the Treasury, Post Office Box 39, Vienna, Virginia 22183. For more information about FinCENís programs, visit the FinCEN web site at http://www.fincen.gov. General questions or comments regarding FinCEN publications should be addressed to the Office of Communications, FinCEN, (703) 905-3773. Information may also be faxed to (703) 905-3885.