Financial Crime World

Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) Framework in Liechtenstein

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Liechtenstein has implemented a robust AML/CFT framework to prevent and detect money laundering (ML) and terrorism financing (TF) activities. However, there are still areas for improvement to ensure the effective prevention and detection of ML and TF activities.

Investigations and Prosecutions

Initiation of Investigations

  • Mutual legal assistance requests: ML-related cases are mostly initiated by mutual legal assistance requests from other countries.
  • Financial Intelligence Unit (FIU) reports: The FIU plays a crucial role in reporting suspicious transactions to the authorities.

Jurisdictional Challenges

  • Tendency to transfer cases: There’s a tendency to transfer cases to the authorities where the predicate offense occurred, rather than investigating and prosecuting in Liechtenstein.
    • This may lead to jurisdictional challenges and delays in prosecution.

Preventive Measures - Financial Institutions

Due Diligence Act (DDA)

  • AML/CFT preventive measures: The DDA defines AML/CFT preventive measures for financial institutions.
  • Expanded requirements: Secondary legislation, the Due Diligence Ordinance (DDO), expands on the requirements set by the DDA.

Risk-Based Approach

  • Customer profiles: Liechtenstein has established a risk-based approach for financial institutions to build and maintain customer profiles.
  • Risk criteria: Detection is based on deviations from the profile using risk criteria.

Weaknesses in the System

Discretionary Powers

  • Excessive discretion: The legal provisions may give excessive discretion to financial institutions when applying the risk-based system.
    • This may lead to inconsistent application of AML/CFT measures.

Lack of Specific Criteria

  • FATF Recommendations: The DDA and DDO do not fully comply with specific criteria of the FATF Recommendations, such as determining high-risk customers and defining due diligence for Politically Exposed Persons (PEPs).
    • This may lead to inadequate risk assessment and detection.

Misuse of New Technologies

  • Legal or regulatory requirements: Legal or regulatory requirements do not fully address the misuse of new technologies.
    • This may lead to vulnerabilities in the AML/CFT system.

Requirements for Foreign Branches and Subsidiaries

  • Strengthened requirements: Requirements need to be strengthened, especially as some Liechtenstein banks continue to expand their activities in other jurisdictions.
    • This will ensure that foreign branches and subsidiaries adhere to the same AML/CFT standards.

Customer Due Diligence

Identification Requirements

  • Provisions in line with international standard: Provisions regarding CDD are broadly in line with the international standard, but need to be strengthened further.
    • This will ensure that customers’ identities are accurately verified.

Verification of Customers’ and Beneficial Owners’ Identity

  • Requirements for identification: Requirements for identification of beneficial owners need to be broadened.
    • This will ensure that beneficial owners are properly identified and monitored.

Use of Intermediaries

  • Relying on intermediaries: Financial institutions may rely on domestic and foreign intermediaries to provide customer profile information and conduct ongoing monitoring.
    • This may lead to vulnerabilities in the AML/CFT system if not properly managed.

Supervision

FMA Supervision

  • Independent authority: The FMA is an independent authority responsible for prudential and AML/CFT supervision, as well as customer protection.
    • This ensures that the AML/CFT framework is effectively implemented and enforced.

Annual On-Site Due Diligence Examinations

  • External auditors: External auditors carry out annual on-site due diligence examinations under the mandate of the FMA.
    • This ensures that financial institutions are complying with AML/CFT regulations.