Financial Crime Investigative Techniques in Liechtenstein: A Call to Enhanced Scrutiny for US Banks and Financial Institutions

Warning Issued by FinCEN to US Financial Institutions

Washington D.C., July 2000 - The United States Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) has issued a warning to banks and financial institutions operating in the United States, advising them to exercise enhanced scrutiny over all financial transactions originating from or routed through Liechtenstein.

Systemic Problems in Liechtenstein’s Counter-Money Laundering Regime

According to FinCEN, Liechtenstein’s counter-money laundering regime is plagued by systemic problems, including:

• Inadequate Legislation: Weak laws and regulations make it difficult for authorities to effectively combat financial crime.
• Weak Supervisory Mechanisms: Insufficient supervision and oversight of banks and financial institutions increase the risk of money laundering and other financial crimes.
• Entrenched Culture of Bank Secrecy: The country’s commitment to bank secrecy creates a culture that prioritizes confidentiality over transparency, making it difficult for authorities to share information with foreign officials.

Challenges in Identifying and Avoiding Money Laundering Transactions

Liechtenstein’s banks are not required to verify the identity of customers introduced by lawyers, licensed trustee companies, or corporate agents, making it challenging for them to recognize or avoid money laundering transactions. Additionally:

• Lack of Effective Cooperation: The country’s authorities can only share information with foreign officials through a cumbersome judicial process, hindering effective cooperation in criminal investigations.
• Primary Service to Non-Resident Individuals and Entities: Liechtenstein’s financial sector primarily serves non-resident individuals and entities, increasing the risk of money laundering and other financial crimes.

FATF Classification

The Financial Action Task Force on Money Laundering (FATF) has identified Liechtenstein as non-cooperative in the fight against money laundering due to its deficiencies in combating financial crime. However:

• Willingness to Address Issues: The country has indicated a willingness to address these issues and has drafted legislative changes aimed at remedying the structural problems in its counter-money laundering system.

FinCEN Advisory

In light of these concerns, FinCEN is advising U.S. financial institutions to exercise enhanced scrutiny over all transactions originating from or routed through Liechtenstein, or involving entities organized or domiciled in the country. Specifically:

• Careful Examination Required: Institutions subject to suspicious transaction reporting rules should carefully examine available facts relating to such transactions to determine if they require reporting under applicable law.
• Technical Assistance Offered: FinCEN officials are standing ready to provide technical assistance to Liechtenstein authorities as they work to address the deficiencies in their counter-money laundering systems.

Conclusion

The issuance of this advisory does not imply that U.S. financial institutions should curtail legitimate business with Liechtenstein, but rather that they must take steps to ensure that their activities do not facilitate illegal financial transactions. By exercising enhanced scrutiny and following FinCEN’s guidelines, US banks and financial institutions can help prevent the misuse of the financial system for illegal purposes.