Financial Crime World

Title: Liechtenstein’s Anti-Money Laundering and Terrorist Financing Regime Under the Microscope

Date: September 11, 2022

The International Monetary Fund (IMF) recently evaluated Liechtenstein’s efforts in combating money laundering (ML) and terrorist financing (TF) through its financial sector and designated non-financial businesses and professions (DNFBPs) [1]. This assessment was conducted based on the FATF Recommendations and Nine Special Recommendations on Terrorist Financing. Let’s take a closer look at the key findings and recommendations of the assessment report.

Key Findings

  1. Challenges in the Financial Sector: Liechtenstein’s financial sector offers mainly wealth management services, including banking, trust, and investment management, with a majority of customers being non-residents [1]. This business model presents challenges in minimizing the risk of abuse of corporate vehicles and identifying the beneficial owners of underlying assets [1].
  2. Money Laundering Vulnerability: The country’s financial sector is notably vulnerable to money laundering, particularly in the layering phase [1]. No significant vulnerability to terrorist financing was identified [1].
  3. Progress Towards Compliance: Since Liechtenstein was classified as a noncooperative country by the Financial Action Task Force (FATF) in 2000 and subsequently delisted in 2001, the country has made progress towards complying with FATF Recommendations [1].
  4. Criminal Liability and FIU: Although Liechtenstein criminalizes ML and TF, there is no criminal liability for legal entities [1]. The Financial Intelligence Unit (FIU) operates effectively to analyze information, but the suspicious activity reporting system could involve measures to boost the number of reports and increase their effectiveness [1].
  5. Investigations and Prosecutions: Law enforcement investigations and prosecutions in ML and TF cases are mostly initiated through mutual legal assistance requests and FIU reports [1]. However, there is a tendency to transfer cases to the jurisdiction where the primary offense occurred [1]. The low number of autonomous money laundering prosecutions and convictions suggests that more cases should be handled domestically [1].
  1. Money Laundering and Terrorist Financing Criminalization: Money laundering (ML) and terror financing (TF) are criminalized broadly in Liechtenstein [1]. However, the definition of TF needs to be aligned with international standards [1].
  2. FIU Legal Powers: The FIU, a key player in identifying and investigating ML and TF, possesses legal powers to collect additional financial information from reporting entities [1].

Recommendations

  1. Strengthening the Suspicious Transaction Reporting System: Enhance cooperation between financial institutions, DNFBPs, and the FIU by strengthening the suspicious transaction reporting system [1].
  2. Improving Inspections and Audits: Increase the number and improve the quality of AML/CFT-related on-site inspections and audits [1].
  3. Better Law Enforcement Coordination: Foster stronger collaboration between law enforcement agencies and the FIU to better coordinate investigations and prosecutions [1].
  4. Regulatory Oversight of DNFBPs: Strengthen the legal framework and regulatory oversight of DNFBPs to ensure more comprehensive coverage and effective implementation of AML/CFT requirements [1].
  5. Public Awareness: Enhance public awareness of the risks and consequences of ML and TF to motivate increased reporting and cooperation with law enforcement and regulatory agencies [1].

[1] International Monetary Fund (2022). Assessment Mission on Anti-Money Laundering and Combating the Financing of Terrorism: Liechtenstein (Advance). Washington, DC: International Monetary Fund.