Title: Liechtenstein’s Financial Crimes Risk Assessment: Identifying and Mitigating Money Laundering and Terrorist Financing Threats
Introduction
The Principality of Liechtenstein, known for its financial services sector, has been actively combating financial crimes such as money laundering and terrorist financing for several years. In an effort to enhance vigilance and risk management, Liechtenstein’s financial sector has adopted a more risk-based approach to tackling these illicit activities. The foundation of this strategy is the National Risk Assessment (NRA), which provides insights into the inherent risks and potential vulnerabilities within the industry, and guides market participants in implementing effective countermeasures.
Summary
Liechtenstein’s financial sector, like many others, is susceptible to the risks of money laundering and terrorist financing due to the inherent nature of financial services. Effectively combating these threats requires a clear understanding of the risks at a national level through a comprehensive National Risk Assessment. Based on the NRA, market participants can evaluate their specific risks and design targeted preventive measures.
Acknowledging Reality
“The first step in the risk management process is to acknowledge the reality of risk. Denial is a common tactic that substitutes deliberate ignorance for thoughtful planning.” - Charles Tremper
Executive Overview
Liechtenstein’s financial sector offers various services with inherent risks. Adopting more risk-based measures to combat money laundering and terrorist financing becomes essential. The NRA evaluates the risks associated with various sectors and products, as well as the defensive measures and operational capacities of the competent authorities, to facilitate risk-based decision-making and resource allocation.
Key Findings
The NRA suggests the following key findings:
- Specific business areas within the Liechtenstein financial sector, including private banking, financial consulting and planning (professional trustee sector), and the life insurance sector, are exposed to heightened risks.
- Cross-border transactions, international orientation, and specific sectors present significant challenges, increasing the financial center’s vulnerability.
- Predicate offenses, such as fraud, embezzlement/criminal breach of trust, and tax offenses, pose particular risks.
Current Countermeasures
Current measures to limit these risks include:
- Strict regulation
- Risk-based supervision
- Prudential supervision
- Improved dual supervision However, further improvements are necessary, particularly in:
- Assessment of cross-border risks
- Implementation of risk-based supervision
- Improvement of law enforcement and suspicious activity reports submission efficiency
Future Plans
Liechtenstein is taking steps to strengthen its stance against financial crimes. Some of these measures include:
- Introduction of automatic exchange of information
- Revisions to the Due Diligence Act
- Adoption of risk-based supervision An update to the National Risk Assessment is planned for 2019, providing a comprehensive analysis of current and emerging risks, and enabling targeted measures to mitigate them.