The Liechtenstein Bankers Association (LBA) has a press release on its website dated August 30th. It starts by saying
“To keep untaxed assets away from the financial centre Liechtenstein, the Liechtenstein banks have undertaken to apply uniform minimum standards with respect to the due diligence obligations for their customers’ tax compliance.”
and ends with
“The banks voluntarily impose this guideline upon themselves in terms of a common standard of practice for the banking centre.”
Below are some highlights from the guidelines; I’m not a tax expert by any measure but they look pretty weak to me.
The first section sets out the principles, and starts off by saying:
“It is the responsibility of customers rather than that of banks to ensure the proper taxation of assets and investment income held in Liechtenstein banks… Banks are therefore basically entitled to assume that customers meet their tax obligations and behave in conformity with the law.”
Principle 3 states:
” Where assets are managed or administered by a third-party regulated financial intermediary, the banks are basically entitled to assume that these financial intermediaries comply with their due diligence obligations. However, this does not absolve the banks from complying with the obligations that apply to them under this guideline.”
Section II has the title “Dealing with new customers”.
It lists 5 criteria which “allow banks (depending on their business activity) to identify an increased risk of dishonest tax behaviour”.
However, it then takes care to note that “In general, individual criteria do not alone constitute sufficient suspicion of dishonest tax behaviour” which may be setting the bar a little high given that the fifth criteria is “the bank is aware of criminal tax proceedings against the customer “.
Section II part 4 has the title “Risk-based approach to investigations” and includes a list of circumstances which “encourage an assessment” that there is a reduced risk or no risk at all of tax avoidance. These include:
– “the customer wishes to receive correspondence from the bank or year-end statements of accounts/securities accounts;
– the customer declares to the bank that tax has been duly paid on the assets or capital income to be transferred, or that the beneficial owner has confirmed to him that tax has been duly paid on the assets or capital income to be transferred;”
– “the customer chooses to preserve his anonymity in accordance with bilateral agreements on withholding tax and tax is deducted in accordance with the agreement.”
Unlike in the previous section, there is no requirement for more than one individual criteria to apply.
Section III, Dealing With New Money From Existing Customers, simply states:
“Each bank regulates the acceptance of new money from existing customers on the basis of its own risk-based approach.”
Skipping though sections on withholding tax and cash withdrawals to the last section on Implementation, we find that the secretariat of the LBA will require banks to “confirm in writing that the requirements indicated in this guideline have been implemented.”
The worst that can happen to a bank that doesn’t comply with this requirement is that the Board of the LBA will “inform the external auditor of the bank in question without delay”. However, “The Board may refrain from doing so in cases of minor importance.”
Voluntary standards are often implemented by industries or companies under external pressure, in order to try and avoid standards being imposed on them by others. Industries with no genuine interest in improvement will want to calibrate their voluntary standards so as minimize disruption to business while doing just enough to head off external regulation.
If this is the case for the Liechtenstein banks, based on these guidelines they don’t seem to be taking the threat of externally imposed standards too seriously at the moment.