Liechtenstein to lift some bank secrecy over tax

By Emma Thomasson

ZURICH (Reuters) - Liechtenstein bowed to international pressure on Friday to lift some of the veil of secrecy on its banks and make it harder for wealthy foreigners to hide money there after a German scandal over tax dodgers.

Prince Alois von und zu Liechtenstein, the head of the tiny Alpine state nestled between Austria and Switzerland, did not say how much it would cooperate with countries who seek information about their residents who invest in the state.

But he said reform was needed to give bank customers more legal security and to reduce the potential for abuse of the financial sector, saying the principality would find "sensible solutions" for existing customers when it exchanges information.

In a national day speech, he said the principality could no longer rely on its renowned banking secrecy and political stability for the future success of its financial sector and said it needed to do more to develop "onshore" banking.

"Despite new cooperation in the taxation area, we will still be able to differentiate ourselves enough from other financial centers in future," he said, adding that customers still valued the state's strong culture of respecting individuals' privacy.

Liechtenstein bank insiders have suggested one possibility could be some kind of amnesty for long-standing clients.

Earlier this year, Germany began one of its biggest ever investigations into suspected tax dodging, forcing the resignation of one of the country's top business leaders, mail group Deutsche Post Chief Executive Klaus Zumwinkel.

The probe targeted 1,000 people suspected of parking money in Liechtenstein banks and involved raids on homes and offices across Germany. It also drew in other European countries, fuelling calls for a crackdown on tax havens.

Back then, Prince Alois defended Liechtenstein's banking secrecy rules and accused Germany of illegally acquiring secret bank data by purchasing information on suspected tax dodgers from an informant the principality views as a criminal.

EUROPEAN PRESSURE

Following the tax evasion scandal, Germany persuaded the European Union to speed up a review of the bloc's rules used to avoid tax on savings. Germany's finance ministry said it had taken note of the prince's speech but had no further comment.

Last week, German authorities said they received bank account data on more than 1,800 people that could give fresh impetus to their pursuit of tax dodgers in Liechtenstein.

Liechtenstein, a country of 35,000 residents whose economy is heavily dependent on the financial sector, is one of only three countries on the Organization for Economic Cooperation and Development's (OECD) blacklist of uncooperative tax havens, alongside Andorra and Monaco.

It is home to private banks and scores of wealth managers who offer discreet banking services for international clients.

The German investigation prompted withdrawals from Liechtenstein banks, hurt banking shares in Liechtenstein and also hit the rating of LGT, a private bank owned by Prince Alois's family.

The Financial Times reported on Friday that one measure on the table was an offer to hand over information about undeclared accounts provided clients did not suffer excessive penalties.

Under such a scheme, account holders would be told their details were to be made available, giving them time to transfer their money elsewhere, it said.

"We will not give up bank secrecy," Liechtenstein Prime Minister Otmar Hasler told the Financial Times. "But we are willing to collaborate with other nations when it comes to the misuse of bank secrecy laws for tax evasion."

(Editing by Louise Ireland/Simon Jessop)

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