Княжество Лихтенштейн и Европейское сообщество
lir. iur HSG (St.Gallen) г-на Marcus Hutter, attorney-at-law, Lucern, 1996 (Fiduciary Business Seminar organised by STG-Coopers&Lybrand on 2122 November)
The Principality of Liechtenstein and the European Economic Area
On 13 December 1992, one week after Switzerland decided not to join the European Economic Area, a similar plebiscite held in Liechtenstein produced a positive verdict. Following the necessary changes to the relevant laws and modification of the Customs Treaty with Switzerland, a further (final) plebiscite was held on 9 April 1995 and Liechtenstein acceded to the EEA on 1 May of the same year, the electorate having been invited to make a decision with regard to the EEA Adjustment Protocols and the adaptation of the Customs Treaty with Switzerland.
The following paper considers the concrete effects of accession on Liechtenstein, presents an overview of the progress made in the implementation of EEA law in domestic legislation, and then takes a closer look at the effects on financial services, a field which is so important for the Liechtenstein economy, before closing with a brief outlook on possible further developments in Europe.
2. Liechtenstein after 1 May 1995 2.1 Customs Treaty and the EEA
The different results of the 1992 EEA plebiscites in Switzerland and Liechtenstein led to a situation in which Liechtenstein was set to become an integral part of two economic areas which were mutually incompatible, at least in part. With the modification of the 1923 Customs Treaty with Switzerland in 1995, Liechtenstein presented a solution under the motto «EEA plus Customs Treaty» that was unique in the field of economic policy, securing for the tiny state of Liechtenstein an independent position within the new Europe while maintaining the advantages that Liechtenstein had enjoyed hitherto through its close association with Switzerland.
Accession to the EEA meant in particular the introduction in Liechtenstein of the «acquis communautaire» with the four basic freedoms, namely
• free movement of goods
• free movement of persons
• free movement of services
• free movement of capital
In addition, membership in the EEA means protection of competition, collaboration in the areas of research and development, consumer protection, company law, etc.
With regard to the free movement of goods, Liechtenstein had to find a special solution as EEA law requires Liechtenstein to restrict trade to those goods that meet the relevant EEA standards, while the old customs treaty with Switzerland provided for those goods to be marketed that conformed to the Swiss regulations. The solution adopted involves the principle of the «Parallel Marketability of Goods», which means that on Liechtenstein territory all goods may be traded that are in compliance with either the EU or the Swiss standards. This principle, which is laid down in the Liechtenstein Marketability of Goods Act, permits the free circulation of goods that meet different product standards. This was the solution that permitted Liechtenstein to satisfy the frequently raised demand that the open border with Switzerland be maintained. One big advantage for Liechtensteins exporters is of course the fact that the EEAs country of origin regulations are more favourable for Liechtenstein than the provisions of the free trade agreement then in force between Switzerland and the EC/EU (which also applied to Liechtenstein). Today Liechtenstein is considered an EEA country of origin, and the Liechtenstein customs officials issue the all-important documentary evidence of origin for export goods.
To prevent evasion and illegal transit movements, Liechtenstein was called upon to establish a Customs Office, which has key monitoring functions in this sector. In particular its task is to ensure conformity with EEA regulations in the fields of customs, country of origin and transport, and at the same time to ensure that the parallel marketability of non-EEA goods is restricted to Liechtenstein territory. For that reason all imports into Liechtenstein have to be inspected by the Customs Office.
According to a report recently published by the Liechtenstein government on the countrys initial experience with the EEA, the principle of parallel marketability has not so far led to any significant problems in practice.
2.2 Economic effects of the EEA Treaty
Twelve months after Liechtensteins formal accession to the European Economic Area, the government polled the various sectors of trade and industry for their impressions. The feedback revealed a number of immediate advantages for the trade sector, including the fact that Liechtenstein nationals can now offer their services across the border in Austria, and that there is no more discrimination against Liechtenstein hauliers in countries of the EEA. The Liechtenstein Hauliers Association was concerned about some apparent teething problems with the Euro-licence, the European standard tachograph, and the Austrian system of eco-points for heavy goods vehicles. For the Liechtenstein labour force, the EEA has had a number of direct effects in the fields of co-determination and the principle of the general application of collective agreements, while engineers and architects are directly affected by the new regulations relating to public procurement for construction works, and supply and service contracts. The effects on such key service sectors as banking, insurance, lawyers, trustees and chartered accountants are dealt with later (3.3, 3.4).
2.3 Progress to date in the implementation of EEA legislation a) General
The implementation of the relevant EEA legislation into Liechtenstein law represents a huge challenge for such a small country, and the results achieved to date are impressive. The following is a selection of the legislation already enacted.
Laws (a selection)
• Customs Law of 22 March 1 995
• Marketability of Goods Act of 22 March 1995
• Amendments to the laws governing patent agents, trustees, lawyers, chartered accountants and auditors enacted on 23 March 1995
• Insurance Supervisory Law of 6 December 1 995
• Amendment to the Liechtenstein Criminal Code enacted on 21 March 1996, which came into force on 24 May 1996, relating to the introduction of pro visions for the restitution of unjustified enrichment, money laundering and insider trading
• Amendment to the Law on Banks and Finance Companies (Banking Act) enacted on 21 March 1996 relating to reporting rights and duties where there is a strong suspicion of criminal acts under § 165 Banking Act (money laundering) or § 278a Criminal Code (criminal organisation)
• Law of 22 May 1 996 relating to professional due diligence when accepting assets (Due Diligence Act)
• Law of 22 May 1 996 relating to the implementation of the EEA rules of competition
• Law of 3 May 1996 relating to Investment Undertakings and amendment to the Liechtenstein Tax Law enacted on 3 May 1996 relating to coupon tax (in force since 10 July 1996)
• Telecommunications Act of 20 June 1 996 (in force since 30 August 1 996)
• Law of 30 October 1996 relating to the disclosure of significant interests in listed companies (Disclosure Act)
• Law of 1 2 December 1996 relating to the protection of brands and indications of origin (Brand Protection Act)
Ordinances (a selection)
• Ordinance of 2 July 1996 passed under the Investment Untertakings Act
• Ordinances of 18 April 1995 and 23 May 1995 relating to the limitation of the number of aliens in the Principality of Liechtenstein
• Ordinance of 1 8 April 1 995 relating to the free movement of persons within the EEA
• Ordinance of 25 April 1995 relating to the Liechtenstein Customs Office
• Ordinance of 25 April 1 995 relating to the country of origin principle
• Ordinances of 3 October 1995 relating to a qualifying examination for lawyers, chartered accountants and trustees from the European Economic Area
• Ordinance of 1 8 February 1997 passed under the Due Diligence Act
In addition, good progress has already been made with the preparations for other significant legislation:
• Law relating to public procurement (bill now submitted to interested bodies for comment prior to enactment)
• Law relating to the production, monitoring and dissemination of prospectuses for securities on public offer (Prospectus Act, in preparation)
• Amendment to the Persons and Companies Act (implementation of the EU directives)
All EEA regulations in force in Liechtenstein are contained in the collection of EEA law published by the EEA Office of the Government of the Principality of Liechtenstein.
b) Movement of goods
The EEA is not a customs union; it is merely a free trade area. Its legal basis is to be found in the law of 22 March 1995 governing the marketability of goods and related ordinances (to prevent evasive circulation of goods that are permitted in the EEA but not in Switzerland) and the Customs Law of 22 March 1995 governing customs regulations relating to Liechtensteins accession to the EEA while maintaining the Customs Treaty with Switzerland. In this context, consumers and businesses in Liechtenstein can normally purchase goods direct from the producer in an EEA country even where the producer has a sole agent in Switzerland.
c) Freedom of movement and establishment
For such a small country as Liechtenstein the principle of free movement of persons is obviously a delicate subject. In this context the EEA Council granted significant concessions to Liechtenstein in the form of transitional periods, review clauses and protective clauses.
The basic aim is to be able to continue to control the numbers of EEA citizens seeking to establish residence in Liechtenstein.
The free movement of persons is based on two principles, namely the mobility of labour and the right of establishment. On the basis of the EEA treaty, EEA citizens enjoy the following rights in Liechtenstein:
• Automatic renewal of seasonal work permits
• The right for residence permit holders to have their family join them
• Free access to professional activities for self-employed persons resident in Liechtenstein
• Equal status under Liechtenstein labour law for EEA and Liechtenstein nationals
• Right of residence
• Five-year permits
Restrictions continue to apply until 1 January 1997 on the business, professional and other activities of self-employed persons resident abroad. Liechtenstein has also been permitted to impose a limitation until 1 January 1998 with regard to EEA citizens taking up residence in the country (mobility of labour, freedom of establishment of self-employed persons including cross-border commuters). Similar provisions apply to employees from EEA countries wishing to change their occupation or the sector in which they are employed. Nationals of EEA countries who were already resident in the Principality of Liechtenstein, however, have not been subject to any restrictions since the EEA treaty came into effect.
In the long term it is the Governments intention to develop an aliens policy that is commensurate with Liechtensteins situation as a small state and consonant with the countrys legitimate interests in this area.
2. Status of Swiss nationals
The rights of Swiss nationals to take up residence in the Principality of Liechtenstein were laid down in the Establishment Treaty signed with Switzerland on 6 July 1 874. Additional provisions are to be found in the treaty signed on 6 November 1964 by the Principality of Liechtenstein and Switzerland on the application of aliens legislation to nationals of the respective signatory states. Pursuant to this treaty Swiss nationals are entitled to receive a residence permit for the Principality of Liechtenstein regardless of whether residence is required for purposes of gainful employment or not. However, some of the provisions of this regulation were suspended indefinitely in 1981 for the purpose of meeting the declared goal of maintaining a reasonable balance between Liechtenstein nationals and aliens resident in the country (cf. diplomatic notes exchanged on 19 October 1981, Liechtenstein Law Gazette LGBl. 1981 no. 49). The status of cross-border commuters from Switzerland was not affected by this suspension, i.e. they remain entitled to seek gainful employment in Liechtenstein without requiring a permit from the Aliens Police. The granting of trade and business licences to cross-border commuters is not subject to this regulation.
Since the EEA Treaty came into force in Liechtenstein, Swiss nationals have not enjoyed the same legal status as EEA nationals with regard to the free movement of persons, but they do enjoy considerably better status than nationals of non-EEA countries.
Swiss citizens also have a special position with regard to a Joint Declaration on equality of treatment in which the two countries commit themselves to examine all ways of achieving equality of treatment on a mutual basis for their respective nationals and legal persons within the framework of any subsequent liberalisation of the relevant regulations introduced by Liechtenstein on completion of the transitional periods provided for in the EEA Treaty or as a consequence of further developments in EEA law. This will result in gradual equality of treatment as between Swiss nationals and nationals of EEA countries, although equality of treatment for trustees, lawyers and chartered accountants is expressly excluded.
d) Freedom of movement of capital
With reference to the freedom of movement of capital, a transitional period until 1 January 1997 was agreed for direct investments and until 1 January 1 999 for investments in real estate.
e) Recognition of professional qualifications
The first effect of the principle of the mutual recognition of professional and vocational qualifications was the decision taken with regard to self-employed persons to recognise examination certificates and diplomas submitted by dentists, lawyers, and persons engaged in a trade or business who were already domiciled in Liechtenstein. Formal implementation into Liechtenstein law of the Diploma Recognition Directive has not yet been effected, however.
f) Public procurement
The Liechtenstein Government is in the process of enacting legislation on public procurement in order to implement the relevant provisions of the EEA Treaty (bill now submitted to interested bodies for comment prior to enactment). In order to avoid discrimination against Swiss suppliers, especially in areas close to the Swiss-Liechtenstein border, the representatives of the two countries formulated a Joint Declaration in 1994 in which the two states undertake to provide access to their respective markets on a mutual basis and according to the principles of most-favoured nation and non-discrimination.
The main innovation here is the introduction of a licence for cross-border goods haulage which is valid for a period of five years and replaces the complicated approvals procedures for individual countries operated hitherto. The one big exception in this context is Austria, where the Euro-licence is not yet in force because of that countrys Transit Agreement with the EU.
h) Consumer protection
In the EEA Treaty, Liechtenstein agreed to adopt several EU directives and recommendations from the «acquis communautaire» in 1992 already and has now established a modern body of law for consumer protection, in particular concerning the strengthening of the position of the consumer in the fields of package holidays, unfair competition, product liability (strict liability), consumer credit, door-to-door dealings, etc.
Liechtenstein has undertaken to implement EEA legislation in other relevant areas, too, and the country will also benefit from liberalisation in Europe with reference to research and development, education and youth, social security, and equal rights for men and women.
3. Effects on financial services 3.7 Banks, investment funds, etc.
Apart from a potential increase in competition on the domestic market, the liberalisation of banking in Liechtenstein gives the countrys financial institutions full and equal access to all European centres of finance and thus to a much larger market. At the same time it has been possible to maintain the framework within which Liechtensteins finance houses have operated hitherto, including the special relationship with Switzerland.
Most of the EU directives relating to banking were implemented in Liechtenstein when the Banking Act came into force on 1 January 1993. With regard to the iberalisation of financial services it must be said that the introduction of the freedom of establishment for banks, insurance companies, investment funds and other financial institutions is a big change indeed. For the remaining adjustments, a transitional period was granted until 1 January 1997. After that the Banking Act must be amended to provide for the application of the single-licence principle, on the basis of which banks established in other EEA countries must also be permitted to establish a place of business in Liechtenstein. The paragraph of the Banking Act which at present provides for banking licences to be issued by Parliament is contrary to EEA law and must be repealed.
In addition, the home-country principle applies to the banking sector in the EEA, so that Liechtenstein branches of banks from within the EEA are subject to the supervisory authority of their home country.
A further transitional period was also granted for the implementation of the «acquis communautaire» in the case of consolidated annual accounts. Accounting rules pursuant to the EU Bank Accounting Directive differ from the Swiss system hitherto applied in Liechtenstein with regard to the creation of hidden reserves, the annexe to the annual financial statements (cash flow statement, interim financial statements), and the treatment of off-balance sheet transactions. With regard to the Swiss Central Banks reporting requirements for Liechtenstein banks, the aim is to find a solution that meets both Swiss and EU accounting requirements.
As far as investment funds are concerned, the relevant directive has been implemented into Liechtenstein law in the form of a new Investment Undertakings Act.
3.2 Investment undertakings a) Principles
The new Investment Undertakings Act of 3 May 1996, which came into force on 10 July 1996, offers a modern framework for establishing Liechtenstein as a major investment fund marketplace. In its report and submission to Parliament, the Government of the Principality of Liechtenstein defined the legislative goals as follows:
• to enhance Liechtensteins attractiveness as a centre of finance at an international level through an increased range of investment options,
• to make and keep Liechtenstein competitive within the European investment market,
• to provide all information required to achieve a modern standard of investment protection,
• to adapt the law in line with the European directive, and
• to replace the obsolete law on investment companies, investment trusts and investment funds.
The Investment Undertakings Act defines the organisational structure and the sphere of business of investment undertakings. It is designed primarily to protect investors and also to maintain confidence in Liechtensteins finance and credit system.
Pursuant to Article 2 paragraph 1, the activities of investment undertakings relate to «assets which, on the basis of public advertising, are raised from the general public for the purpose of collective investment and are invested and managed for the joint account of the unit-holders as a rule according to the principle of risk-spreading.» Thus the scope of the law extends to investment funds that are available to the general public. Special internal funds held by banks or finance companies are not subject to the Investment Undertakings Act as long as the advertising is restricted to existing customers. Under the Liechtenstein law, an undertaking can be either an investment fund (with the legal form of a trust) or an investment company (with the legal form of a company limited by shares [Aktiengesellschaft]). Unlike Swiss investment funds law, the Liechtenstein system provides not only for investment funds on a contractual basis but also for investment undertakings having an incorporated structure. In addition, Liechtenstein is the only continental European country that can offer investment funds on the basis of a trust.
Depending on the type of investment involved, a distinction is made in Liechtenstein between investment undertakings for securities, investment undertakings for other assets, and those for real estate. In all cases the investment undertakings must have a separate fund manager and a custodian bank, both of which are there to protect the interests of the investors. The fund manager and custodian bank must themselves be separate entities.
Liechtensteins high level of investment protection is reflected in the licensing requirement for an investment undertaking, in the rules governing their business operations, and in the mandatory requirement to publish their regulations, a prospectus and an annual report, and also to have their business activities scrutinised by an external auditor. The implementing regulations relating to the Investment Undertakings Act were published in the Ordinance of 2 July 1 996.
With regard to capital tax, which is levied annually, investment undertakings are on a par with Liechtensteins off-shore companies. The tax is 0.1% of invested capital plus reserves up to CHF 2 million, with a reduced rate of 0.04 % levied on invested capital plus reserves over CHF 2 million.
In addition, investment undertakings are charged an annual supervision fee of CHF 2,000. In the case of «segmented» undertakings there is an extra charge for each additional segment of CHF 500 up to a maximum of CHF 10,000. The surtax on investment undertakings is 0.03 % of gross yield. The licence fee for investment undertakings costs CHF 5,000, and CHF 10,000 for «segmented» investment undertakings.
3.3 Insurance companies
On 1 January 1 996 the Insurance Supervisory Law enacted to implement all three EU directives on insurance came into effect.
Following Liechtensteins accession to the EEA and on the basis of the Insurance Supervisory Law, Liechtenstein insurance companies now enjoy freedom of establishment and freedom to provide services. They are entitled to establish branches and agencies in all countries of the EEA, and within the EEA they can conduct insurance business unhindered by national borders. To do business throughout the EEA a Liechtenstein insurance company now requires a single licence, which gives access to what is currently the largest combined insurance market.
The Insurance Supervisory Law is designed to protect policyholders and regulates the organisational structure and functions of the insurance supervisory authority. All companies operating in the fields of direct insurance and reinsurance are subject to the supervisory authority, the only exception being reinsurance companies headquartered abroad that are active exclusively in the reinsurance sector in Liechtenstein.
Any insurance company wishing to do business in Liechtenstein requires a licence from the Government, with the exception of companies headquartered in a member country of the EEA that meet the special requirements for the freedom of establishment and the freedom to provide services. The requisite minimum capital for an insurance company is determined by the supervisory authority and is currently CHF 500,000.
On the basis of EEA regulations, the Insurance Supervisory Law governs cross-border insurance business conducted via a branch office established in another EEA country. In keeping with the principle of home country control, it is incumbent on the authorities in the country of incorporation to supervise the activities of all that countrys insurance companies throughout the EEA. It is therefore the task of the Liechtenstein supervisory authority to monitor the activities abroad of Liechtenstein insurance companies.
According to the principle of reciprocity, insurance companies incorporated in another state party to the EEA Treaty are also entitled to establish a branch office in Liechtenstein and to conduct cross-border business. In such cases certain certificates issued by the supervisory authority in the country of incorporation must be submitted to the Liechtenstein authority.
Insurance companies headquartered in a non-EEA country require a licence in order to transact insurance business in Liechtenstein and they must also establish an agency or branch office.
There is considerable interest in Liechtenstein as an insurance marketplace. Shortly after accession to the EEA, the first Liechtenstein insurance companies were established in the indemnity insurance sector, and the first licence applications have since been lodged for life insurance, reinsurance and captive insurance companies.
In the field of insurance the relationship between Switzerland and Liechtenstein involves a number of open questions following the latters accession to the EEA, which it is aimed to resolve by way of state treaty.
The measures introduced to liberalise the insurance market will of course lead to increased competition in the field as insurance companies from other EEA countries establish a presence in Liechtenstein.
3.4 Lawyers, trustees, chartered accountants
Before the EEA Treaty came into force the necessary changes had already been made to bring Liechtensteins laws relating to lawyers, patent attorneys, chartered accountants and trustees into line with EEA legislation. In spite of the provisions introduced for the recognition in principle of academic qualifications obtained in other EEA countries, lawyers, trustees and chartered accountants from those countries are still required under Liechtenstein law to pass a qualifying examination before they may establish a place of business in Liechtenstein, with the details set out in the respective examination regulations. As per 1 January 1 997, however, lawyers whose offices are located in an EEA country can offer cross-border legal services in Liechtenstein.
3.5 Duty of care and money laundering
Liechtensteins accession to the EEA has also led to the introduction of measures targeted at illegally acquired funds. Unlike Switzerland, Liechtenstein has detailed legal provisions relating to due diligence when accepting assets. The Liechtenstein Criminal Code now also includes provisions dealing with money laundering, insider trading and the confiscation of assets obtained through criminal acts.
3.5.7. Due Diligence Law
Liechtensteins Due Diligence Law of 22 May 1996 governs not only the identification of the contracting party and the determination of the beneficially interested persons but also the necessary documentation requirements and the monitoring and supervisory functions of the bank supervisory authority. The Due Diligence Law, which comes into force on 1 January 1997, contains penal provisions and administrative sanctions. Detailed implementing provisions are contained in the related Ordinance of 18 February 1997.
One of the central pillars of the new law is the extension of the group of professions bound by professional secrecy. In addition to banks and related institutions, trust companies, lawyers, insurance companies, investment undertakings etc. also have a duty to be diligent when accepting third-party assets.
b) Identification of the contracting party and beneficiary
When establishing a business relationship, professionals under a duty of secrecy have a legal obligation to identify the contracting parties with the help of an official document (for cash transactions in excess of CHF 25,000). In addition to the contracting partner proper, identification is also required of the person who contributes assets to the legal entity or trust. This requirement applies in particular when the contracting partner is a foreign bank, trust company, auditing company or lawyer not affiliated to a recognised professional organisation. In addition, when establishing a business relationship, there is also a legal obligation «to establish the beneficially interested person and to record the name and address on file».
There are certain exceptions to the requirement for formal identification of the contracting party and the beneficiary. Where the contracting party is personally known, for example, presentation of an official document for identification purposes is not necessary. The requirement to establish the identity of the beneficiary can also be waived in the case of dealings between persons who are themselves subject to a duty of care under Liechtenstein law as professionals under a duty of secrecy. Foreign professionals under a duty of secrecy, however, do not enjoy this privilege and have a legal obligation to communicate the identity of the beneficiary to the Liechtenstein professional under a duty of secrecy (with the exception of interbank transactions). This means that where a Liechtenstein trustee opens an account with a bank on behalf of a legal person, either as its transacted legal representative (e.g. pursuant to a power of attorney) or as a member of its governing body (e.g. as a member of the foundation board), the bank is not required to identify the beneficiary of the assets involved. In such a case the duty of identification applies to the trustee. This arrangement corresponds to the old Swiss system (Form «B») pursuant to the Due Diligence Convention (VSB).
Notwithstanding these rules, persons to whom the Liechtenstein Due Diligence Law applies have a duty to seek further clarification, especially in cases where there is a strong suspicion of money laundering.
Random checks will be carried out by the Liechtenstein Office of Banking Supervision to monitor observance of the provisions of the Due Diligence Law, and especially the requirements relating to the documenting of contracting parties and beneficiaries.
d) Reporting requirements
Article 9 of the Due Diligence Law contains a controversial approach to reporting requirements. Where a strong suspicion of money laundering cannot be dispelled after thorough attempts to achieve clarification, Article 9 provides for notification to be made to the bank supervisory authority, who will take special measures, as a rule within five working days and within eight working days at the latest, such as blocking the accounts concerned for up to four weeks. Until instructions have been received from the Office of Banking Supervision or until eight working days have elapsed without such instructions being received, the assets concerned must be frozen without notice being given. It should be remembered, however, that these measures are only permissible in the case of a strong suspicion of money laundering. In addition to this duty of notification there is also a right of notification to the Liechtenstein Department of Public Prosecutions.
In general it can be said that the changes made to the Criminal Code with regard to money laundering serve to preserve the respectability of Liechtenstein as a financial centre. The spread and globalisation of organised crime in particular (e.g. drug trafficking) requires an appropriate response under criminal law.
3.5.2. Money laundering
The amendment to the Liechtenstein Criminal Code of 21 March 1996, which came into force on 24 May 1996, governs the restitution of unjustified enrichment and provides for penal sanctions in cases of money laundering and insider trading. To that extent the Liechtenstein Criminal Code now implements the EU directive on money laundering, thus making an effective extension to Liechtensteins laws regarding financial crime.
Under the Liechtenstein Criminal Code money laundering is a punishable offence. Pursuant to § 1 65 a penalty of up to two years in prison or a proportional fine of up to 360 times the statutory daily rate shall be imposed on persons, «who conceal assets or seek to conceal the origins of assets exceeding CHF 15,000 in value which derive from a crime committed by a third party, in particular by making false statements about the source of such assets in the context of legal transactions or about the true nature of such assets, including such aspects as ownership or other titles to them, rights of disposition, assignment or their physical location.»
It is also a punishable offence «to knowingly take possession or custody of such assets whether for the purpose of their safe-keeping, investment or management, or to convert such assets, exploit them or transfer them to a third party.» Under the Liechtenstein Criminal Code, a crime is an offence that is punishable with a term in prison of more than three years. This applies to offences against property involving very significant damage (serious fraud, embezzlement under aggravating circumstances, fraudulent bankruptcy, or breach of fiduciary duty under aggravating circumstances). Offences against Liechtenstein tax laws are not classified as crimes but merely as misdemeanours. To that extent they cannot be made the subject of a charge of money laundering.
3.5.3. Insider trading
The new § 122a of the Liechtenstein Criminal Code of 21 March 1996, which came into force on 24 May 1996, makes insider trading (abuse of a trade or business secret for the purpose of dishonest stock exchange dealings) a punishable offence. Persons with insider status who exploit confidential information that relates specifically to securities and could have a significant influence on the price of those securities if made public, with the intention of obtain-ing a pecuniary advantage for themselves or a third party, shall be punished with up to two years in prison or a proportional fine of up to 360 times the daily rate. For information to be classified as insider knowledge it must above all (still) be «confidential», i.e. available only to a very limited number of persons. The principle of equal treatment in business dealings requires that insider information should not be exploited in trading with the aim of deriving a financial benefit for oneself or for a third party.
Apart from the insider in the narrower sense of the term, i.e. the so-called «primary insider», other persons («secondary insiders») may also be involved in illegal insider trading. Secondary insiders are people who knowingly make use of insider information which they have discovered or which has been communicated to them and may derive directly or indirectly from an insider. Basically, secondary insiders are people who receive price-relevant information from primary insiders, and it is a punishable offence to exploit such information. The penalty for secondary insider trading can be up to two years in prison or a proportional fine of up to 360 times the daily rate.
3.5.4. Restitution of unjustified enrichment
I he new provision in the Liechtenstein Criminal Code for the restitution of unjustified enrichment is designed to ensure that offenders derive no financial gain from their criminal acts. Profits based on unlawful transactions can now be confiscated by the criminal investigation authority where the unjustified enrichment relates to a sum in excess of CHF 1 50,000.
4. Implementation of EU directives in company law
Implementation of the new directives relating to company law represents a major legislative task for Liechtenstein in a field that is of fundamental importance for a centre of financial services.
For that reason the Liechtenstein Government had the relevant preliminary studies carried out and clarifications made prior to signing the EEA Treaty. The findings produced show that those types of companies in partnership and company law that are so common in Liechtenstein, e.g. the establishment («Anstalt»), foundation, trust and trust company are no more affected by the EU directives than by taxation, and that the required changes in partnership and company law are restricted to the «Aktiengesellschaft» (joint stock corporation), «Kommandi-taktiengesellschaft» (commercial partnership limited by shares) and the «Gesellschaft mit beschrankter Haftung (GmbHJ» (unlisted limited liability company).
In accordance with the EEA Treaty the EU directives have to be incorporated into Liechtenstein legislation by 1 January 1997.
1 st directive: Major Shareholding Directive
This directive concerns the AG («Aktiengesellschaft»), KGaA («Kommanditge-sellschaft auf Aktien») and the GmbH («Gesellschaft mit beschrankter Haftung»). It relates to the minimum information requirement for the Commercial Register and to rules concerning nullity.
2nd directive: Minimum Capital Directive
The directive only concerns the AG. Its provisions relate to the maintenance, increase and reduction of corporate capital (ECU 25,000 minimum capital), the prohibition on a corporation acquiring its own shares including the case where the acquisition is made by a controlled company, and the requirement of equal treatment for shareholders.
3rd directive: Mergers Directive
This directive also concerns the AG alone. It governs the subject of national mergers. The directive is designed to ensure timely and full information for the shareholders involved and the general public.
4th directive: Accounting Directive
This directive concerns the AG, KGaA and GmbH. Its provisions relate to valuation rules, the balance sheet annexe, annual report, disclosure and the balance sheet audit. There are exceptions and reduced requirements for small companies up to the following thresholds:
Balance sheet total ECU 2.5 million
Turnover ECU 5 million
Head count 50 employees
As long as two of these thresholds are not exceeded, the company is permitted to draw up a simplified balance sheet.
The category of the medium-size company is applied in cases where two of the following three thresholds are not exceeded:
Balance sheet total ECU 1 0 million
Turnover ECU 20 million
Head count 250 employees
Such medium-size companies are permitted to combine certain balance-sheet items (especially gross yield and gross expenditure).
6th directive: Division of Companies Directive
This directive concerns the AG only. It governs the break-up of a corporation as a result of a take-over or incorporation
7th directive: Consolidated Balance Sheet Directive
This directive concerns the AG, KGaA, GmbH, and GmbH & Co. KG. It relates to the subject of the fourth directive and includes provisions for a mandatory consolidated balance sheet for groups of companies and recognition of the consolidated financial statements in other countries of the EEA. Parent companies headquartered in non-EEA countries are exempt from the partial consolidation requirement if their consolidated financial statements are prepared in line with the provisions of the EU directive.
8th directive: Auditor Qualifications Directive
The directive affects all auditors working in the field of statutory audits and governs their training and licensing. Small companies can be granted exemption from the mandatory audit requirement. This means that the standards for auditors for small companies (pursuant to the fourth directive) need not be so high. It is only for auditors working with major corporations that an academic qualification plus three years experience in the field is required. For auditors who qualified in their profession before the EEA legislation took effect, the directive includes the provision that their status remain unchanged (principle of non-impairment). The other countries of the EEA, however, are required to recognise auditors who do not have the qualifications as defined in the directive. Basically the eighth directive was implemented in the framework of the Auditors and Certified Accountants Law of 9 December 1992, Liechtenstein Law Gazette LGBI. 1993 no. 44.
11th directive: Branch Establishment Directive
This directive concerns the AG, KGaA and GmbH. It provides for the disclosure of certain documents and information when a company wishes to establish a branch in another country of the EU or EEA (in combination with the first directive).
12th directive: One-man GmbH Directive
This directive concerns only the GmbH. The directive represents official recognition of the one-man corporation and provides for this feature to be recorded in the Commercial Register.
In principle future developments in EU company law are also to be incorporated in Liechtenstein legislation. In this context the EFTA countries have been accorded the right of collective opting-out. An EU directive that is to be accepted by all EEA countries would accordingly have to be approved by all EFTA countries, too. To date the EU has submitted the following proposals for new directives which are being practically completely blocked at present with the exception of the proposal made for public take-over bids.
Further proposal relating to a fifth directive (structure of the AG or joint stock corporation! Concerns the AG. The directive could not be approved because it contains controversial provisions relating to co-determination of labour.
Proposal for a tenth directive (international mergers) Concerns the AG.
New proposal for a thirteenth directive (public take-over bids) Concerns the AG and KGaA.
Proposal for an ordinance relating to the articles of incorporation for a European Stock Corporation (Societas Europea). The proposal has so far failed to gain acceptance because of its provisions for co-determination of labour. Proposals for a European Co-operative, a European Association, and a European Mutual Association are also pending.
b) Effects on Liechtenstein
The accounting rules incorporated in Liechtenstein partnership and company law need to be revised to take account of the following provisions in particular:
• Disclosure of balance sheet and profit and loss account, greater degree of detail in the balance sheet and profit and loss account, ban on the arbitrary creation of hidden reserves, accounting procedures based on the true and fair view principle, and an end to restrictions on the transferability of registered shares on the basis of nationality.
• Legislation on lawyers and trustees must include more stringent requirements with regard to the qualifications of auditors of major corporations. Auditors already working in this field will not be affected by the stricter qualification provisions.
• The directives do not affect the legal forms of companies that are special to Liechtenstein, i.e. the private law establishment («Anstalt»), the trust enterprise («Treuunternehmen») and the foundation («Stiftung»).
• In many fields the directives permit less stringent rules to be applied to small and medium-size companies.
c) Progress in implementation
A general transition period up to 1 January 1997 was granted for the implementation of all directives in Liechtenstein partnership and company law, but this deadline can no longer be adhered to.
5. Liechtensteins continued locational advantages
Liechtensteins accession to the EEA involves significant changes in the long term with reference to the four freedoms contained in the acquis communau-taire. The EEA Treaty provides for a dynamic law-making process as new ordinances, directives, recommendations and also the rulings of the European Court of Justice continue to affect all sectors covered by the Treaty. Those aspects of the financial services sector that have hitherto been seen as substantial locational advantages for Liechtenstein remain largely unaffected by the EEA Treaty, namely:
• the special legal forms of companies, i.e. the family foundation, the establishment, the trust enterprise and the trust,
• the tax privileges enjoyed by such companies as well as by what are called harmonised companies such as the AG, KommAG and GmbH,
• retention of the open border with Switzerland and Liechtensteins continued integration in the Swiss economic area through the «EEA plus Customs Treaty» approach,
• retention of stringent banking secrecy rules and thus the special duty of diligence for Liechtenstein trustees and lawyers, whose due diligence declaration results in an exemption from the mandatory requirement to disclose the beneficiary when opening an account with a Liechtenstein bank,
• the absence of double taxation agreements and of the corresponding duty of disclosure towards foreign taxation authorities, as well as of enforcement treaties for court orders with third countries (Switzerland and Austria excepted). In principle legal assistance is only provided in the case of offences covered by the Criminal Law Code pursuant to the European Convention on Mutual Assistance in Criminal Matters. This does not apply to tax evasion and fiscal fraud, or breaches of foreign exchange or customs regulations.
Accession to the EEA has presented Liechtenstein with a considerable challenge, and within just two years an impressive body of legislation has been implemented. The «EEA plus Customs Treaty» principle has permitted an optimum result to be achieved, and Liechtensteins autonomous position means that the country is now well equipped for future developments, including the possibility of formal links being established between Switzerland and the EU. Major impacts arising from the new situation are not likely to be felt directly until the various transition periods have expired. In the financial services sector Liechtenstein has hitherto practised a successful niche strategy and will be at pains to maintain its present position by preserving the above-mentioned locational advantages. Membership in the EEA and implementation of the EU directives have doubtless enhanced Liechtensteins international prestige, all the more so as the incorporation of the provisions of EEA law also represents an effective tool in the fight against illegal funds.