Liechtenstein's trust industry argues there are only a few black sheep among its own. It blames money-hungry beneficiaries for most legal disputes. Noted British criminal lawyer Steven Kay puts this view to the test.
Too often the same pattern emerges: the settlors of a trust want to secure the financial future of their family and to do so are encouraged to use Liechtenstein’s trust structures. Then, despite fundamental breaches of trust, the Liechtenstein courts back the local trustees at the expense of the foreign client.
This has led amongst some trustees to a feeling of impunity – and I have witnessed it - that they can get away with whatever they want backed by the local courts. As a barrister in the field of international criminal law, I have now worked on several legal disputes based on the same problem.
Some Gaps Filled
Typically, a settlor thought a trust structure had been established aligned with their intentions. Despite the clarity of those intentions, subsequent events caused by disputes with their trustees, totally defeated their wishes. The absence of clear and transparent rules is obvious!
Amendments this year to Liechtenstein's trust laws attempted to fill some of the gaps, such as, conflicts of interest. However, Liechtenstein courts have rarely accepted a conflict of interest, plainly favouring the trustees and disregarding the trust relationship that is fundamental to the founder.
Flimsy Justifications, Rare Exceptions
Upon a flimsy justification, more transparency was not granted. In short, the obligation to inform the public exists only in very rare cases – or only when the damage is great.
The rights of the beneficiaries – especially essential rights of access to books – are still weak. Many beneficiaries (sometimes even the settlors themselves) watch their family trusts being emptied, either by decanting into another trust or structure, or into insolvency (as a recent case illustrates).
Fierce Fight Vs Reforms
This grossly disadvantaged legal position needs to be corrected. One might ask why were they ignored? Look at the opinions on the legislative process to know who fought most fiercely against ambitious reforms.
The amendments leave plenty of scope for rules to be interpreted in favour of impugned trustees and amounts to a multi-organ failure in trust governance. Although some of the changes – such as the shift in competence of the control mechanisms from the Professional Ethics Committee of Liechtenstein Trustees to the Financial Market Authority, or FMA – are a step in the right direction, the core of the problem lies somewhat deeper.
Tolerated In Trust Circles
For years, the spirit of impunity was tolerated in trust circles. The trust industry has been essentially self-regulating, and unaccountable, which does not work in any country in the world, including Liechtenstein.
It was only after the American vs Swiss dispute over banking secrecy and a number of high-profile «individual cases» that brought dynamism to a system whose last remnants are now in the Liechtenstein Chamber of Trustees.
The Princely House has long since realised that the future and business lies elsewhere, and so it is a rear-guard action that the trustees are fighting.
Without Trust, Industry Can't Deliver
The right thing to do now would be to show courage. Instead of big words and small deeds, we need independence of the authorities in the interests of settlors and beneficiaries.
This means full transparency vis-à-vis the FMA, clear corporate governance rules and better protection mechanisms for all concerned, in particular whistleblowers who want to come clean. Without trust, the system fails to deliver what it professes to supply.
Steven Kay QC is a British criminal lawyer and head of chambers at 9 Bedford Row, a London-based criminal law firm. He gained international stature in his defense of former Serbian leader and convicted war criminal Slobodan Milosevic. Kay's criminal defense specialities are international cases of fraud and corruption, through which he is well-known in Switzerland and Liechtenstein.
