For almost 90 years, Allgemeines Treuunternehmen (ATU), one of Liechtenstein’s first and leading trust companies has been developing tailored wealth management and business solutions on behalf of families and investors across the globe. ATU’s advisory services focus on structuring, protection and investment of assets, along with inheritance and succession planning. The IFC Review spoke with Roger Frick, a member of the board at ATU to get an up-to-date understanding of the developments currently impacting financial services in Liechtenstein. We also delve into what sets this IFC apart from its competitors and include a special focus on trusts.
IFC: Why do HNW families choose Liechtenstein?
Roger Frick: Many HNW families come to Liechtenstein because they are dealing with one or more of the following challenges: political instability, a complicated family structure, an unstable economy or a high-risk exposed business environment.
The transfer of assets into a foundation or trust, for example, provides these families with greater security, allowing them to hold their assets in a safe place that is not affected by changes in personal circumstances. Quite often HNW families have bases all over the globe. This means that their legal and economic circumstances are particularly complex. We believe that this should not have a negative impact on their investments.
Liechtenstein is able to offer these families the promise of a high level of political continuity and stability. The principality also of course has direct access to two markets: the EU/EEA and Switzerland. Among other things, Liechtenstein can also provide:
Working with international HNW families comes with its own set of challenges. This can include negotiating cultural differences, working through family discord, as well as unpacking and coping with the legal complexity of overseas investments. It is important that trustees maintain a continuous dialogue with all relevant family members, that they are transparent in their dealings, and that they ensure that no red lines are crossed.
IFC: How are the beneficiaries of a discretionary offshore trust protected under Liechtenstein law?
Roger Frick: The person who sets up the trust is the client, or in legal terms, the settlor. This person has the authority to foresee the various rights and obligations in a trust deed. The settlor can determine or define:
The Liechtenstein trust is designed to be a flexible asset protection tool. It is up to the settlor and a qualified, regulated trustee to provide the HNW family with full details of the beneficiaries’ rights and level of protection. When asset protection is a concern, several possible beneficiaries are preferable. This can ensure that there are no legal claims of the beneficiaries that can be attached by third parties.
IFC: Have ever more stringent global regulation and compliance demands impacted your clients and how?
Roger Frick: Regulation and compliance has mainly targeted cross-border activity. As a result, trustees are under pressure to increase their ‘watchdog’ activities. This is not service driven but compliance driven and impacts all clients. In the last two years, so-called 'third party evidence' has been relied on more and more. No correspondence bank, no beneficiary bank, no trustee, no asset manager and no fund manager can rely on information obtained from a regulated professional. Each of them must get third-party evidence from the client, doubling or tripling costs and bureaucracy. But these are the changes that have to be dealt with, and it doesn’t look like it’s going to get any easier. Together with increased transparency, and exchange of information at the costs of the service provider countries, the impacts on HNW families can be seen everywhere.
IFC: Which business structures/services are currently most popular with your customers and where is the main regional source of demand? Has this demand changed in recent years and how could it shift in the future?
Roger Frick: More of our clients are choosing to change their domiciles and passports -- this seems to be an evolving trend. Cross-border movement and activities of course add a new level of legal complexity. Clients, albeit less unenthusiastically than before, are adapting to higher levels of regulation and have consented to the increased compliance costs. They do, as a consequence of these higher costs, expect workable and effective solutions. The shift in future will be led by HNW families who refuse to passively accept what their home governments dictate on tax, transparency and exchange matters. This change will support our business, and as a result of growing demand, we will need more professional staff and more flexibility and readiness to serve.
Today, we are living in a world that seems ever more incongruous. On the one side, politicians speak of open borders and the spirit of free movement, and on the other, we experience ever tighter controls as regulations increase in volume and stringency. I feel that we are edging ever closer toward economic mercantilism – a state of affairs that is reminiscent of how things were 40 years ago.
IFC: The G20, the FATF and the OECD are promoting public registers of company beneficial ownership and argue that they could become the global standard by 2023. What is your stance on this and how could it affect your client base?
Roger Frick: For me, it is a war against the rights of confidentiality. The reason for imposing public registers of beneficial ownership is to combat tax evasion, money laundering and terrorist financing. You can certainly kill a mosquito with a forest fire!
We will certainly implement the anti-money laundering directives the European Union dictates. What else can an EEA country do? And most clients will have their money in EEA jurisdictions for asset protection purposes anyway. So, the question is, how will the implementation of these rules work in practice and what are the consequences? Many questions have not yet been answered, and it is up to the client and the professional to find a solution. We have been working on this project since 2016, so there is a certain understanding of how our clients will finally respond. We believe that more HNW families will change their passports and residence. At present some of the more popular countries include; Malta, Greece, Cyprus, Monaco, Italy, Portugal, Switzerland, Hong Kong and the UK.
IFC: Is Liechtenstein bringing any new structures or products to market? How is the jurisdiction innovating for the future?
Roger Frick: Liechtenstein is a strong promoter of innovation, supporting both start-ups and SMEs. There are several support instruments, such as the business plan competition (the ‘Ideenkanal’), R&D opportunities, as well as the Liechtenstein investment market. The innovation-standort.li website offers a full overview of the various funding instruments on offer, although readers will need to be able to speak German!
As a member of the EEA, Liechtenstein offers entrepreneurs an EU passport, enabling them to base their business out of Liechtenstein and trade with countries across the EU.
The government also wants to play a leading role in FinTech-development. Blockchain enterprises are warmly invited to set up their businesses in Liechtenstein. At present there are around five registered initial coin offering (ICO) projects in the principality. A blockchain law that seeks to regulate the risk of crypto-currencies without limiting related business activities is currently in the pipeline and is likely to be implemented at the beginning of 2019. The law will enable any assets such as real estate, loans or bonds to be tokenised (be converted digitally), so that they can be listed on a new, Liechtenstein-based, crypto stock exchange.
IFC: Could Liechtenstein classify itself as one of the world’s default jurisdictions of choice for successful wealth preservation?
Roger Frick: Liechtenstein’s wealth preservation activity is highly specialised. The principality has built itself a strong brand grown from a long history of protecting HNW family wealth. The foundation/trust law, for example, came from 1926/1928. The tax law complies with EU/OECD standards.
While Liechtenstein is not a major market player by any means, in part due to its size, it does make it a firm priority to concentrate on its strengths, to evolve and grow in line with international standards and to put the bespoke needs of its clients first. For these reasons, I am certain that business in Liechtenstein will continue to thrive and grow.
Member of the Board of Trustees and Executive Committee, Allgemeines Treuunternehmen (ATU), Liechtenstein