In a recent FT News Briefing, podcast hosts Marc Filippino and Stephen Morris addressed the challenges facing Liechtenstein’s trust industry following last year’s sanctions against Russia-linked entities registered there – and discussed concerns about what will happen to Russian money stranded in the country’s trusts.
Lichtenstein has traditionally been favored by Russia’s ultra rich – especially for personal and family use – for its discretion, anonymity and a wide range of reliable long-term asset protection mechanisms. But following the implementation of US sanctions, the industry has seen local trust professionals begin to resign en masse, fearing repercussions and secondary sanctions.
The Liechtenstein financial regulator, FMA, has added fuel to the fire by introducing a “zero-tolerance” policy for dealing with sanctioned or high-risk clients. What was a thriving market for Russian money has turned into a graveyard of asset-rich trusts with nobody to service them – or in the FT’s terms, “zombie” trusts.
The Liechtenstein government has now set up an emergency task force to tackle the situation, but there is very little clarity about what will come next. One possible route is for the trusts’ assets to be frozen until sanctions are lifted; another, for trust professionals to be granted a special license to help wind up the trusts themselves.
As to the actual value of Russian funds held in Liechtenstein, we may never know, but given that it was one of the earliest offshore jurisdictions to welcome Russian money after the dissolution of the USSR, we can safely assume it is substantial. Any investigator who has focused on Russia over the last 35 years will be very familiar with opaque ownership chains ending up in a Liechtenstein anstalt – which makes one estimate, that some 800 trusts in the country may own as much as $900 billion, seem entirely plausible.
Given that it has been three years since Russia invaded Ukraine, and that sanctions against Russians very quickly followed suit, one might argue that Liechtenstein’s authorities could have started work earlier on the issue of stranded Russian wealth. Other previously “Russia-friendly” jurisdictions, for example Cyprus and Luxembourg, will be watching closely to see what actions they finally choose to take.
The implications for businesses are clear enough already. Funds presented as straightforwardly non-Russian in origin may not be, and only by careful investigation of financial trails, ownership chains and the broader context of the transaction can a counterparty become fully comfortable that they are not taking on disguised sanctions risk. There is also the possibility of existing, indirect exposure to some of the zombie trusts themselves.
The future of the trusts is just one element of an increasingly complex sanctions landscape that is unlikely to become any simpler until sanctions can be lifted, when even the zombies may have a chance to revive.
Liechtenstein’s trust industry is facing a crisis. The small European country is home to thousands of these entities. It’s famous for its tax and legal benefits, and because of that, it’s been especially attractive to a lot of wealthy Russians. Now, there has been a wave of resignations by the people who oversee those entities, and the industry is left with a ton of what are known as zombie trusts.
https://www.ft.com/content/fa8eb001-77f7-40a5-99c7-c97e62d6eb19?shareType=nongift
