## _cr08195 - Appendix II provides the Report on the Observance of Standards and Codes (ROSC) for the FATF standard for

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### Executive Summary
- Financial sector focus: primarily wealth-management services, including banking, trust, other fiduciary services, investment management, and life insurance.
- Industry trends: expanding, including nonbanking areas, particularly investment undertakings and insurance.
- Regulatory development:
  - Establishment of the Financial Market Authority (FMA) as unified, independent regulator in January 2005 described as "a huge step".
- Supervisory capacity and cooperation:
  - FMA’s ability to share information with domestic and foreign regulatory authorities "works well in practice".
  - Capacity constraint noted for insurance supervision in light of significant insurance sector growth.
  - Recommendation to increase FMA capacity for onsite inspections and to review resource sufficiency for implementing EU requirements.
- AML/CFT:
  - Substantial improvements since 2002; higher industry awareness to prevent misuse of the financial system.
  - Assessment against the revised FATF standard identifies further necessary steps to achieve a higher level of compliance (see Priority Policy Recommendations item 5).

### Priority Policy Recommendations
- Financial Markets Authority
  - Follow through with the strategic plan to consider future resource requirements for on-site supervision and the future demands from implementation of EU Directives.
  - Agree a formal process to ensure a suitable alternative Board member can act in the event of an extended absence by any Board member.
- Banking (Basel Core Principles)
  - Review resources to ensure sufficiency given developing banking supervision and increasing EU requirements, particularly the Capital Requirement Directive (CRD) and Markets in Financial Instruments Directive (MiFID).
  - Amend guidance to external auditors to include specific requirements for the Capital Requirement Directive (i.e., Basel II).
- Securities (IOSCO Principles)
  - Develop appropriate guidance for auditors performing regulatory audits of asset managers.
  - Provide the names of authorized personnel on the website listing of authorized firms.
  - Introduce an affirmative obligation for an asset manager to give prompt notice to the FMA if it becomes undercapitalized.
  - Implement fully all parts of the Asset Management Act; finalize the Code of Conduct.
  - Ensure compliance with MiFID investor protection requirements is reviewed during regulatory audits of both asset managers and banks.
  - Pursue membership in the Committee of European Securities Regulators (CESR) in line with EEA status.
- Insurance (IAIS Core Principles)
  - Undertake inspections of insurers in line with expectations for direct supervision.
  - Review capacity for insurance supervision to ensure resources for onsite inspections and EU directive implementation.
  - Review reporting requirements to increase frequency of prudential reporting for interim offsite analysis.
  - Expand regulatory audits to include assessment of risk-management systems.
- AML/CFT
  - Fully criminalize money laundering and financing of terrorism in line with the UN Conventions (the Palermo, Financing of Terrorism, and Vienna).
  - Strengthen legislative requirements for customer and beneficial ownership information, including obligations to:
    - understand the ownership and control structure of legal persons;
    - determine the natural person(s) that exercise ultimate control;
    - perform enhanced due diligence on a broader range of potentially high-risk clients;
    - monitor and maintain customer information for cross-border and domestic wire transfers.
  - Enhance the due-diligence audit system through greater FMA participation in onsite inspections.
  - Improve efficiency of the appeals process for mutual legal assistance and extradition requests.
  - To improve SAR reporting effectiveness:
    - remove the time limit on the prohibition against financial intermediaries informing clients about reports to the FIU (‘tipping off’);
    - discontinue automatic freezing of assets on filing of an SAR;
    - extend SAR requirement to include attempted transactions.
  - Ensure terrorist-related assets can be frozen outside the context of those identified through the UNSCR 1267 process.

### Mission, Scope, and Methodology
- Mission visit: Vaduz from March 21 to April 4, 2007.
- Context: Module 2 offshore financial center (OFC) assessment; reassessment since Module 2 2002 mission (final report issued 2003).
- Key tasks:
  - Full reassessment of AML/CFT based on revised FATF 40+9 Recommendations.
  - Focused review of Basel Core Principles (BCP) and IOSCO Principles.
- BCP/IOSCO review scope: only principles rated less than largely compliant (BCP) or less than broadly implemented (IOSCO) in 2002; also issues related to revised BCP standard.
- Insurance Core Principles not reviewed; insurance supervision resources discussed.
- Assessment basis: review of relevant legislation, questionnaires prepared by authorities, publicly available information, and documentation provided in English.
- Assessment agreed with Liechtenstein authorities; detailed Assessment Report adopted at the MONEYVAL plenary, September 10–14, 2007.

### Financial System Overview and Key Statistics
- Political and demographic context:
  - Head of state HSH Prince Hans-Adam II; since August 2004 Hereditary Prince Alois exercises sovereign powers as representative.
  - Government: five-member cabinet; Parliament: 25 elected members serving four years.
  - Resident population: about 35,000.
  - Area: 160 square kilometers.
  - Customs and monetary union with Switzerland.
- Economic statistics:
  - Real GDP 2004: CHF 4.3 billion, up 3.5 percent from 2003.
  - Financial services represent 30 percent of GDP.
  - 2005 employment: about 30,000 people employed in Liechtenstein, of which 14, 500 were inward commuters from Austria and Switzerland.
  - Employment in financial services: about 15 percent of all jobs.
- Banking sector (end-2006):
  - 15 active banks with 1 additional bank in liquidation.
  - Balance sheet assets: CHF 48 billion.
  - Client assets under management: CHF 173 billion.
  - Ownership: eight banks controlled by Liechtenstein-domiciled investors; four controlled by Swiss investors; four controlled by Austrian investors.
  - Three banks have operations in foreign countries.
  - Market concentration: the three largest banks account for 90 percent of total balance sheet assets, 86 percent of assets under management, 89 percent of operating profits, and 63 percent of employment in the banking sector.
  - Two of the three largest banks are publicly quoted on the Swiss Stock Exchange.
- Securities and asset management (as of December 31, 2006):
  - 28 licensed fund management and investment companies and 208 investment funds with total CHF 26.6 billion assets under management.
  - December 31, 2005: 27 fund managers and investment companies and 166 funds with CHF 20.6 billion in assets.
  - 48 licensed asset managers in Liechtenstein as of end-2006 (58 at end-March 2007).
  - Estimated assets under management by licensed asset managers: CHF 11.2 billion.
  - 33 applications pending as of end-March 2007.
- Insurance sector (end-2006):
  - 35 insurance companies: 17 life companies, 13 nonlife, and 5 reinsurance companies.
  - 26 branch offices of Swiss insurance companies and one French company (11 life, and 16 non-life).
  - 38 Swiss and 202 EEA insurance companies licensed for cross-border service operations in Liechtenstein.
  - Aggregate gross premiums for all insurance undertakings in 2006: CHF 6.8 billion (up from CHF 4.2 billion in 2005).
  - Insurance sector assets end-2006: CHF 16.8 billion (up from CHF 10.7 billion in 2005).
  - Life insurance companies account for more than 90 percent of aggregate premium and insurance company assets.
  - Unit-linked life insurance accounts for more than 85 percent of insurance company assets.

### Prudential Regulation and Supervision — FMA
- FMA established January 2005, integrating functions of Financial Services Authority (FSA), Insurance Supervisory Authority (ISA), and Due Diligence Unit (DDU).
- Responsibilities: prudential oversight of banks, investment undertakings, asset managers, trustees, and insurance firms; AML/CFT supervision for financial and nonfinancial businesses.
- Authority: under the Financial Markets Authority Act (FMA Act) to review and grant licensing applications, prospectuses, disclosure documents, and carry out supervision; ability to impose fines and withdraw licenses; statutory obligation to inform the public prosecutor if it suspects a crime.
- Institutional features:
  - Independent authority with its own legal personality under public law; accountable to parliament.
  - Five-member Board with five-year terms.
  - General management team of at least three persons; all general management full-time.
- Funding and budgets:
  - 2006 budget: CHF 6.6 million (60 percent provided by the state; 40 percent from fees).
  - 2007 budget: CHF 7.3 million (54 percent provided by the state; 46 percent from fees).
- Supervisory approach:
  - Dual system: reliance on direct onsite inspections by external auditors plus offsite indirect supervision by FMA staff.
  - FMA conducts limited direct onsite inspections and can direct external auditors to work on its behalf.
  - FMA sets detailed provisions on regulatory audit and actuarial report content through ordinances.
- Staffing and capacity:
  - Banking Supervision Division staffing: five professionals, one professional trainee, and an administrative assistant currently employed.
  - Contracts signed for two more professionals with specific Basel II experience.
  - For insurance supervision, staffing increased "from seven to nine staff", and "two additional trainees began in March 2007."
  - Onsite insurance inspections remained limited; only one comprehensive inspection conducted in 2006.

### Results of the 2002 Assessment and Progress Since
- 2002 assessment: resources were not sufficient to conduct supervision; five Basel Core Principles rated as materially noncompliant; seven IOSCO principles rated partly implemented.
- FATF history: Liechtenstein listed as noncooperative in 2000; delisted in June 2001; ceased further FATF monitoring in June 2002.
- Progress since 2002:
  - Creation of the FMA as an independent agency with regulatory powers and resources largely adequate for current activities.
  - Implementation of Basel II:
    - Guidance on operational and legal risk incorporated in the Banking Ordinance in 2004.
    - Capital Requirement Ordinance 2006 implements Basel II; passed December 2006 and effective January 1, 2007.
  - Securities regulation improvements: Asset Management Act enacted; asset managers licensed and supervised separately from trustees; authorized firms listed on the FMA’s website.

### AML/CFT — Key Findings and Recommendations
- Coverage and improvements:
  - DDA and DDO provide broad framework for customer due diligence (CDD); DDA substantially updated in 2004 to transpose revised FATF Recommendations and Second EU ML Directive.
  - Significant improvements in awareness and compliance since 2002; FIU performs well and produces high-quality analysis.
- Gaps and weaknesses:
  - Money laundering and financing of terrorism are not fully criminalized according to the UN Conventions (the Palermo, Financing of Terrorism, and Vienna).
  - No criminal liability for corporate entities.
  - DDA/DDO lack precision in some measures; excessive discretion allowed in identifying high-risk customers and beneficial owners; no explicit requirement for enhanced due diligence.
  - Verification of beneficial ownership and identification data is too limited.
  - Reporting by DNFBPs appears low compared to the number of companies formed and transactions monitored.
  - Automatic freezing of assets for five days following filing of SARs suppresses reporting.
  - No disclosure/declaration system for physical cross-border transport of currency and bearer negotiable instruments (work in progress with Switzerland due to customs union).
- Supervisory model and recommendations:
  - FMA oversees AML/CFT supervision conducted onsite by external auditors; recommendation for additional FMA participation in direct AML/CFT onsite inspections, which may require additional resources.
  - Strengthen legislative requirements to:
    - fully criminalize ML and FT in line with UN Conventions;
    - require broader customer and beneficial ownership information and verification;
    - apply enhanced due diligence to a wider range of high-risk clients;
    - require retention and monitoring of originator information for wire transfers.
  - Remove time limit on tipping-off prohibition; discontinue automatic freezing on SAR filing; extend SAR requirement to attempted transactions; extend SAR protection for good-faith reporters.
  - Ensure terrorist-related assets can be frozen outside UNSCR 1267 process and develop procedure for UNSCR 1373.

### DNFBPs, Legal Persons, and TCSPs
- Scope and supervision:
  - DNFBPs, including Trust and Company Service Providers (TCSPs), are subject to the DDA and supervised by the FMA.
  - Due diligence inspections for DNFBPs conducted by auditors designated by FMA once every three years.
- Key issues:
  - Exemption from full CDD for work on behalf of companies commercially active in their domiciliary state—FATF standard does not provide such an exemption; could be substantial for TCSPs setting up foreign companies.
  - Nominee directors, nominee shareholders, protectors, and letters of wishes are permitted and frequently used.
  - Obligation for TCSPs to obtain beneficial ownership in writing exists, but law does not explicitly require verification.
  - Estimated that 90 percent of all companies registered in Liechtenstein are not commercially active.
- Recommendations:
  - Strengthen legislative requirements for company formation: TCSPs should conduct CDD and ascertain the beneficial owner when forming commercially-active entities and related holding companies.
  - Require intermediaries to verify beneficial ownership information.
  - Bring definition of "beneficial owner" in line with FATF standard to cover control structures.

### National and International Cooperation; Mutual Legal Assistance
- Information sharing:
  - FMA may share information with domestic counterparts; specific laws grant ability to share information with foreign regulators on regulated entities licensed by the FMA.
  - Shared information is generally subject to confidentiality and may only be passed to third parties with FMA permission.
  - FMA’s ability to obtain client-related information from regulated firms is "unfettered"; to share client-related information with foreign authorities the FMA must issue a formal order which is appealable within "14 days" to the FMA Complaints Commission and then within "14 days" to the Superior Administrative Court.
  - A 2003 Superior Administrative Court decision confirmed the regulator's ability to share client-specific information and set four binding principles for disclosure: (a) confidentiality, (b) specialty, (c) long-arm, and (d) proportionality.
- International engagement:
  - FMA representatives regularly attend CEBS, CEIOPS, and MONEYVAL.
  - FMA has been unsuccessful in joining CESR; recommendation to pursue CESR membership in line with EEA status.
  - FMA discussing information-sharing arrangements with Swiss and Austrian authorities; power exists to enter into agreements though none in force.
- Mutual Legal Assistance and extradition:
  - MLA Act (2000) improved expediency, but appeals up to the Constitutional Court can delay requests.
  - Fiscal exception has been extensively interpreted; amendment on July 27, 2007 excludes VAT fraud from the fiscal exemption.
  - Statistical data show MLA requests usually receive an effective and extensive response.
- FIU cooperation:
  - FIU commitment to international cooperation is evident; may exchange information and cooperate with any counterpart FIU abroad and can exercise all powers vested in it under domestic law when doing so.

### Legal Framework, Investigations, Confiscation and Freezing
- Criminalization and predicate offenses:
  - ML broadly criminalized but environmental crimes, smuggling, forgery, market manipulation, and fiscal offenses (including serious fiscal fraud) are not predicate offenses.
  - Self-laundering partially criminalized; no jurisprudence on autonomous ML; no criminal liability for legal persons.
- Confiscation and seizure:
  - Conviction-based criminal forfeiture and in rem forfeiture exist; confiscation covers criminal proceeds, product of the crime, (intended) instrumentalities, and equivalent value broadly.
  - In autonomous ML offenses, criminal confiscation not formally covered; confiscation of (intended) instrumentalities seriously restricted.
  - No overall statistics available on seizures and confiscations; recommendation to maintain statistics.
- UNSCR implementation:
  - Freezing under UNSCR 1267 adequately addressed; no domestic terrorist list; action based on foreign lists.
  - Procedure for freezing suspected terrorism-related assets under UNSCR 1373 needs development.
- Cross-border currency controls:
  - No disclosure/declaration system for physical cross-border transport of currency or bearer negotiable instruments; work in progress in collaboration with Switzerland.

### Authorities’ Response and Planned Actions
- Authorities note serious and significant efforts since 2002, including DDA amendments and institutional restructuring.
- Commitments and actions:
  - Mutual legal assistance in cases of VAT tax fraud as per July 27, 2007 implemented.
  - Plan to implement the EU Directive 2005/60/EC (Third EU AML/CFT-Directive) and Directive 2006/70/EC in 2008.
  - Implementation of EU Regulation No. 1781/2006 on payer information accompanying transfers of funds planned to lead to full compliance with SR VII.
  - Implementation of a disclosure system for physical cross-border transportation of currency and bearer negotiable instruments is in progress (in collaboration with Switzerland).
- Authorities commit to continuing strengthening the AML/CFT system and pursuing sustainable implementation of international standards.

*Source: _cr08195 - Appendix II provides the Report on the Observance of Standards and Codes (ROSC) for the FATF standard for*

### Appendix II provides the Report on the Observance of Standards and Codes (ROSC) for the FATF standard for

### _cr08195 - Appendix II provides the Report on the Observance of Standards and Codes (ROSC) for the FATF standard for

### Executive Summary
- Financial sector focus: primarily wealth-management services, including banking, trust, other fiduciary services, investment management, and life insurance.
- Industry trends: expanding, including nonbanking areas, particularly investment undertakings and insurance.
- Regulatory development: establishment of the Financial Market Authority (FMA) as unified, independent regulator in January 2005 described as "a huge step".
- Supervisory capacity and cooperation:
  - FMA’s ability to share information with domestic and foreign regulatory authorities "works well in practice".
  - Capacity constraint noted for insurance supervision in light of significant insurance sector growth.
  - Recommendation to increase FMA capacity for onsite inspections and to review resource sufficiency for implementing EU requirements.
- AML/CFT:
  - Substantial improvements since 2002; higher industry awareness to prevent misuse of the financial system.
  - Assessment against the revised FATF standard identifies further necessary steps to achieve a higher level of compliance (see Priority Policy Recommendations item 5).

### Priority Policy Recommendations
1. Financial Markets Authority
- Follow through with the strategic plan to consider future resource requirements for on-site supervision and the future demands from implementation of EU Directives.
- Agree a formal process to ensure a suitable alternative Board member can act in the event of an extended absence by any Board member.

2. Banking (Basel Core Principles)
- Review resources to ensure sufficiency given developing banking supervision and increasing EU requirements, particularly the Capital Requirement Directive (CRD) and Markets in Financial Instruments Directive (MiFID).
- Amend guidance to external auditors to include specific requirements for the Capital Requirement Directive (i.e., Basel II).

3. Securities (IOSCO Principles)
- Develop appropriate guidance for auditors performing regulatory audits of asset managers.
- Principles for Market Intermediaries:
  - Provide the names of authorized personnel on the website listing of authorized firms.
  - Introduce an affirmative obligation for an asset manager to give prompt notice to the FMA if it becomes undercapitalized.
  - Implement fully all parts of the Asset Management Act; finalize the Code of Conduct.
  - Ensure compliance with MiFID investor protection requirements is reviewed during regulatory audits of both asset managers and banks.
  - Pursue membership in the Committee of European Securities Regulators (CESR) in line with EEA status.

4. Insurance (IAIS Core Principles)
- Undertake inspections of insurers in line with expectations for direct supervision.
- Review capacity for insurance supervision to ensure resources for onsite inspections and EU directive implementation.
- Review reporting requirements to increase frequency of prudential reporting for interim offsite analysis.
- Expand regulatory audits to include assessment of risk-management systems.

5. AML/CFT
- Fully criminalize money laundering and financing of terrorism in line with the UN Conventions (the Palermo, Financing of Terrorism, and Vienna).
- Strengthen legislative requirements for customer and beneficial ownership information, including obligations to:
  - understand the ownership and control structure of legal persons;
  - determine the natural person(s) that exercise ultimate control;
  - perform enhanced due diligence on a broader range of potentially high-risk clients;
  - monitor and maintain customer information for cross-border and domestic wire transfers.
- Enhance the due-diligence audit system through greater FMA participation in onsite inspections.
- Improve efficiency of the appeals process for mutual legal assistance and extradition requests.
- To improve SAR reporting effectiveness:
  - remove the time limit on the prohibition against financial intermediaries informing clients about reports to the FIU (‘tipping off’);
  - discontinue automatic freezing of assets on filing of an SAR;
  - extend SAR requirement to include attempted transactions.
- Ensure terrorist-related assets can be frozen outside the context of those identified through the UNSCR 1267 process.

### Mission, Scope, and Methodology (Introduction)
- Mission visit: Vaduz from March 21 to April 4, 2007.
- Context: Module 2 offshore financial center (OFC) assessment; reassessment since Module 2 2002 mission (final report issued 2003).
- Key tasks:
  - Full reassessment of AML/CFT based on revised FATF 40+9 Recommendations.
  - Focused review of Basel Core Principles (BCP) and IOSCO Principles.
- BCP/IOSCO review scope: only principles rated less than largely compliant (BCP) or less than broadly implemented (IOSCO) in 2002; also issues related to revised BCP standard.
- Insurance Core Principles not reviewed; insurance supervision resources discussed.

### Financial System Overview
- Political and demographic context:
  - Monarchy with democratic parliamentary system; head of state HSH Prince Hans-Adam II; since August 2004 Hereditary Prince Alois exercises sovereign powers as representative.
  - Government: five-member cabinet nominated by parliament and appointed by the reigning prince.
  - Parliament: 25 elected members serving four years; consent of both reigning prince and cabinet required to enact new legislation.
  - Resident population: about 35,000.
  - Area: 160 square kilometers.
  - Customs and monetary union with Switzerland.
- Economic statistics:
  - Real GDP 2004: CHF 4.3 billion, up 3.5 percent from 2003.
  - Financial services represent 30 percent of GDP.
  - 2005 employment: about 30,000 people employed in Liechtenstein, of which 14, 500 were inward commuters from Austria and Switzerland.
  - Employment in financial services: about 15 percent of all jobs.
- Financial sector structure and regulation:
  - Sector offers broad wealth-management services to a global market with majority services to nonresidents.
  - FMA established January 2005, integrating functions of Financial Services Authority (FSA), Insurance Supervisory Authority (ISA), and Due Diligence Unit (DDU).
  - FMA responsibilities:
    - Prudential oversight of banks, investment undertakings, asset managers, trustees, and insurance firms.
    - Authority under the Financial Markets Authority Act (FMA Act) to review and grant licensing applications, prospectuses, disclosure documents, and carry out supervision.
    - Ability to impose fines and withdraw licenses.
    - Statutory obligation to inform the public prosecutor if it suspects a crime has been committed.
  - Central bank functions: Swiss National Bank performs central bank functions as part of the monetary union, acts as lender of last resort and fulfills some payment systems requirements.
  - AML/CFT laws: key laws include the Due Diligence Act (DDA) and the FIU Act.
  - Deposit and investment insurance: Liechtenstein Bankers Association manages a scheme protecting deposits of private clients up to a maximum of EUR 20,000 or equivalent in another currency; scheme based on contributions of member banks up to a contractually agreed maximum amount assessed according to level of deposits and investments.
  - European integration: member of the European Economic Area (EEA) since 1995; must transpose all EEA-relevant EU laws in financial services into domestic law; EEA membership provides freedom of establishment and movement of services within the EEA.

### Assessment Team and Process
- Main author of AFSSR: Michael Moore, with contributions from the rest of the assessment team.
- Mission team composition:
  - Michael Moore (head; MCM)
  - Terence Donovan (team leader, LEG)
  - Paul Ashin
  - Alain Vedrenne-Lacombe
  - Gabriele Dunker (all LEG)
  - Michael Deasy (banking supervision expert)
  - Boudewijn Verhelst (AML/CFT expert)
  - Tanis MacLaren (securities regulation expert)
- Assessment basis: review of relevant legislation, questionnaires prepared by authorities, publicly available information, and documentation provided in English.
- Engagement: extensive discussions with FMA staff, other government representatives, industry and industry associations; assistance described as helpful and forthcoming.

*Source: _cr08195 - Appendix II provides the Report on the Observance of Standards and Codes (ROSC) for the FATF standard for*

### 12. Under the EEA requirement, Liechtenstein has recently implemented the

### _cr08195 - 12. Under the EEA requirement, Liechtenstein has recently implemented the

### Overview
- Liechtenstein has implemented the UCITS III Directive and the Market Abuse Directive.
- It is in the process of finalizing requirements of the Markets in Financial Instruments Directive (MiFID), the Capital Requirement Directive (implementation of Basel II), the insurance Solvency II Directive, and the Third Money Laundering Directive.

### Corporate and institutional forms
- Corporate formation laws: Law on Persons and Companies 1926 (PGR Code); trusts under the Law Concerning the Trust Enterprise 1928.
- Common legal entities: Company Limited by Shares, Limited Liability Company, The Establishment (Anstalt), The Foundation (Stiftung), and the Trust Enterprise.

### Banking sector — structure and activity
- Regulatory framework: Law on Banks and Finance Companies of 1992 (the Banking Act); last amendment 2006; further revision underway to implement EU Directives (Basel II, MiFID).
- Main banking activity: asset management (private banking).
- Key statistics (end-2006):
  - 15 active banks with 1 additional bank in liquidation.
  - Balance sheet assets: CHF 48 billion.
  - Client assets under management: CHF 173 billion.
- Ownership and operations:
  - Eight banks controlled by Liechtenstein-domiciled investors.
  - Four controlled by Swiss investors (including one bank in voluntary liquidation).
  - Four controlled by Austrian investors.
  - Three banks have operations in foreign countries (generally banks and/or investment companies).
- Market concentration:
  - The three largest banks (all controlled by Liechtenstein-domiciled investors) account for 90 percent of total balance sheet assets, 86 percent of assets under management, 89 percent of operating profits, and 63 percent of employment in the banking sector.
  - Two of the three largest banks are publicly quoted on the Swiss Stock Exchange.

### Securities activities and asset management
- Primary activity: asset management for high-net-worth individuals.
- Licensing and providers:
  - Provided by universal banks (licensed under the Banking Act), investment undertakings (licensed under the Investment Undertakings Act), and asset managers (licensed under the Asset Management Act).
  - All client assets of asset managers must be held at a depository bank; the asset manager may not have access to those assets.
- Investment funds industry growth:
  - As of December 31, 2006: 28 licensed fund management and investment companies and 208 investment funds with total CHF 26.6 billion assets under management.
  - December 31, 2005: 27 fund managers and investment companies and 166 funds with CHF 20.6 billion in assets.
- Asset managers:
  - 48 licensed asset managers in Liechtenstein as of end-2006 (58 at end-March 2007).
  - Estimated assets under management by licensed asset managers: CHF 11.2 billion.
  - 33 applications pending as of end-March 2007.
- Brokerage and client base:
  - Majority of clients located outside Liechtenstein (largest number in European jurisdictions).
  - All banks offer brokerage services, including sale of investment funds and securities, to retail investors.

### Insurance sector
- Regulatory framework: Law on the Supervision of Insurance Undertakings (Insurance Supervision Law) of 1995 and other laws.
- End-2006 insurance sector structure:
  - 35 insurance companies: 17 life companies, 13 nonlife, and 5 reinsurance companies.
  - Most life companies are wholly owned subsidiaries of internationally active insurance companies or banks; only two insurance companies are locally-owned.
  - 26 branch offices of Swiss insurance companies and one French company (11 life, and 16 non-life).
  - 38 Swiss and 202 EEA insurance companies are licensed for cross-border service operations in Liechtenstein.
- Industry growth and aggregates:
  - Recent entry of about two to three new insurance companies per year (including captives).
  - Aggregate gross premiums for all insurance undertakings in 2006: CHF 6.8 billion (up from CHF 4.2 billion in 2005).
  - Insurance sector assets end-2006: CHF 16.8 billion (up from CHF 10.7 billion in 2005).
  - Life insurance companies account for more than 90 percent of aggregate premium and insurance company assets.
  - Unit-linked life insurance accounts for more than 85 percent of insurance company assets.

### Prudential regulation and supervision — Financial Markets Authority (FMA)
- Responsibilities: banking supervision, securities regulation, insurance supervision, and anti-money laundering due diligence for financial and nonfinancial businesses.
- Legal basis: Financial Market Authority Act of 2005 (the FMA Act) and additional sector acts.
- Institutional features:
  - Independent authority with its own legal personality under public law; accountable to parliament.
  - Five-member Board with five-year terms.
  - General management team of at least three persons; all general management full-time.
- Funding and budgets:
  - 2006 budget: CHF 6.6 million (60 percent provided by the state; 40 percent from fees).
  - 2007 budget: CHF 7.3 million (54 percent provided by the state; 46 percent from fees).
- Supervisory approach:
  - Dual system: reliance on direct onsite inspections by external auditors plus offsite indirect supervision by FMA staff (review of audit reports and periodic prudential reports).
  - For insurance supervision, the FMA also relies on external actuaries for certain reporting requirements.
  - FMA conducts limited direct onsite inspections and can direct external auditors to work on its behalf.
- Audit and reporting requirements:
  - FMA sets detailed provisions on regulatory audit and actuarial report content through ordinances.
  - Auditors must verify compliance with law, articles of association and rules; ongoing fulfillment of licensing preconditions; and conformity of business reports with legal requirements.

### Results of the 2002 assessment and subsequent progress
- 2002 assessment standards reviewed: Basel Core Principles, IOSCO Principles, IAIS Insurance Principles, and FATF Recommendations on AML/CFT. Detailed assessments and ROSCs were prepared and agreed to be published.
- 2002 assessment conclusions:
  - Resources were not sufficient to conduct supervision and regulatory functions for banking, securities, and insurance activities.
  - Five Basel Core Principles rated as materially noncompliant; seven IOSCO principles rated partly implemented.
  - FATF: earlier high level of compliance observed; FATF had listed Liechtenstein as noncooperative in 2000 but removed Liechtenstein from its list of noncooperative countries or territories in June 2001 and ceased further monitoring in June 2002.
- Progress since 2002:
  - Creation of the FMA as an independent agency with regulatory powers and resources largely adequate for current activities.
  - FMA is accountable to parliament and publishes an annual report on its website.
  - Consultation in formulation of new provisions is open; FMA–industry relationship constructive.
  - Significant improvements in resources and expertise for banking supervision:
    - Banking Supervision Division staffing: five professionals, one professional trainee, and an administrative assistant currently employed.
    - Contracts signed for two more professionals with specific Basel II experience.
  - Implementation of Basel II:
    - Guidance on operational and legal risk incorporated in the Banking Ordinance in 2004.
    - Capital Requirement Ordinance 2006 implements Basel II; passed December 2006 and effective January 1, 2007.
    - Substantial FMA resources devoted to Basel II implementation; extensive industry consultation undertaken.
  - Securities regulation:
    - FMA has clear powers to license, supervise, and take enforcement actions against banks, investment undertakings, and asset managers.
    - Asset management expressly covered via the Asset Management Act; asset managers now licensed and supervised separately from trustees.
    - Appropriate minimum entry standards (fit and proper assessments and minimum capital) apply to banks and asset managers.
    - Authorized firms are listed on the FMA’s website.

### Main findings and policy recommendations
- Resource planning and strategic needs:
  - Strategic planning should consider future resource requirements, especially for insurance supervision and for implementation of EU Directives (MiFID, Solvency II, Third Money Laundering Directive).
  - Current resources may need supplementation to undertake direct onsite inspections (e.g., due diligence) and to meet new demands from EU directive implementation.
  - Mission supports preparation of a longer range strategic plan to consider future demands on the FMA.
- Supervision sufficiency and enhancements:
  - For banking: existing combination of FMA staff and external auditors appears sufficient for current supervision, but resource sufficiency must be reviewed in light of developing banking supervision complexity, increased volume, compound instruments, and growing EU-requirements.
  - For securities: full implementation of the Asset Management Act should be prioritized; consider enhancing public information (e.g., include names of authorized personnel on FMA listings).
  - For asset managers: impose an affirmative obligation to promptly notify the FMA if undercapitalized.
- Implementation and preparedness:
  - FMA appears generally well placed to meet revised Basel Core Principles requirements, particularly given Basel II alignment and the relatively uncomplicated nature of domestic banking business (private banking and straightforward lending).
  - Gaps in regulator authority noted in 2002 have been addressed; full implementation experience for asset management remains at an early stage and requires monitoring.

*Source: IMF staff report excerpt (Financial Markets Authority and sector statistics as presented in the source content).*

### 42. Both banks and asset managers are subject to requirements designed to ensure

### _cr08195 - 42. Both banks and asset managers are subject to requirements designed to ensure

### Investor protection and MiFID implementation
- Internal control and risk management guidance:
  - Guidance applicable to banks is "extensive".
  - Requirements for asset managers are "more general", reflecting a "lesser risk" of that business in the jurisdiction.
- MiFID:
  - Will impose "extensive investor protection requirements" on both types of regulated firms when "fully implemented in late 2007".
  - Recommendation: "The FMA should update the guidance provided to auditors to ensure compliance with MiFID standards is reviewed in detail during regulatory audits of intermediaries."

### Insurance sector findings and supervisory capacity
- Sector growth and assets:
  - Insurance sector primarily life insurance and "rapidly expanding".
  - "At end-2006, assets for insurance undertakings were CHF 16.8 billion", an increase of "57 percent" over the prior year, due largely to growth in unit-linked life insurance.
- Market entry oversight:
  - FMA focus: ensuring companies entering Liechtenstein are "owned and controlled by strong internationally respected financial institutions."
- Onsite inspection capacity and activity:
  - 2002 assessment: one material concern—the supervisor’s "lack of capacity ... to undertake onsite inspections."
  - Since 2002: onsite inspection activity "has remained limited", with "only one comprehensive inspection conducted in 2006."
  - Follow-through from that assessment "was less than had been projected by the authorities in their response to the 2002 assessment."
- Staffing:
  - Staffing increased "from seven to nine staff", and "two additional trainees began in March 2007."
  - Recommendation: review staffing levels to ensure resources allow "a systematic program of on-site inspections."
  - Recommendation: consider augmenting onsite inspections by "expanding the coverage of checks carried out on behalf of the FMA by the external auditors," and expand "regulatory audits" to cover risk-management systems.
- Prudential review gap:
  - "There has not been sufficient comprehensive review from a prudential perspective of the high growth areas to determine whether risk-management systems are adequate."

### Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT)
- General assessment:
  - The assessment "recognized the serious and significant efforts to improve the AML/CFT regime" but recommends "further strengthening," particularly to reflect fully the revised FATF standard and Third EU Money Laundering Directive.
  - Revisions to the Due Diligence Act (DDA) in 2005 and related measures "address many aspects of the revised FATF Recommendations", though in some cases "the measures lack necessary precision."
- Criminalization and UN Conventions:
  - "Money laundering and financing of terrorism are not fully criminalized according to the relevant UN Conventions (the Palermo, Financing of Terrorism, and Vienna Conventions)."
  - "UN Resolution 1267 has been implemented; however, UN Resolution 1373 requires that a procedure be developed."
- Mutual legal assistance and cross-border currency controls:
  - Mutual legal assistance and extradition requests "are processed in a constructive manner, but can still be subject to many levels of appeal."
  - Recommendation: "A disclosure or declaration system to detect the physical cross-border transportation of currency and bearer-negotiable instruments related to money laundering or terrorist financing should be put into place."
- FMA supervision of AML/CFT:
  - The FMA "oversees the AML/CFT supervision conducted onsite by external auditors."
  - Recommendation: "additional participation by the FMA in direct AML/CFT onsite inspections," which "could impose a need for additional resources."
  - Nevertheless: "supervision through the FMA is robust and professional, if indirect."
- Customer due diligence and DNFBPs:
  - Banks and financial institutions base risk monitoring on "customer profiles" facilitating identification of unusual activity.
  - Concerns remain regarding:
    - "identification of all beneficial owners"
    - "reliance on due diligence conducted by third parties"
    - "discretion allowed in applying enhanced due diligence measures for higher-risk customers"
  - Vast majority of DNFBPs, especially core trust and company service providers, "have been brought under the revised DDA" and "appear committed to compliance."
  - DNFBPs are required to perform "CDD, monitor client relationships, and submit suspicious activity reports"; reported practices "appear satisfactory."
- Beneficial ownership and verification:
  - "Liechtenstein’s framework for ascertaining the beneficial ownership of legal entities, trusts, and arrangements needs to be strengthened."
  - It is "not always clear that implementation extends to identifying the natural persons who are the ultimate beneficial owners."
  - "Verification of identification data is too limited."
- Financial Intelligence Unit (FIU):
  - "The Financial Intelligence Unit is performing well."
  - "The quality of suspicious activity reports by financial institutions to the FIU appears to be high; however, the level of reporting appears low."
  - Reporting by DNFBPs "appears low compared to the number of companies formed and transactions monitored."

### Cross-sectoral regulatory and supervisory issues — FMA structure and independence
- Board and management responsibilities:
  - Statute sets out respective responsibilities of the Board and general management "in line with good corporate governance practices."
  - Board responsibilities: strategic and policy-level decisions, hiring/supervising general management, reviewing/approving the annual report, issuing binding rules and guidance, entering into agreements with other supervisory authorities.
  - General management has "operational responsibility."
- Qualifications, appointment, and removal:
  - Under the FMA Act, Board members and general management must have "an impeccable reputation, a high level of expertise, and practical experience in the financial services industry or supervision."
  - "None may serve in the government, parliament, or a court."
  - Board members are "appointed by parliament for five-year terms" which "may be renewed."
  - Removal allowed only for specified reasons: "bankruptcy, criminal conviction, lasting inability to act, or a gross breach of duty."
- Board composition, quorum, and independence safeguards:
  - Board consists of "five members."
  - A majority (the chairman, deputy chairman, and one other member) must be independent of the regulated industry; therefore, "no more than two members may be associated with regulated firms."
  - "Only the chairman is a full-time executive appointee."
  - A quorum for any meeting is "four members" and "on any tie vote, the chairman has a casting vote."
  - In practice, "industry-related members cannot alone determine decisions of the Board."
- Vulnerability and recommendation for continuity:
  - With a small Board, "an extended absence of any Board member may impede the work of the FMA."
  - Recommendation: "a formal process be agreed for ensuring that a suitable alternative Board member can act in the event of an extended absence by any Board member."
  - Example recommendation: "the CEO of the regulator could be assigned a formal ex officio status for participation in all Board meetings, and would assume voting powers in the event of an extended absence of a regular Board member."

### Cooperation, information exchange, and international engagement
- Information sharing authorities and procedures:
  - The FMA "may share any information with domestic counterparts."
  - Specific laws on "banking, investment undertakings, asset management, and insurance" grant the FMA ability to share information with foreign regulators (within or outside the EEA) on regulated entities licensed by the FMA.
  - Shared information is generally "subject to confidentiality provisions" and may only be passed to third parties or otherwise disclosed "with the express permission of the FMA."
- International participation:
  - FMA representatives regularly attend "CEBS, CEIOPS, and MONEYVAL."
  - FMA "has been unsuccessful in its efforts to join the Committee of European Securities Regulators (CESR)."
  - In light of "the February 2007 introduction into force of the Market Abuse Act," recommendation: "membership in CESR should be pursued."
  - Assessment: "The inability to participate in CESR weakens the quality of communication with European regulatory counterparts."
- Process for sharing client-specific information:
  - FMA's ability to obtain client-related information from regulated firms is "unfettered."
  - To share client-related information with competent foreign authorities the FMA must issue a formal order to the regulated firm; outside market-abuse cases this order may be appealed within "14 days" to the FMA Complaints Commission, and a decision of the Complaints Commission may then be appealed within "14 days" to the Superior Administrative Court.
  - A 2003 Superior Administrative Court decision confirmed the regulator's ability to share client-specific information and set four binding principles for disclosure: (a) confidentiality, (b) specialty, (c) long-arm, and (d) proportionality.
- Market Abuse Act refinements:
  - Market Abuse Act requires FMA to issue an order regarding proposed information sharing, but only one appeal is available directly to the Superior Administrative Court, exercisable within "14 days" of the FMA order and "the statute requires the appeal to be conducted rapidly."
  - The statute extends the right to share to competent authorities in non-EEA member states with conditions: information "must only be used for market abuse matters" and "must be given equivalent confidentiality to that applied by the FMA," but may be disclosed as required for a public prosecution of a market-abuse offense.
  - Overall: "the Liechtenstein regime for sharing information, including the right to appeal, is fully in line with the current IOSCO standards, in particular the IOSCO MMoU."
- Bilateral arrangements and designated personnel:
  - FMA is "discussing entering into information-sharing arrangements with the Swiss and Austrian authorities" and "has designated personnel to handle all information requests."
  - FMA "has the power to enter into information-sharing agreements with foreign counterparts, but is not yet a party to an agreement."
- Mutual legal assistance (MLA) and judicial process:
  - Introduction of the MLA Act in 2000 led to "more expedient responses," though MLA requests can still result in "lengthy procedures" due to appeals up to the Constitutional Court.
  - All information can be shared, including confidential, "on the basis of a court order."
  - Refusal grounds are "not excessive and universally accepted," except the fiscal exception, which "is still too extensively interpreted" though "an amendment has come into force on July 27, 2007 to exclude VAT fraud from the fiscal exemption."
  - Statistical data show MLA requests usually receive "an effective and quite extensive response."
- FIU international cooperation:
  - "The commitment to international cooperation by the FIU is evident."
  - Refusals to cooperate are justified by legal prohibitions, particularly the "exclusive fiscal nature and purpose of the request."
  - The FIU has "broad power to query relevant information from nonpublic sources" and "has already shown its willingness to cooperate also in this respect."

*Source: _cr08195 - 42. Both banks and asset managers are subject to requirements designed to ensure*

### Appendix II. Report on Observance of Standards and Codes (ROSC)

### Appendix II. Report on Observance of Standards and Codes (ROSC)

### A. Introduction
- Report prepared by IMF Legal Department staff; approved by Sean Hagan.
- Coverage: FATF 40 Recommendations for Anti-Money Laundering (AML) and 9 Special Recommendations for Combating the Financing of Terrorism (CFT).
- Assessment methodology: 2004 Methodology.
- Assessment based on information available as of April 4, 2007.
- Detailed Assessment Report agreed with Liechtenstein authorities and adopted at the MONEYVAL plenary, September 10–14, 2007.
- Evaluation team: Terence Donovan, Paul Ashin, Gabriele Dunker, Alain Vedrenne-Lacombe (IMF Legal Department), and Boudewijn Verhelst (consultant; also acted as MONEYVAL assessor for relevant EU Directives outside the Fund’s AML/CFT mandate).

### B. Key Findings
- Financial sector profile:
  - Primarily provides wealth-management services: banking, trust, other fiduciary services, investment management, life insurance products.
  - Significant expansion in non-banking areas such as investment undertakings and insurance.
  - Around 90 percent of financial services business is provided to nonresidents.
  - Attracting factors: access to discrete and flexible legal structures, strict bank secrecy, favorable tax arrangements, stable and well-regulated environment.
- ML/FT risk and mitigation:
  - Sector creates particular ML risk due to financial and corporate services; ongoing challenge to minimize abuse of corporate vehicles and identify beneficial owners.
  - Vulnerability concentrated mainly in the layering phase of ML; no particular vulnerability to terrorist financing (FT) noted.
- Historical and institutional context:
  - Liechtenstein listed in FATF initial NCCT review in 2000; delisted in 2001.
  - Authorities made significant progress toward FATF compliance since 2002, including major legislative amendments and institutional restructuring.
- Criminalization and FIU:
  - Both ML and FT are criminalized broadly (though not fully) in line with international standard.
  - No criminal liability for corporate entities.
  - Financial Intelligence Unit (FIU) produces high-quality analysis and makes effective use of information received.
  - Effectiveness of reporting system could be improved; automatic freezing of assets for five days following filing of suspicious activity reports (SARs) identified as suppressing reporting.
- Investigations and prosecutions:
  - Investigative powers are comprehensive; number of investigations and prosecutions resulting from FIU files appears low.
  - Convictions for ML or predicate offenses have occurred, though not in Liechtenstein; prosecutors often refer cases to jurisdictions where main criminal activity allegedly occurred.
- Legal framework and supervision:
  - Financial institutions and DNFBPs supervised by Financial Market Authority (FMA), which reports to Parliament.
  - AML/CFT law: Due Diligence Act (DDA) and Due Diligence Ordinance (DDO).
  - Doubts about whether AML/CFT coverage scope is sufficiently wide.
  - DDA/DDO provide broad framework for customer due diligence (CDD) but fall short of international standard on some substantive and technical points.
  - Liechtenstein implementing Third EU ML Directive (2005/60/EC) by 2008, providing opportunity to address deficiencies.
- CDD and risk-based measures:
  - CDD requirements center on customer profile including beneficial ownership, source of funds, purpose.
  - Law allows excessive discretion in identifying high-risk customers and beneficial owners; no explicit requirement for enhanced due diligence.
- National and international cooperation:
  - National cooperation on AML/CFT effective.
  - Willingness and ability to cooperate internationally improved strongly.
  - Legal basis for sharing information with foreign supervisors needs broadening and strengthening.

### C. Legal Systems and Related Institutional Measures
- Crime profile:
  - Liechtenstein’s crime rate is low.
  - Major predicate offenses: economic offenses—fraud, criminal breach of trust, asset misappropriation, embezzlement, fraudulent bankruptcy, corruption, bribery.
- ML criminalization details:
  - ML criminalized broadly in line with international standard, but environmental crimes, smuggling, forgery, market manipulation, and fiscal offenses (including serious fiscal fraud) are not predicate offenses.
  - A conviction for a predicate offense is not required, but level of proof to determine proceeds as illicit remains unclear.
  - No jurisprudence on autonomous ML; self-laundering partially criminalized.
  - Ancillary offenses criminalized except for criminal liability of legal persons.
- Terrorist financing:
  - FT criminalized, but definition of “terrorist organization” should be aligned fully with international standard; financing of individual terrorists should be criminalized.
  - No prosecutions or convictions for FT.
- Cross-border currency movement:
  - No specific disclosure/declaration system for physical cross-border transport of currency or bearer negotiable instruments; agreement needed with Switzerland due to customs union.
- Seizure and confiscation:
  - Criminal procedure provides conviction-based criminal forfeiture and in rem (object) forfeiture, resulting in effective regime focused on asset recovery.
  - Confiscation covers criminal proceeds, product of the crime, (intended) instrumentalities, and equivalent value broadly.
  - In autonomous ML offenses, criminal confiscation not formally covered; confiscation of (intended) instrumentalities seriously restricted.
  - Seizure regime similar; appropriate legal means exist for tracing criminal assets including access to confidential account information.
  - No overall statistics available on seizures and confiscations.
- UNSCR 1267 asset freezes:
  - Freezing of terrorist assets under UNSCR 1267 adequately addressed.
  - No domestic terrorist list; action has been taken based on foreign lists.
  - No specific domestic procedure outside UNSCR 1267; general legal processes available.
- FIU characteristics:
  - FIU is administrative and functionally independent; functions effectively and produces high-quality reports.
  - FIU has legal powers to collect additional information from disclosing entities; powers to obtain such information from other DDA reporting entities are open to legal question.
  - FIU successful in raising awareness and has established trust with reporting entities.
- Law enforcement and prosecution practice:
  - Public Prosecutor, national police, and investigative judges handle ML/FT investigations; judges can impose coercive measures.
  - Legal framework comprehensive for serious investigations and prosecutions.
  - ML-related investigations and proceedings mostly initiated by mutual legal assistance requests; tendency to transfer cases to foreign authorities where predicate offense occurred, limiting domestic judiciary development in stand-alone ML prosecutions.

### D. Preventive Measures—Financial Institutions
- Legal framework:
  - AML/CFT preventive measures defined in DDA and expanded in DDO.
  - DDA substantially updated in 2004 to transpose revised FATF Recommendations and Second EU ML Directive (2001/97/EC).
  - DDA requires due diligence by legal and natural persons when conducting financial transactions on a professional basis.
  - All financial institutions and, in practice, all FATF-defined transactions are covered.
- Risk-based approach and CDD:
  - Liechtenstein employs a risk-based approach based on creating and updating a profile for each long-term customer including beneficial ownership, source of funds, purpose.
  - Detection of suspicious activities based on deviation from profile using risk criteria.
  - Legal provisions for risk-based system may give excessive discretion and do not fully comply with several specific FATF criteria.
  - CDD provisions broadly in line with international standard but need strengthening; DDA/DDO grant some exemptions from identification inconsistent with FATF standard.
  - Requirements for identification of beneficial owners and verification of identity need broadening.
  - Financial institutions may rely on domestic and foreign intermediaries for customer identification and, contrary to FATF standard, for ongoing monitoring; legal protection exists for institutions against responsibility for deficiencies in intermediaries’ CDD work.
- High-risk customers and records:
  - DDA/DDO provide only broad instructions for determining high-risk customers, complex/unusual large transactions or unusual patterns, transactions from countries not applying FATF Recommendations adequately, and for specific due diligence for politically-exposed persons (PEPs) or respondent banks.
  - Records must be maintained for at least 10 years and should permit reconstruction of individual transactions and provide evidence for prosecution.
  - AML/CFT requirements for foreign branches and subsidiaries need strengthening.
- Supervision and compliance:
  - FMA is independent integrated supervisor for prudential and AML/CFT supervision; all financial institutions licensed by FMA.
  - FMA developed and implements a broad range of AML/CFT preventive measures.
  - Annual on-site due diligence examinations carried out by external auditors under FMA mandate; greater FMA staff involvement in on-site inspections could improve effectiveness and would require additional resources.
  - Financial institutions have internal instructions, training programs, and designated compliance managers.
  - Auditors indicate overall compliance has improved significantly, although uneven across institution categories.
- Sanctions and reporting:
  - Scope of criminal sanctions broad; FMA refers cases to Prosecutor in practice.
  - Proportionality and effectiveness of sanction system restricted by narrow scope of available administrative sanctions.
  - Quality of SARs to FIU is high, but reporting system effectiveness could be improved.
  - Factors suppressing reporting include automatic freezing for five days of funds related to filed reports.
  - Reporting obligation should be amended to cover attempted occasional transactions and all terrorist-financing cases.
  - Protection for reporting in good faith should be broadened.
  - Prohibition against tipping-off, currently restricted to 20 days, needs to be made unlimited in time (also recommended in 2002 assessment).
- Cross-border wire transfers:
  - Requirements and implementation for transmitting data with cross-border wire transfers need alignment with international standard.
  - Authorities stated measures will be applied following adoption of EC Regulation 1781/2006.

### E. Preventive Measures—Designated Non-Financial Businesses and Professions (DNFBPs)
- Supervision and scope:
  - DNFBPs subject to DDA obligations and supervised by FMA similarly to financial institutions.
  - Trust and Company Service Providers (TCSPs) are very active and included in AML/CFT regime.
  - Activities covered in DDA include formation of legal entity not commercially active in domicile state and acting as an organ of such entity; professional actors must conduct CDD, file SARs, and maintain internal controls.
  - Due diligence inspections for DNFBPs conducted by auditors designated by FMA once every three years.
- TCSP-specific issues:
  - AML/CFT legal framework for TCSPs mirrors that for financial institutions; general strengths and weaknesses apply.
  - Critical issue: exemption from full CDD for work on behalf of companies commercially active in the state in which they are domiciled—FATF standard does not provide such an exemption.
  - Given TCSPs set up companies in many foreign jurisdictions, the exemption could be substantial and difficult to administer; in practice, preventive measures usually followed despite exemption.
- Legal professionals and other DNFBPs:
  - Lawyers, when not acting as TCSPs, are covered by DDA when performing financial “gatekeeper” functions per FATF; they enjoy legal privilege against reporting when representing clients in court proceedings.
  - Auditors similarly protected but are not licensed to manage money or accounts for clients.
  - No casinos currently; if licensed in future they will be required to identify clients at the door and report suspicious activities.
  - Real estate agents must conduct CDD and report suspicions concerning foreign transactions, but not for the purchase of Liechtenstein properties, which need government agency approval.
  - High-value goods dealers covered for cash transactions above CHF25,000, which are rare.

### F. Legal Persons and Arrangements & Non-Profit Organizations
- Legal forms and flexibility:
  - Laws governing legal persons and arrangements are highly liberal with many forms: establishments (Anstalten), foundations (Stiftungen), and common-law style trusts.
  - Most legal provisions are not mandatory and may be changed through founding deed or statute; entities/arrangements often custom-tailored.
  - Estimated that 90 percent of all companies registered in Liechtenstein are not commercially active.
- Beneficial ownership and TCSP role:
  - Liechtenstein relies on TCSPs to obtain, verify, and retain records of beneficial ownership and control.
  - All legal entities and arrangements not commercially active must have at least one Liechtenstein director/trustee and provide Office of Land and Public Registration (GBOERA) with the name and address of the relevant TCSP.
  - GBOERA allows FIU and FMA to link an entity/arrangement with a specific TCSP to locate beneficial ownership information.
  - TCSPs must obtain from contracting party a written statement identifying beneficial owner; law does not explicitly require TCSPs to verify information, though they usually do.
  - Obligation to obtain beneficial ownership information generally covers persons holding economic rights but not curators, protectors, or designated third parties controlling a structure.
- Commercially-active companies and nominee arrangements:
  - For commercially-active companies, no formal measures ensure beneficial ownership information is obtained, verified and maintained, although such information generally obtained in practice.
  - Nominee directors, nominee shareholders, protectors/collators and letters of wishes are permitted and frequently used for trusts and foundations.
- Non-Profit Organizations (NPOs):
  - Recommendation: conduct a full review of laws concerning NPOs and perform fuller outreach on CFT issues to this sector.

### G. National and International Cooperation
- National cooperation:
  - National cooperation between authorities on AML/CFT matters effective.
- International cooperation and information sharing:
  - Liechtenstein’s ability and willingness to cooperate internationally and share available information improved strongly.
  - Legal basis for sharing information with foreign supervisors needs strengthening; currently relies on Court decisions to overrule legislative prohibitions (related to Banking Act), and uncertainty exists whether this extends to all financial institutions and DNFBPs.
  - Right of appeal could cause delays in provision of information.
- FIU international activity:
  - FIU may exchange information and cooperate with any counterpart FIU abroad and can exercise all powers vested in it under domestic law when doing so.

*Source: IMF staff assessment as presented in Appendix II. Report on Observance of Standards and Codes (ROSC).*

### 100. The legal framework of the mutual legal assistance and extradition system is basically

### The legal framework of the mutual legal assistance and extradition system is basically

### Summary findings on legal framework and cooperation
- The legal framework of the mutual legal assistance and extradition system is described as "basically sound" and authorities "cooperate to bring proceedings to a satisfactory result."
- Significant scope for appeal is identified as "a delaying factor that is used in some cases."
- "The fiscal exception is also extensively interpreted: serious and organized fraud by way of fiscal means still profits from the amnesty Liechtenstein provides for fiscal offenses."
- A legislative amendment subsequent to the assessment "partially remedied this situation."

### Prioritized key recommendations (Table 1) — Legal System & Related Institutional Measures
- Criminalization of Money Laundering (R.1 PC; R.2 LC)
  - Amend the law to:
    - "Extend the list of predicate offenses for money laundering to environmental crimes, smuggling, forgery, and market manipulation;"
    - "Extend relevant offenses to include criminal proceeds of predicate offense;"
    - "Permit prosecution of ML in addition to the predicate offense;"
    - "Criminalize association or conspiracy of two persons to commit ML;"
    - "Provide for criminal liability of corporate entities."
- Criminalization of Terrorist Financing (SR.II PC)
  - "Criminalize the financing of individual terrorists and include any act committed with the required intent to constitute a terrorist act;"
  - "Define 'terrorist organization' in line with the FATF standard."

### Confiscation, freezing, seizing of proceeds of crime
- R.3 LC
  - "Formally provide for criminal seizure and confiscation of laundered assets as the object of autonomous money laundering;"
  - "Make all instrumentalities subject to seizure and confiscation."
- Freezing of funds used for terrorist financing (SR.III PC)
  - "Review provisions related to UNSCR 1373 and provide a procedure for freezing of suspected terrorism-related assets under UNSCR 1267;"
  - "Regarding the Taliban Ordinance, target assets indirectly controlled and partially or jointly possessed by the designated persons."

### Financial Intelligence Unit (FIU) and information access
- R.26 LC
  - "Expressly provide for access of the FIU to all relevant information held by the non-disclosing entities subject to the DDA;"
  - "Bring the FIU Act in line with the DDA in respect of terrorism financing."
- Other forms of cooperation (R.40 PC)
  - "Expressly provide for the possibility of exchange of confidential information at FIU level."

### Law enforcement, prosecution and competent authorities
- R.27 LC; R.28 C
  - "The Public Prosecutor should endeavor to take on more autonomous ML investigations, especially if foreign proceedings have not been instituted."

### Cross-border currency declaration
- SR.IX NC
  - "Put into place a disclosure or declaration system for the physical cross-border transportation of currency and bearer negotiable instruments."

### Preventive measures — Financial institutions (CDD, monitoring, reporting, secrecy)
- Customer due diligence and related measures (R.5 PC; R.6 PC; R.7 PC; R.8 PC)
  - Strengthen requirements for beneficial ownership information and verification.
  - "Define in law or regulation a wider range of high-risk customers, and define and explicitly require application of enhanced due diligence;"
  - "Require financial institutions to provide customer information for domestic wire transfers and align threshold for wire transfers with the SR.VII limit;"
  - "Provide an explicit requirement for enhanced due diligence for PEPs;"
  - "Expand the requirements for correspondent banking services;"
  - "Require measures to address risks of misuse for ML/FT of new technologies and non-face-to-face business."
- Third parties and introduced business (R.9 PC)
  - "Exclude the conduct of ongoing monitoring from the scope of delegation to third parties, and to remove the protection from punishment for the failure of an intermediary to meet DDA requirements;"
  - "Determine countries in which acceptable third parties can be based."
- Financial institution secrecy or confidentiality (R.4 LC)
  - "Provide in legislation an explicit exclusion from secrecy provisions for the provision of confidential information to foreign competent authorities;"
  - "Reconsider the current appeals procedure for administrative orders to improve efficiency of information-sharing."
- Record keeping and wire transfer rules (R.10 C; SR.VII NC)
  - "Require financial institutions to always include and maintain relevant originator information in cross-border and domestic wire transfers;"
  - "Introduce risk-management requirements for financial institutions for incoming wire transfers not accompanied by full originator information."
- Monitoring of transactions and relationships (R.11 PC; R.21 PC)
  - "Explicitly require financial institutions to pay special attention to all complex, unusual large transactions, or unusual patterns of transactions that have no apparent or visible economic or lawful purpose and those from countries that do not or insufficiently apply the FATF Recommendations."
- Suspicious transaction reports and reporting (R.13 PC; R.14 PC; R.19 C; R.25 LC; SR.IV PC)
  - "Discontinue the automatic freezing of assets on the filing of a SAR and simplify SAR reporting requirements;"
  - "Ensure that the pre-clearance system for SARs does not undermine the effectiveness of the reporting system;"
  - "Extend the SAR reporting requirement to include attempted transactions, and explicitly include funds linked or related to, or to be used for terrorism, terrorist acts or by terrorist organizations;"
  - "Extend good-faith reporting protection to directors, officers and employees;"
  - "Remove the time limit on the prohibition of tipping off."

### Internal controls, supervision, and shell banks
- Internal controls, compliance, audit and foreign branches (R.15 LC; R.22 PC)
  - Require financial institutions to ensure adequate employee screening, adequately resourced internal audit, and that foreign branches and subsidiaries observe AML/CFT measures.
  - "The FMA should take steps to improve implementation of appropriate group-wide AML/CFT measures for Liechtenstein financial institutions."
- Shell banks (R.18 LC)
  - "Require on licensing that banks must engage in substantive business activities or, alternatively, opt to explicitly prohibit shell banks."
- Supervisory and oversight system (R.17 PC; R.23 C; R.25 LC; R.29 LC)
  - "Enlarge the range of available administrative offenses and ensure that cases are processed in a timely, effective and proportionate manner;"
  - "Issue specific guidance to reporting entities on CFT issues;"
  - "Consider providing additional resources to allow FMA supervision staff to participate directly in on-site inspections, and to address the AML/CFT risks of the insurance sector."

### Money and value transfer services
- SR.VI LC
  - "Reduce the legal threshold for MVT CDD to conform to the FATF wire-transfer threshold."

### Preventive measures — Non-Financial Businesses and Professions (DNFBPs)
- Customer due diligence and record-keeping (R.12 PC)
  - "Strengthen legislative requirements for company formation: TCSPs should conduct CDD and ascertain the beneficial owner when forming commercially-active entities and related holding companies;"
  - "Define in law or regulation a wider range of high-risk customers to include notably non-resident accounts, accounts opened through an intermediary, entities with bearer shares, trusts and foundations, and entities registered in privately managed registers and databases;"
  - "Apply also to DNFBPs all appropriate recommendations listed above for financial institutions."
- Suspicious transaction reporting (R.16 PC)
  - "Conduct outreach to non-reporting TCSPs and take other appropriate measures to increase the breadth of DNFBP reporting."
- Regulation, supervision, monitoring, and sanctions (R.17 PC; R.24 LC)
  - "Consider increasing the frequency of DDA audits for TCSPs, and a more direct involvement of FMA staff in DDA audits."

### Legal persons, arrangements, and nonprofit organizations
- Access to beneficial ownership and control information (R.33 PC; R.34 PC)
  - "Bring the definition of 'beneficial owner' in line with the FATF standard to cover the control structure of legal persons and arrangements;"
  - "Require intermediaries to verify beneficial ownership information;"
  - "Require that information on beneficial ownership and control of legal entities that are commercially active in the domiciliary state are obtained."
- Nonprofit organizations (SR.VIII PC)
  - "Review NPO laws and regulations and conduct outreach to NPO sector on FT risks."

### National & international cooperation, treaties, and MLA/extradition recommendations
- National cooperation and coordination (R.31 C) — no specific additional recommendation listed.
- The Conventions and UN Special Resolutions (R.35 PC; SR.I PC)
  - "Ensure that the Vienna and Palermo Conventions, and the UN Convention for the Suppression of Financing of Terrorism are fully implemented;"
  - "Implementation of UNSCRs needs to be refined to expressly cover assets under indirect control or ownership of terrorists and to fully criminalize FT."
- Mutual Legal Assistance & Extradition (R.36 PC; R.37 C; R.38 LC; R.39 PC; SR.V PC)
  - "The legislator should endeavor to find a solution for potential usage of delaying tactics before the Constitutional Court;"
  - "Serious and organized fiscal fraud should be excluded from the fiscal exemption;"
  - "The deficiencies in the ML and FT offense should be remedied to enable full compliance with dual criminality ruled requests."

### Other recommendations and resource issues
- Other relevant AML/CFT measures or issues (R.30 LC; R.32 LC)
  - "Maintain statistics on criminal procedure seizures and confiscations and more comprehensive statistics on seizure and confiscation of criminal proceeds."

### Authorities’ response and planned actions
- Liechtenstein authorities:
  - Express appreciation for the evaluators' work and see the report as comprehensive and detailed.
  - Note that since the IMF 2002 assessment, Liechtenstein has made "serious and significant efforts" to strengthen the AML/CFT regime, including amendments and revisions such as the Due Diligence Act (DDA).
  - State that the DDA "applies to every financial institution and DNFBP in Liechtenstein" and that the Financial Market Authority is the single regulator supervising every financial institution and DNFBP.
  - Report that both money laundering and financing of terrorism "are criminalized and to a large extent in line with international standards."
  - Describe a "very proactive reporting system" leading to detection of high profile cases and improved international cooperation.
  - Indicate actions already implemented or in progress:
    - "Mutual legal assistance in cases of VAT tax fraud as per July 27, 2007" implemented.
    - "The EU Directive 2005/60/EC (Third EU AML/CFT-Directive) and the Directive 2006/70/EC (laying down implementing measures for Directive 2005/60/EC) are planned to be implemented in 2008."
    - "Implementation of the EU Regulation No. 1781/2006 on information on the payer accompanying transfers of funds (with regard to wire-transfer) is going to lead to full compliance with SR VII."
    - "Implementation of a disclosure system in order to fulfill the required measures of SR IX concerning physical cross-border transportation of currency and bearer negotiable instruments is—due to the customs union in collaboration with Switzerland—already in progress."
  - Commit to continue strengthening the AML/CFT system and to pursue "a sustainable implementation of international standards."

*Source: IMF assessment content provided in the supplied PDF excerpt.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2008/_cr08195.pdf_