Liechtenstein is facing a crisis of “zombie” trusts, with hundreds of entities linked to wealthy Russians left in legal limbo. The emergency task force launched by the tiny Alpine principality aims to address the issue caused by a wave of resignations by fiduciary and board directors in response to US sanctions against Russia.
The situation has left as many as 800 orphaned entities, legally recognized but functionally frozen, with no one in charge to manage assets or oversee liquidation. This has raised concerns among bankers and lawyers about potential contagion into Liechtenstein’s broader financial sector, including major banks.
The crisis was triggered by US sanctions against Liechtenstein-based entities and individuals associated with Russian individuals and activities. The Financial Market Authority (FMA) in Liechtenstein adopted a zero-tolerance approach to comply with US sanctions, leading to the mass resignation of directors.
The opaque nature of these entities makes it difficult to estimate the amount of wealth connected to Russian individuals that is frozen or stuck. The trusts are said to contain assets ranging from cash to yachts, airplanes, family offices, and luxury properties.
The government of Liechtenstein has acknowledged the seriousness of the situation and has set up a steering group to address the problem of orphaned legal entities. Efforts to find liquidators and solutions, such as appointing new boards, have been challenging due to the overlapping legal obligations from foreign sanctions regimes and local regulations.
The crisis has raised concerns about Liechtenstein’s status as a financial hub, known for its favorable tax and legal frameworks. The government is working to find a resolution to prevent further damage to the country’s reputation and prevent pressure from both the US and Russia.
Overall, the situation in Liechtenstein underscores the complex challenges posed by international sanctions and the need for proactive measures to address legal and financial risks. The government’s efforts to tackle the crisis and cooperate with international partners demonstrate a commitment to resolving the issue and safeguarding the country’s financial stability.
