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Economy

Liechtenstein, When A Tax Haven Rights Its Ways And Sheds Its Shells

The former capital of letterbox companies has reinvented itself, minus the tax evasion. Liechtensteiners are discretely delighted by Panama's troubles.

Schaan, Liechtenstein
Schaan, Liechtenstein
Sylvain Besson

VADUZ — It was fiscal slaughter, a purge in the name of financial transparency. In five or six years, Liechtenstein saw half of the letterbox companies that made it a tax haven of choice — and of questionable repute — disappear.

"We've gone from 90,000 companies to about 40,000 now," explains Katja Gey, director of the Principality's Office of International Financial Affairs in the capital Vaduz.

The interest in these structures has largely vanished since Liechtenstein gave up on attracting undeclared money. While the Panama Papers are rocking the offshore world, Liechtenstein seems to show us another way.

It's been a largely forced march towards conformity that allows Liechtenstein to look down not only on Panama the straggler, but also on Switzerland, of which it long was a satellite.

For years, the tiny nation wedged between Switzerland and Austria was, with Panama, a specialist in the sale of dummy corporations. With just 3,000 Swiss francs a year ($3,100), a European client — typically a small or medium-sized business owner with a million bucks in undeclared income — could create his Liechtensteiner foundation.


Swiss banks used to order such companies by the dozens via Liechtensteiner fiduciaries, attorneys who could bring companies to life with nothing more than a rubber stamp, and who would sign the balance sheet each year. The state would charge 1,000 francs ($1,040) per company, for a total annual revenue of about 90 million francs ($94 million). The honey pot has largely dried up since then. With the end of bank secrecy, "one third of our clients have gone to Switzerland where foundations had their accounts, one third turned legal, and the tax authorities caught another third," a state employee says.

Those who left dispersed across Malta, Latvia, Cyprus, and of course Panama, a shelter for hardcore "tax evaders" who wanted to continue doing what they'd been doing. "In terms of money laundering and fight against tax evasion, Panama is now where Liechtenstein was many years ago," says Gey. The Principality was itself the target of a massive data leak in 2000 that exposed how offshore finance worked.

The former tax haven now wants to be a good pupil of international fiscal cooperation. And the forced clean-up has angered fiduciaries. Some have lost up to 80% of their customer base. Others survive only thanks to the task of liquidating foundations, which can be extremely arduous when it comes to big families and big money.

This transition will soon come to an end. By 2017, one year before Switzerland, Liechtenstein will start applying the automatic exchange of information. As a member of the European Economic Area, it must abide by European rules and thus create a central register eventually of all beneficiaries of accounts and companies registered there, a measure that Switzerland has yet to contemplate.

Liechtenstein still has ambitions to act as the world's attorney for the wealthy. Only now, it wants to do so with offshore structures that will actually serve their declared purposes, including the protection of family heritage in case of inheritance. "We used to be like a big supermarket, now we're more like a boutique," Gey concludes.

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Coronavirus

Chinese Students' "Absurd" Protest Against COVID Lockdowns: Public Crawling

While street demonstrations have spread in China to protest the strict Zero-COVID regulations, some Chinese university students have taken up public acts of crawling to show what extended harsh lockdowns are doing to their mental state.

​Screenshot of a video showing Chinese students crawling on a soccer pitch

Screenshot of a video showing Chinese students crawling

Shuyue Chen

Since last Friday, the world has watched a wave of street protests have taken place across China as frustration against extended lockdowns reached a boiling point. But even before protesters took to the streets, Chinese university students had begun a public demonstration that challenges and shames the state's zero-COVID rules in a different way: public displays of crawling, as a kind of absurdist expression of their repressed anger under three years of strict pandemic control.

Xin’s heart was beating fast as her knees reached the ground. It was her first time joining the strange scene at the university sports field, so she put on her hat and face mask to cover her identity.

Kneeling down, with her forearms supporting her body from the ground, Xin started crawling with three other girls as a group, within a larger demonstration of other small groups. As they crawled on, she felt the sense of fear and embarrassment start to disappear. It was replaced by a liberating sense of joy, which had been absent in her life as a university student in lockdown for so long.

Yes, crawling in public has become a popular activity among Chinese university students recently. There have been posters and videos of "volunteer crawling" across universities in China. At first, it was for the sake of "fun." Xin, like many who participated, thought it was a "cult-like ritual" in the beginning, but she changed her mind. "You don't care about anything when crawling, not thinking about the reason why, what the consequences are. You just enjoy it."

The reality out there for Chinese university students has been grim. For Xin, her university started daily COVID-19 testing in November, and deliveries, including food, are banned. Apart from the school gate, all exits have been padlock sealed.

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