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Professional Diligence
(Extract from F.L. Trending published in 2001)

On 1 January 2001, Liechtenstein put a new act on professional diligence obligations for financial transactions into force. In parallel, specially trained staff has been made available to supervise compliance with due diligence legislation. These efforts have been officially acknowledged by the Financial Action Task Force (FATF) of the Organisation for Economic Cooperation and Development (OECD). It has assessed Liechtenstein as a state that supports international efforts to fight money laundering. For investors, this rating is another clear indication that the Liechtenstein legal framework for financial services meets the highest international quality and safety standards.

Despite stricter provisions on professional diligence with financial transactions, the Liechtenstein laws on banking secrecy have remained untouched. 

 

A Consequence of Globalisation


However, the new Due Diligence Act (DDA) is not about banking secrecy but about fighting money laundering. Globalisation has not only brought new impulses for international business but also made the fight against organised crime and money laundering (which goes with it) a worldwide problem that does not know national borders.

This is why money laundering is a punishable offence in many countries. Liechtenstein issued an amendment to its Penal Code as early as in 1996, and has expressly laid down the objective of fighting money laundering and organised crime in the new DDA. 

Comprehensive Diligence Duties


The new DDA regulates all persons and companies who on a professional basis accept or keep in custody third parties? assets or help to invest or transfer them. The DDA names banks and finance companies, lawyers, legal agents and trustees, life insurance companies, Liechtenstein branches of foreign investment firms, as well as the Liechtenstein Postal Services and the exchange offices. 

 

Identification of Contract Partners


All persons subject to the DDA have to identify their contract partners by passport or identity card when entering into business relations. The ordinance pertaining to the DDA specifies that the name, first name, date of birth, residential address, country of residence, and nationality of the contract partner must be laid down in the records.

Representatives of legal entities must provide an extract from the commercial register or an equivalent document that must not be older than six months. An equivalent document would be an official confirmation issued by a national authority, statutes, formation documents, a confirmation issued by the auditor of the annual accounts or an official authorisation by the competent authority to carry out the relevant professional activity. The documentation of the business relation must include not only the company name but also the registered office, the country where the company is registered, the date of formation and, if available, the place and date of the entry in the public register.

Although the ordinance basically assumes that the identification is done during a personal meeting with the customer, there is also the option of opening a business relation by correspondence. In that case, documents certified by a notary public must be sent. In addition, the personal identification must be carried out later during the first personal meeting with the customer.

 

Identification of the Beneficial Owner

 

If the beneficial owner of the endowed assets is not the same as the contract partner, the latter must make a statement about the beneficial owner; that statement must include the same information as the documentation of the contract partner. The only exceptions from that obligation are companies quoted at a stock exchange and business relations between banks that are subject to Directive 91/308/EEC or an equivalent regulation. 

 

Repetition of Identification


The identification process must be repeated if doubts arise about the identity of the contract partner or the beneficial owner in the course of business relations. If there is a strong suspicion that a contract partner has given false information about himself or about the beneficial owner, business relations may be discontinued if this is possible without putting assets at risk. The withdrawal of the assets must be sufficiently documented. If, however, the correct information is provided without delay, business relations may be continued.

 

Defence against money laundering

 

If the suspicion arises during a financial transaction that there might be a connection with money laundering, with a prior offence of money laundering (not including offences concerning taxation) or organised crime, the circumstances must be clarified in detail.

There must be an investigation in particular if the transaction is not in accordance with the economic background or the usual business activities of the contract partner or the beneficial owner or if the transaction does not seem plausible, retraceable or useful in view of the information about the customer. In these cases, all information must be obtained that is suitable to support or dismiss the suspicion. The clarification must be documented.

If the suspicion remains, a report must be filed with the Liechtenstein Financial Intelligence Unit; the assets concerned must be blocked for a period of ten days without informing the contract partner. The Public Prosecutor or the Liechtenstein Financial Intelligence Unit may extend that term by another 20 days.

 

Clear Rules on Documentation

 

The persons and companies subject to the DDA are obliged to carry out all clarification measures in writing and to prepare a note about every customer that includes information on the contract partner, the beneficial owner, any authorised persons, the economic background and on the origin of the endowed assets. Also, it is necessary to document the profession and the business activities of the beneficial owner as well as the purpose of use of the assets.

Every company must issue internal guidelines about the contents, the keeping and the preservation of diligence records as well as about the actions the staff will have to take in the case of dubious transactions.

Furthermore, every company must name a contact person to the Department for Financial Services.

Also, a diligence officer must be appointed and charged with the internal organisation, the preparation and implementation of guidelines, the training and further education of staff and the providing of advice in all matters of professional diligence duties.

Finally, a control officer must be appointed, whose duties are to monitor compliance with the law at all times and to prepare regular reports to the management on the examinations carried out by him.

Further controls are carried out by the Department for Financial Services. The information obtained may only be used for fighting money laundering and organised crime.

 

Legal Obligation to Further Education

 

It is clear that all these new obligations cannot be met without adequate training for the persons responsible as well as their employees. Therefore, providing evidence of further education activities is part of a compulsory internal annual report required by the law.
Furthermore, the annual report provides information on the extent of financial transactions as well as on the activities of the diligence officer and the control officer.

 

Severe Punishment for Infringements


Infringements of the DDA lead to severe punishment. Persons who do not meet their obligations and e.g. fail to carry out identification or documentation correctly may be punished by the Princely Court of Justice by up to six months imprisonment or a fine of up to 360 daily rates.

In addition, the Government may impose administrative fines of up to CHF 100,000 if information is refused, incorrect information is given, major facts are concealed or instructions of the Department for Financial Services are not complied with.

Further sanctions such as the cancellation of the licence to operate are expressly reserved.

 

New Rules Set High International Standards


Public figures from politics and business have been emphasising that Liechtenstein is not interested in criminal money and will do everything to keep it away from the financial location of Liechtenstein.

The DDA of 1996 provided Liechtenstein with rules that could well stand international comparison. These rules have become even stricter in the new DDA, so that they are now considered to be exemplary on an international level.