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Will Liechtenstein's Autonomy Prevail?

April 23, 2003

Tags Media and Culture

Freedom havens are always of interest to libertarians. For instance, the  Free State Project  hopes to establish liberty in our lifetime by designating a single  U.S. state as the center for political downsizing and constitutional federalism. Offshore havens such as  Bermuda and  Vanuatu are gaining notoriety for their favorable taxation and financial policies. Although, when the topic of autonomous freedom retreats is discussed,  Liechtenstein is frequently a point of focus.     

The Principality of Liechtenstein is a small State in Central Europe, situated between Austria and Switzerland. Though its geographical location and diminutive size make it a somewhat anonymous State, its independent political climate gives rise to an exemplary model for the study of political and economic phenomena.

Once a part of the Holy Roman EmpireLiechtenstein gained its sovereignty in 1806 when it was admitted as a member of the Confederation of the Rhine. It rose to the status of an independent State in 1866, and as a result, became the master of its own fate. Its standing army was abolished in 1868, and this marked the beginning of its long-standing neutrality position within Europe's geopolitical ambit.

Upon its independence, Liechtenstein's interests abroad were maintained by Austria until the collapse of the Austro-Hungarian Empire in 1918. At this time, Liechtensteiners recognized that a break with politically unstable Austria was imminent, and so they turned toward their neighbors to the west in Switzerland. The fiercely independent principality sustained its neutrality throughout World War I, and shortly thereafter, it adopted the Swiss currency and entered into a customs agreement with Switzerland. Since that time, Switzerland has represented Liechtenstein in international matters. 

This German-speaking Principality is governed by a hereditary constitutional monarchy, but in fact, it is often referred to as a representative Republic. According to its modern Constitution, state power proceeds from the Ruling Prince and the People. With its eleven municipal areas and a population of 33,000, its constitutional neutrality proviso requires that it refrain from all foreign aggression and political alliances—a truly libertarian foreign policy as espoused by Washington and Jefferson.

In the post-World War II era, Liechtenstein underwent an industrialization in which it developed into one of the world's wealthiest countries, with a lofty standard of living intact. What's more, private banking became Liechtenstein's banner product. Its refusal to bow to rigorous banking regulatory oversight while maintaining the secrecy of its financial institutions made it into a prospering financial haven along the lines of neighboring Switzerland. 

Liechtenstein is also a business asylum for reasons that it is very unrestrictive to set up and perform business operations, due to its privacy of registration and its lack of compulsory permits and registrations. Also, the varied privacy laws make this place an ideal environment for the establishment of a trust, foundation, or even an anstalt—a corporate form that is particular to Liechtenstein—which is more or less an anonymous fund with beneficiaries.

Tax-wise, both business and personal tax rates are moderate compared with the United States and neighboring European countries. Minimal taxes are imposed on multinational corporations, making it a popular refuge for international business headquarters. In spite of the low tax rates, the government of Liechtenstein derives much revenue from its authentication as a thriving financial and business center.

Over the years, Liechtenstein's magnificent wealth creation has been helped along by a lack of public debt. It owes nothing, and its annual revenues are truly higher than its expenditures! Try to find that in a democracy, where the majority wolves and minority lambs vote on what will be dinner. In addition, inflation and unemployment are nearly invisible as are cultural shortcomings such as illiteracy.

The glory of Liechtenstein's political freedom, overall, has been due to unequivocal banking secrecy; lax regulatory oversight; anonymity in business formation and banking; legal company structuring that is friendly to wealth-creating holding companies; overall moderate taxes; tax laws allowing for tax-efficient asset management; and a minimal licensing and permit environment.

However, the future could be bleak for this Principality. The Financial Action Task Force (FATF), a unilateral organization that operates under the auspices of "anti-money laundering", had long ago made Liechtenstein a favorite target because of its tax haven status and its refusal to "cooperate" with regulatory measures. Essentially, the FATF is a pro-big government blackmail organization that adopts a fluffy and well-meaning name, but operates to rid the world's individuals of financial wealth and privacy. By 2002, the Liechtenstein government had kowtowed under pressure to the organization's decrees, agreeing to cooperate with the FATF in the establishment of various "anti-money laundering" programs and regulations. This was the trade-off to get off the organization's blacklist.

Additionally, the rotten "know your customer" banking laws have recently taken hold for banks belonging to the country's Bankers' Association. This has effectively destroyed the guarantee of anonymity for account holders, making  Liechtenstein an unknown in terms of banking privacy issues in the future. 

In other words, governments and alliance organizations around the world will continue to target Liechtenstein until they break down that nation's autonomy and lack of restrictions.  

In a related note, this tiny nation has been making the rounds in world news in recent times. Traditionalist-minded Liechtensteiners recently voted to give their ruling Prince more powers, and especially, a wider range of veto rights. The democracy talking heads 'round the world are appalled that this monarchy insists on continuing its tradition while shunning their notions of all-inclusive, egalitarian-democratic government. 

The Council of Europe is one of those organizations that has been trying to force its model of "democratic principles" upon this seemingly "uncooperative" nation that demands to be left alone to exercise its monarchical traditions. Council of Europe Secretary General Walter Schwimmer has recently said that "the Council of Europe will have a closer look at the practical application of the amended constitution. I hope that the new rules will be used to strengthen the democratic institutions and that the courts will keep their independence." A translation of this would indicate that ruling decrees will be forcibly imposed on this tiny freedom enclave should it not fall in line with Europe's ruling regime.  Liechtenstein's options for self-rule in the future will likely be shut down as it eventually will have to succumb to the edicts of Europe's multitude of pro-E.U., anti-independence governing bodies.

If truth be told, with wealth and liberty-hating organizations like the Financial Action Task Force, the United Nations, and the Council of Europe sniffing around Liechtenstein's borders and enforcing their diktats by way of intimidation and blackmail policies, its autonomy and reputation as one of the world's most emancipated societies will likely give up the ghost. 


Karen De Coster, CPA is a freelance writer and Business Consultant in the Midwest. Send her MAIL and see her Mises.org Articles Archive. Also, see her website at www.karendecoster.comThis column is a modified version of an essay that will appear in the Encyclopedia of Capitalism (forthcoming, 2004).


Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.

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