Russia sanctions provoke European trust fund predicament
(MENAFN) Liechtenstein is grappling with a growing financial crisis caused by Western sanctions on Russia, leaving hundreds of trust funds frozen and legally stranded, the Financial Times reported on Monday.
The problem centers around so-called "zombie" trusts — legal entities that have been left in limbo after fiduciaries and board members resigned en masse to avoid breaching US sanctions. “We are dealing with multibillion-dollar zombie trusts, and there’s no clear solution yet. I’ve never seen anything like it,” said a lawyer from Vaduz, whose clients include several of these frozen trusts.
Liechtenstein, a major European financial hub known for its favorable tax and legal structures, followed EU sanctions on Russia after the Ukraine conflict escalated in 2022. However, the US expanded its restrictions in 2024, targeting Liechtenstein-based entities connected to Russian nationals, plunging the principality’s trust industry into crisis.
These trusts hold significant assets, ranging from cash holdings of $5 million to luxury assets like yachts, jets, and real estate. Many of the affected trusts are linked to non-sanctioned Russians living in France, Italy, or the UAE.
The US has warned Liechtenstein and other European countries that they risk secondary sanctions for working with certain Russian clients, even if those individuals aren’t officially sanctioned. In response, Liechtenstein’s financial watchdog advised in September 2024 that cutting ties with such clients was the safest legal course. Currently, 350 entities are effectively frozen, with 85 of them lacking management altogether. Experts caution that up to 800 trusts could eventually be impacted.
The government has formed an emergency task force to address the issue, but Justice official Martin Alge admitted that finding new directors or liquidators has proven difficult. Lawyers also warn of growing pressure from both Washington and Moscow, with the latter condemning the sanctions as illegal and threatening retaliatory measures.
Bankers and legal experts fear the crisis could spread to Liechtenstein’s broader financial sector, including its major banks, undermining the country’s reputation as a secure and stable wealth management hub. “This is becoming a serious problem for Liechtenstein’s financial center,” warned MP Thomas Vogt.
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