Lichtenstein-Russian Zombies Are Real
Russian Zombie Trusts threaten to upend Lichtensteins financial markets
Liechtenstein is experiencing a crisis related to "zombie trusts," which are entities linked to Russia and other countries. These trusts have become a focus for authorities due to concerns about their potential misuse, particularly in the context of international sanctions.
The financial sector, particularly trust funds, is the backbone of the economy of Liechtenstein, a country with a population of around 40,000 people.
In the past, it was known as a place where the world's wealthy hid their wealth. However, in recent years, Liechtenstein has been trying to change that image by joining the IMF and introducing more transparent financial rules.
"Zombie Trusts":
These trusts are entities that are either inactive or have been abandoned by their owners, but remain legally registered and potentially vulnerable to illicit activities according to the Financial Times. A significant number of these trusts are associated with individuals and entities from Russia, raising concerns about potential sanctions evasion and illicit financial flows.
Liechtenstein is a jurisdiction known for its trust structures, which can be used for asset management and wealth preservation. However, this also makes it a target for those seeking to hide or move assets through complex legal structures.
On Telegram 07 July 2025:
Liechtenstein is in the midst of a trust fund crisis due to sanctions against Russia, the FT reports.
Hundreds of entities in legal paralysis in the principality after US sanctions trigger wave of director resignations.
Several organisations were included in the sanctions list due to alleged links to Russians. Due to possible secondary US sanctions, the FMA instructed fiduciaries to terminate relationships with Russian clients, noting that this was the only appropriate means of controlling risks. As a result, trust fund directors resigned en masse, effectively leaving the organizations without management.
Liechtenstein law allows for the creation of trusts, which involve a settlor (the person creating the trust), a trustee (the person managing the trust), and a beneficiary (the person who benefits from the trust).
Background:
Reuters reported at the end of May 2025 that Liechtenstein is examining tightening control of scores of Russian-linked trusts abandoned by their managers under pressure from Washington, according to several people familiar with the matter.
The country, one of the world's smallest and richest, is home to thousands of low-tax trusts, hundreds of which have links to Russians, two of the people with direct knowledge of the matter said, putting it in the crosshairs of Western efforts to sanction Moscow. Since Russia's invasion of Ukraine, the U.S. Treasury has sanctioned several individuals and trusts, opens new tab in Liechtenstein it said, were to Russian oligarchs, including Vladimir Potanin, and a long-time ally of Russian President Vladimir Putin, Gennady Timchenko.
In Liechtenstein, trusts are very popular. There are about 20,000 of them, which means there is about one trust for every two people living there! These trusts hold billions of dollars and are a key part of the country's financial system.
When the managers of the Russian-linked trusts quit, the treasures inside were frozen. This means no one could access yachts, homes, or money that belonged to wealthy Russians. It's like if the treasure chests suddenly had no key-holders - everything inside got locked down.
This freeze is a big deal because it shows how powerful sanctions can be. By stopping access to these assets, the U.S. and other Western countries are trying to put pressure on Russia. At the same time, it created a crisis for Liechtenstein. The country now has to figure out what to do with these abandoned trusts and make sure none of the frozen assets fall into the wrong hands.
Liechtenstein's government knows this problem is serious. They are trying to fix it quickly. Officials say that out of the 475 trusts affected by managers quitting, about 350 need new managers appointed. Some trusts are being closed, while others are stuck because no one can be found to take over.
This situation has put Liechtenstein in the grip of its biggest crisis since 2008, when a leak of LGT bank customer data exposed massive tax evasion by clients from abroad. The trust industry is a huge part of the country's economy — it's worth almost 930 billion dollars! If the trusts don't work properly, it can hurt the whole country, including its banks.
Banks in Liechtenstein are especially worried because if they don't follow international rules, the U.S. might cut them off from using the dollar. Since the dollar is the world's most important currency, losing access would be a big problem for these banks and the country's economy.
The government is thinking about taking more control over these abandoned trusts to make sure they are properly managed and to keep an eye on what happens to the assets inside them. They have also promised that no money or property will be given back to anyone who is sanctioned - meaning those punished by international rules.
References and sources:
https://home.treasury.gov/news/press-releases/jy1402
https://ofac.treasury.gov/recent-actions/20230414
https://regtechtimes.com/liechtensteins-trust-industry-shaken-by-russian/
One can only hope that the threat of the US cutting the Liechtenstein banking sector from using the dollar will be enough of an incentive for them to do the right thing. I'm sure common sense and self preservation will prevail!