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TINY NATION OF BIG BANKS CHIDED

Liechtenstein's banking rules again are characterized as being too lax, allowing foreigners to evade taxes at home.

Liechtenstein is in trouble again over its banking rules, accused of being a haven for European tax evaders - years after it hurriedly revised its laws to shake off the label of being a money-laundering center.

While the tiny Alpine principality has touted the reforms it made several years ago, German investigators allege that hundreds of wealthy Germans have been stashing away their money in Liechtenstein trusts, hiding behind banking secrecy laws to keep from paying taxes.

The spat has dragged Europe's tax havens back into the spotlight - a touchy subject and an uncomfortable media glare for Liechtenstein, a famously discreet bastion of gentility nestled in the Alps between Austria and Switzerland.

The Organization for Economic Cooperation and Development, a 30-country watchdog body, says Liechtenstein is among only three countries still on its blacklist of "uncooperative tax havens" along with the small European nations of Andorra and Monaco.

Liechtenstein had been lobbying to have its name removed from the list, saying the classification is based on outdated information. But the renewed pressure is likely to increase international scrutiny of the continent's other shady financial centers.

"Excessive bank secrecy rules and a failure to exchange information on foreign tax evaders are relics of a different time and have no role to play in the relations between democratic societies," said Angel Gurria, secretary-general of the OECD.

Wealth built on banking

Liechtenstein, Monaco and Andorra have tourism and other industries, but financial services play an outsized role in maintaining high living standards in all three.

Banking fueled Liechtenstein's transformation from a poor agricultural country, bringing an influx of wealth to the principality whose per-capita income of 112,000 Swiss francs ($102,000) now ranks it among Europe's wealthiest countries. Glass-and-steel banks line the streets of the capital, Vaduz, below a towering medieval castle.

The financial sector developed through close links with Switzerland, another country whose fabled banking secrecy has attracted fortunes from around the world. As in neighboring Switzerland, tax evasion is not a crime.

Claudia Meier, an analyst at Zurich-based private bank Vontobel, said the tax affair would likely hurt the business of the Liechtenstein banks, with German clients withdrawing assets and new investments declining.

That could deal a sizable blow to the economy. Banks and other financial services contribute 30 percent of Liechtenstein's gross domestic product of $3.9-billion, and the royal family owns the country's largest bank, which handles investments from around the globe.

Prince speaks out

The ruling Prince Alois, who has sweeping rights including the power to dismiss governments and veto laws, has admitted in the past that Liechtenstein had a "big problem" with its image, but has touted strong regulations to fight money laundering and terrorism funding.

He jumped into the fray Tuesday to again defend his realm, saying Germany should get its own tax system under control.

The key problem identified by German officials: private trusts opened in Liechtenstein that allegedly can be used for tax evasion.

Liechtenstein's government says it is preparing a reform of laws governing such trusts, but noted that the changes have been planned since 2001 and had nothing to do with recent complaints from Berlin.

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