Russia sanctions provoke European trust fund catastrophe
(MENAFN) Liechtenstein is facing a serious crisis in its trust fund sector caused by Western sanctions on Russia, leaving hundreds of trusts in legal uncertainty, the Financial Times reported. The problem revolves around so-called “zombie” trusts—funds legally recognized but effectively frozen because fiduciaries and board directors have resigned en masse to avoid violating US sanctions.
A Vaduz-based lawyer described the situation as unprecedented, with multibillion-dollar trusts stranded without management. Liechtenstein, a key financial center for Europe’s wealthy, implemented EU sanctions against Russia after the Ukraine conflict escalated in 2022. However, harsher US sanctions imposed in 2024 on entities linked to Russian nationals based in Liechtenstein have disrupted the country’s vast trust industry.
These trusts hold assets ranging from millions in cash to yachts, private jets, family offices, and luxury properties. Many belong to Russians not directly sanctioned but residing in countries like France, Italy, or the UAE. In 2023, the US warned European states, including Liechtenstein, that secondary sanctions could target institutions dealing with certain Russian clients, even if those clients were not individually sanctioned.
In September 2024, Liechtenstein’s financial regulator advised that severing ties with exposed clients was the safest way to manage legal and reputational risks. Currently, about 350 trusts are in limbo, with 85 effectively abandoned, and experts warn the total affected could reach 800.
The government has created an emergency task force to find new board members and liquidators, but progress is slow. Legal experts also warn of potential retaliatory pressures from Moscow, which has condemned Western sanctions and threatened countermeasures.
Bankers and lawyers fear the crisis could spread to Liechtenstein’s broader financial sector, including its major banks, and damage the country’s reputation as a secure, politically insulated wealth management hub.
“This situation is becoming problematic for Liechtenstein’s financial center,” cautioned MP Thomas Vogt.
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