By Jason Rhodes
VADUZ, Liechtenstein (Reuters) - Liechtenstein agreed to ease its strict bank secrecy by committing to international tax and data standards, increasing pressure for similar concessions from other tax havens.
The move comes as finance ministers from the G20 group of rich nations and emerging powers prepare to meet in Britain from Friday ahead of a summit in London on April 2 that is expected to seek ways to fight tax evasion through offshore centers.
The tiny principality, a financial center wedged between Switzerland and Austria, is seeking to be removed from a blacklist of tax havens and will now offer bilateral tax deals for cooperating in cases of tax fraud and tax evasion.
"Today's declaration was very important in the run-up to the G20 meeting, so that Liechtenstein's strategy is recognized," Prime Minister Otmar Hasler told a news conference.
Liechtenstein, whose banks have suffered big withdrawals since Germany launched a probe last year into 1,000 citizens suspected of dodging tax by parking money there, said its move could serve as an example to other nations under pressure.
"I'm quite sure Switzerland will take similar steps in the near future," said Crown Prince Alois von und zu Liechtenstein.
Neighboring Switzerland, the world's biggest offshore banking center, which is under pressure from a U.S. tax fraud investigation into services offered by UBS
"As the current recession requires huge stimulus packages from governments, pressure against tax haven countries and
banking secrecy is increasing," said Nicolas Michellod, an analyst at Celent, a research and consulting firm.
"This is not a surprise that small countries like Liechtenstein are the first to be under siege," he said, noting that Switzerland was also under intense pressure but it would be interesting to see how the European Union handled member states like Luxembourg and Austria.
Liechtenstein, along with Andorra and Monaco, is on the Organization for Economic Co-Operation and Development's (OECD) blacklist of uncooperative financial centers.
France and Germany, two G20 members, last week proposed new steps against non-cooperative tax centers and called for a revised set of criteria to draw up a new list to determine whether Switzerland should be added to the list.
A 2008 report by the OECD lists Switzerland, Austria, Luxembourg, Liechtenstein, Panama, Singapore and others as states where it deems bank secrecy rules undesirable. Estimates suggest more than $11 trillion may be stored in tax havens.
NO MORE ABUSE OF CLIENT CONFIDENTIALITY
Liechtenstein, whose banks manage $165 billion of assets, agreed in December to share information on tax evasion with the United States and is also already discussing more tax cooperation with the European Union.
Crown Prince Alois said Thursday's move addressed demands from other states for cooperation in the investigation of tax fraud and tax evasion, while still upholding a tradition of respecting the privacy of bank customers.
"With this declaration, however, we want to make clear that bank client confidentiality in future cannot be misused to facilitate tax crime," Prime Minister Hasler said.
The principality is also offering to sign agreements that go beyond OECD standards provided that clients of its banks holding secret accounts can be allowed to bring their money onshore and meet their tax obligations in an orderly manner.
Liechtenstein's biggest bank LGT, owned by the ruling family, was last year at the center of the German probe after Berlin paid a former employee to access bank client information.
That scandal, exacerbated by the ongoing financial crisis, has triggered huge outflows at Liechtenstein banks.
Shares in number 2 bank LLB were unchanged at 37.50 Swiss francs at 1157 GMT (7:57 a.m. EDT), but third-biggest VP Bank, which reported 2008 net outflows of 1.3 billion Swiss francs ($1.12 billion) on Tuesday, jumped 14 percent to 57 francs.
When it reported its results earlier this week, VP Bank CEO Adolf Real said he supported more cooperation on tax affairs.
"In doing so, the interests of the Liechtenstein financial center can be better protected over the long term," he said. "As a part of this, we will continue to attach tremendous value to the privacy of our clients."
Liechtenstein does not plan to move to automatic exchange of information. It will retain bank secrecy but be more co-operative with other tax authorities when requested.
($1=1.158 Swiss Franc)
(Additional reporting by Sam Cage; Writing by Emma Thomasson)
