The EU adopted further sanctions against Russia this week. Under the new regulation, it is also prohibited, among other things, to register a trust or similar legal arrangement (and thus probably also a foundation) or to provide a registered office, business or administrative address or administrative services for such structures if, among other things, a Russian national or natural person resident in Russia is a “settlor or beneficiary”.
In addition, from 10 May 2022, it is prohibited to “act or enable any other person to act as trustee, nominal shareholder, director, secretary or in any similar capacity for a trust or similar legal arrangement referred to in paragraph 1.”
These provisions do not apply if the settlor or beneficiary is a national of a Member State or a natural person holding a temporary or permanent residence permit in a Member State. However, the rules will for instance apply to Russian nationals resident in Switzerland or the UK (as well as from the wider EU).
In principle, under Liechtenstein law, a Liechtenstein trustee must be represented on the board of directors. If this is not the case, the foundation must be liquidated. In addition, a legal representative office (an “office”) in Liechtenstein (usually with a trust company) is mandatory.
The consequence of the Sanction Ordinance would thus be drastic: Foundations administered by Liechtenstein trustees will generally lose their management (i.e. trustee or foundation board) and thus no longer be able to act, and the representative office would also have to resign in my opinion. The questions of who is liable, what happens to the money, how do the banks react, who continues to pay the taxes (for these structures), who takes care of the day-to-day business, are all unanswered. Likewise, what happens if there are only (Russian) discretionary beneficiaries? Moreover, are all settlors meant or only the controlling ones? Why are the EEA, Switzerland and the UK not listed among the exceptions (EEA and Switzerland are otherwise excluded in the EU Sanctions Regulation)? What happens in the case of a trust (or foundation) of, for example, a German national with a Russian beneficiary, etc.?
The Liechtenstein Association of Professional Trustees informed us yesterday that it is in contact with the government because of the threatening consequences. All in all, it is clear that the sanction was not well thought out and shows little knowledge of the fiduciary business. It would be pleasing and certainly helpful if the Liechtenstein government would at least include the EEA, Switzerland and possibly the UK in the exceptions.
We will provide further information here and inform any affected clients directly.