LIECHTENSTEIN - Country Profile

The Principality of Liechtenstein is a tiny, doubly-landlocked country tucked away between Switzerland and Austria and with mountain slopes rising above the Rhine valley.

It owes much of its wealth to its traditional status as a tax haven, though the country has in recent years taken steps to shake off its image as a tax haven and to reposition itself as a legitimate financial centre.

This status came under the spotlight in 2000 when two international reports criticised Liechtenstein for lax financial controls. The reports said that the Liechtenstein banking system enabled gangs from Russia, Italy and Colombia to launder money from their criminal activities.

The Organisation for Economic Co-operation and Development (OECD) began to take a close interest in Liechtenstein's financial regulations - a process that received a further impetus when the international recession took hold in 2008.

Governments affected by plummeting tax incomes became determined to flush out assets hidden in tax havens, and Liechtenstein came under considerable pressure to apply greater banking transparency.

Stung by the criticism, Liechtenstein gradually reformed some of its laws. It reached tax agreements with several countries - including Germany, the UK and the US - aimed at encouraging citizens of those countries to come clean about any assets they might have in Liechtenstein's banks.

Liechtenstein owes much of its wealth to its status as a tax haven

Liechtenstein remained neutral in World War II. A report commissioned by the government in 2001 after allegations that the country's banks had had dealings with the Nazis found that the banks' actions had been above board. It also found that slave labour from Nazi concentration camps had been used on Crown estates in Austria, but described the principality as a bystander rather than a perpetrator.

The country has come through a lengthy political wrangle over the role and power of the hereditary monarchy.

After an often bitter campaign, the people voted in March 2003 in a constitutional referendum to give Prince Hans-Adam sweeping new political powers. The outcome was decisive with just over 64% in favour of the changes.

In effect, the referendum made Liechtenstein Europe's only absolute monarchy. It gave Prince Hans-Adam the power to hire and fire the government, despite publicly-expressed fears that the development could usher in dictatorship.

The following year he handed over practical power to his son, Crown Prince Alois.

The Roman Catholic church has traditionally had a strong role in Liechtenstein. Women faced a year in jail for having abortions until new legislation legalised it in late 2005. A bid by pro-life activists to stop the legislation from being passed failed when voters strongly rejected their proposals in a referendum.

The castle of Vaduz, home of the Liechtenstein princely family

At a glance

• Politics: Prince Hans-Adam is head of state, but his son Crown Prince Alois oversees day-to-day affairs
• Economy: Liechtenstein has tried to shake off its image as a tax haven and to reposition itself as a legitimate financial centre
• International: Leichtenstein is in a customs union with Switzerland and is a member of the four-nation European Free Trade Association

Country profiles compiled by BBC Monitoring

Source: http://www.bbc.com/news/world-europe-17535108