Ladies and Gentlemen,

I am very pleased at this opportunity to be able to speak to you here in the American Enterprise Institute in Washington. Thank you sincerely for your invitation.

What I would like to do in the next few minutes is to give you an overview over the Liechtenstein national economy. I would like to characterize our national economy by three key features: many small- and medium-size enterprises - strong, export-oriented industry - innovative products.

First, I am going to talk about the development of the Liechtenstein economy and explain the structure of the economy as a whole. Then, I would like to concentrate on an aspect that might be of special interest to you: the current measures concerning Liechtenstein as a financial location.

I would like to tell you a few facts about Liechtenstein first. The main feature of Liechtenstein from the viewpoint of a superpower like the United States of America is certainly its smallness and lack of power in international matters. In Liechtenstein, 33'000 people live on an area of 61 square miles. Liechtenstein is located right in the middle of in the Alps in the heart of Europe, embedded between Switzerland and Austria. The Principality of Liechtenstein has been a sovereign state since 1806. It demonstrates its sovereignty but also its solidarity with the international community by its membership in a number of international organizations.

Following this brief introduction, I would like to give a short overview of the economic development of our country. 150 years ago, Liechtenstein concluded its first customs treaty in order to enlarge its economic area - at that time, the partner was its eastern neighbor, the Austro-Hungarian Empire. Subsequently, Swiss textile manufacturers went to Liechtenstein for better export opportunities to the East. A first industrial development set in, which was sharply interrupted by the First World War. Following the dissolution of Austria-Hungary, Liechtenstein started to orient itself stronger towards its western neighbor, Switzerland. The most visible token of this was the customs treaty of 1923 between Switzerland and Liechtenstein. In 1924, the Swiss Franc became the official currency. The economy was still dominated by agriculture, and the population of 9000 was poor. There was unemployment, which was intensified by the world economic crisis of the 1930s. The Government's attempts to attract more industry met with little success in the beginning, but during the war, a few new industrial companies were formed in the field of machine industry, and in the 1950s, the second industrial upswing quickly gained momentum. While the exports of the members of the Liechtenstein Chamber of Commerce were only 15 million Swiss Francs in 1950, they were as high as 83 million or five times that amount only 10 years later. What was lacking now was not jobs but labor. And that has remained so ever since.

The legal basis for trust business in Liechtenstein was laid in 1926. In the early 1930s, around 1000 so-called domicile companies had been registered, whose number stayed about the same until 1945. Only when political stability was re-established after the Second World War did the number of domicile companies rise again. Liechtenstein was insignificant as a banking location during World War 2 - there were only two banks. Development has been accelerating in this field since the 1990s. Today, there are 17 banks in Liechtenstein. And this concludes my brief summary of the younger economic history of Liechtenstein.

How big, or better, how small is the Liechtenstein national economy? The figures quoted in this paper mainly come from the Liechtenstein National Accounts, which were prepared for the first time for the year 1998. Other statistical data refer to the year 2000.

The Liechtenstein Gross Domestic Product, the so-called GDP, is 1,8 billion US Dollars. Is that a large or a small amount? If you compare Liechtenstein's GDP with that of other countries you can see how small the Liechtenstein national economy is despite the rapid development in some areas over the last six decades. The GNP of the USA is about 4400 times larger than that of Liechtenstein. In comparison with the European Union, the Liechtenstein GNP is 0.02 per cent. Liechtenstein's annual overall economic performance is totally insignificant if compared with the USA or with Europe.

On the other hand, the Liechtenstein national economy is comparatively productive. Labor productivity is higher in Liechtenstein than in many industrialized countries if measured by gross domestic product per worker. That high productivity is due to the banks, which create very high value added, but it is also due to various fields of industry.

The economic structure of Liechtenstein is illustrated by breaking down the total value added into fields of the economy. The largest share in total value added of 42 % is contributed by industry and the goods-producing sector. Important sectors of the industry in this field are mechanical engineering, construction, the manufacturing of appliances, food production, and vehicle production. The value added by a line of business is calculated by taking the sales value of the goods and services produced and deducting the cost for the input purchased.

Financial services contribute 28 % to the total value added. In this context, financial services include the business activities of banks, insurance companies, attorneys, and trustees.

General Services make up for about one quarter of total value added. Major lines of business are commerce, tourism, and public administration.

Despite the smallness of the country, the Liechtenstein national economy is widely diversified and covers 15 of the 16 economic sectors of the international classification. Many industrial enterprises work in very specialized market niches, in which they are so successful that several companies are among the leaders worldwide in their fields. This includes Hilti AG for fastening systems for the construction industry, Ivoclar Vivadent Ltd. in dental products and Swarovski AG in facetted crystal stones for gifts and haute couture.

In summary, it can be stated that Liechtenstein has a widely diversified economic structure with an emphasis on industrial production. In comparison with other industrialized national economies, Liechtenstein is more characterized by industry and less by services. 44 % of workers in Liechtenstein work in the industry; in the USA, that figure is only 23 %. Financial services are important for the Liechtenstein national economy but do not dominate it.

Around 27,000 people were employed in Liechtenstein as of the end of 2000. This is not a lot in absolute figures if compared to the USA. In den United States, the number of workers is ... million people, that is ...times more. However, with the total population of Liechtenstein being approximately 33,000, the number of working people corresponds to 82 % of the population, which is an extraordinarily high figure. How is this possible? The explanation is the large number of commuters who live across the border and work in Liechtenstein. In 2000, Liechtenstein had about 11,000 commuters.

Thus, commuters make a substantial contribution to the Liechtenstein gross domestic product. It is a special feature of the Liechtenstein gross domestic product that it is due to a large percentage to the working power and the diligence of foreign workers who do not live in Liechtenstein but work there.

In 1998, employees were distributed over around 3700 employers. Thus, there are less than 7 employees on one employer. What is therefore typical of the Liechtenstein national economy is not the few internationally renowned large companies but small and medium enterprises. This has a stabilizing effect, in particular if times are not so good.

Following this overview over Liechtenstein's economic structure, I would like to comment on the current measures for the benefit of Liechtenstein as a financial location. In late 1999, Liechtenstein came under increased international pressure as a financial location. The slogan of "money laundering community" was used as a short description of Liechtenstein, and in June 2000, the Financial Action Task Force on Money Laundering in Paris put Liechtenstein on the Black List of non-cooperative countries.

Although I reject these accusations in their general form, we have to admit today with a critical look at ourselves that Liechtenstein was late in carrying out the necessary reforms in some areas of the law. However, over the last two years, the Liechtenstein Parliament and Government have introduced a number of far-reaching amendments to the law and have substantially strengthened law enforcement. These efforts of Liechtenstein have been recognized by the international community. In June 2001, the FATF deleted Liechtenstein from the Black List. Today, Liechtenstein is conducting an intensive dialogue with the FATF and other international organizations that fight money laundering and the financing of terrorism.

I would like to give you a short overview of the reforms Liechtenstein has introduced in financial services. The reforms included the Mutual Legal Assistance Act, the Penal Code, and the Due Diligence Act. The Act on International Mutual Legal Assistance was totally revised. The number of stages of appeal was drastically reduced to ensure a faster handling of requests for MLA. The proceedings for the sending of objects and files was also simplified, just like those for the searching of persons and premises and the seizure of objects. One can say that today, mutual legal assistance works smoothly and efficiently.

The provisions of the Penal Code on money laundering and criminal organization have been made stricter. Money laundering is now threatened with up to five years of imprisonment, membership in criminal organizations with up to ten years. Anyone who is guilty of money laundering cannot use the defense that he did not know the criminal background of the funds.

There have also been important changes to due diligence legislation. The know-your-customer rule is applicable throughout. Trustees and attorneys had time until the end of 2001 to disclose to the banks the beneficial owners of the assets handled by them, and to submit the necessary information for preparing the profiles of the business relation. As of the end of December 2001, the beneficial owners for 98 % of all accounts had been disclosed to the Liechtenstein banks. The remaining 2 % of accounts in which there has been no disclosure so far have been blocked by virtue of the law, and no assets can leave them until the necessary information has been disclosed to the bank. The provisions of the Due Diligence Act require that financial intermediaries must generally clarify the economic background and the purpose of a transaction as well as the origin of funds if there is the suspicion that there might be a connection with money laundering. If the suspicion that there is a connection with money laundering or organized crime remains after these clarifications, the financial intermediaries must file a report to the Financial Intelligence Unit.

Good laws, however, are of little use if they cannot be enforced. For this reason, Liechtenstein has also substantially increased staff at the courts, the prosecution service, the police, and the financial supervision authorities. A special police unit for fighting white-collar crime and organized crime has been created, and the total police personnel has been increased by 15 people to a total of 89. There are now 7 state attorneys, that is more than double the number before, and the staff of the financial supervision authorities has increased from 14 persons to 26.

Liechtenstein regards itself as a member of the international community also in the fight against terror, and is well aware of its responsibility, in particular in fighting the financing of terrorism. The Liechtenstein Government has adopted the various lists of the UN Security Council concerning terrorists and terrorist organizations as national law by way of ordinances. Any funds of such terrorist persons or organizations in the Principality of Liechtenstein are subject to blocking and to the duty to report them to the Government. In these questions, the Liechtenstein authorities work in close contact with the US Embassy in Berne. The Government has also started the implementation of the eight recommendations of the FATF for fighting the financing of terrorism.

Although we have managed to defuse international criticism in Liechtenstein as a financial location over the last year in the field of crime, new challenges are emerging in the field of taxation.

Liechtenstein is still on the OECD list of non-cooperative tax havens. The decision of the OECD not to delete Liechtenstein from the list was preceded by intensive talks between Liechtenstein and the OECD, in which Liechtenstein expressed its extensive readiness to cooperate for better transparency of the tax system and the exchange of information in tax matters. Liechtenstein is ready to regulate the exchange of information in bilateral treaties with other countries. However, it is the opinion of Liechtenstein that such readiness to cooperate must be based on the equal treatment of states and fair, open proceedings in the determination of a common international tax policy. These were also the core arguments in the disagreement with the OECD. Despite the decision of the OECD, Liechtenstein wants to continue the dialogue with the OECD and the individual member states.

This concludes my comments on the Liechtenstein national economy and Liechtenstein as a financial location. I hope that I have been able to give you an overview of the economic development of the country and the structure of the national economy.

A national economy that is very small in absolute figures, but very diversified - mainly characterized by industry, but with an important financial services sector and innovative in the development of new products.

Thank you for your attention.