In November 2017 the Liechtenstein lawyer and trustee, Harry Gstöhl, was sentenced to six years imprisonment for embezzlement and serious fraud against his clients as well as money laundering. This case of fraud is particularly explosive, not only because of the immense amount of money involved, which amounts to over 30 million Swiss francs, but also because of the personal background of the perpetrator.
In contrast to the perpetrators of many other fraud scandals, Harry Gstöhl was a highly respected and trustworthy man. Thus, the family man was for many years President of the Liechtenstein Administrative Court and the State Court of Justice on a part-time basis. Last but not least, he was also represented on the examination commissions for lawyers and trustees and received the honorary title of "Princely Counselor of Justice" in 2004.
However, the Harry Gstöhl fraud case also differs in legal terms from numerous other scandals, which are regularly attributed to illegal snowball or pyramid schemes. While other perpetrators, particularly in the asset management industry, concentrated on setting up complex fraud systems, Harry Gstöhl relied on the trust of his clients.
In fact, the highly respected fiduciary and lawyer had the full confidence of wealthy individuals from all over the world. For these same individuals, he set up countless private asset structures, most notably foundations and trust structures. Such structures were developed in Liechtenstein over decades as so-called discretionary structures.
In contrast to so-called controlled companies, such structures are characterized by the very extensive discretion of the foundation board or board of directors, which has to manage the assets of the legal entity in accordance with the purpose of the company at its free (albeit dutiful) discretion. The objective of such a structure has mainly tax reasons, e.g. in the case of (non-) attribution of the assets in the structure to the private assets of the founder or the beneficiaries. Another important aspect of such structures concerns the protection of assets. The idea behind this is that the assets in the structure should be beyond the reach of creditors of the founder and/or the beneficiaries. The price for such a solution, is above all the abandonment of any control over the own assets and their final transfer to the legal entity. From this moment on, the trustee's client is dependent on trust.
In Harry Gstöhl's fraud case, the perpetrator as a sole signatory of the foundation board or board of directors had de facto full control, which he illegally misused for decades to transfer funds to his own accounts without the knowledge of the clients. In some cases, the embezzled client funds were also used via his own companies for the private and business purposes of the perpetrator.
In many cases, the recovery of the entrusted assets is difficult for the injured parties. It is not only the tracing of illegal payment flows that causes the victims difficulties. Even if the final destination of a payment flow could be identified, the trail often ends - not only in this case of fraud - in private asset structures of the perpetrator himself. This is where the irony of the Harry Gstöhl fraud case becomes apparent, as he tried to protect the assets embezzled by private structures, which in turn were themselves protected in private structures.