"Domino effect". Zombie trust crisis has spread from Liechtenstein to other offshore jurisdictions

Problem russian zombie trusts have spread from Liechtenstein to other offshore locations: British Virgin Islands, the Bahamas and the Cayman Islands, the newspaper reported on Tuesday Financial Times.

The crisis is connected with the massive refusal of trustees and directors of Liechtenstein trusts to manage Russian assets due to fears of secondary sanctions. This has left a large number of legal entities in a "frozen state" – formally existing, but not actually functioning due to the lack of management.

The government of Liechtenstein insists that the problem is under control, citing a figure of 218 Russian entities, 71 of which have been left without leadership. However, lawyers believe that the real issue is 800 zombie trusts.

Paralyzed Liechtenstein trusts have created problems for subsidiaries in other offshore zones. Without instructions from Liechtenstein, they cannot pay registration fees, make investment decisions, or even pay salaries to employees.

"There is a domino effect caused by the tiered structure of these trusts. The mismanagement of these orphaned structures will have consequences far beyond Liechtenstein – not only in terms of payouts, but also in terms of the ability to have a dialogue with the people on whom the investment decisions about the assets depend. It is very important for Liechtenstein how it will handle and resolve this situation," said Johannes Gasser, partner at Gasser Partner, one of the largest law firms in Liechtenstein.