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In a continued effort to address criticism over lax financial standards, Liechtenstein passed a comprehensive new tax code in July, helping to bring the country's financial legislation into line with European legal standards.
Liechtenstein was established as a principality in 1719 and gained its sovereignty in 1806. From 1938 to 1997, it was governed by a coalition of the Progressive Citizens’ Party (FBP) and the FatherlandUnion, now the Patriotic Union (VU). The latter party then ruled alone until the FBP won the 2001 elections.
In a 2003 referendum, voters approved a constitutional amendment that granted significantly more power to the monarch, Prince Hans-Adam II. In 2004, Hans-Adam handed his constitutional powers to his son, Hereditary Prince Alois, though the elder prince retained his title as head of state.
In the 2005 elections, the FBP and the VU captured 12 and 10 seats, respectively. A small third party, the Free List, captured 3 seats, forcing the two larger parties to form a grand coalition. FBP leader Otmar Hasler retained his post as prime minister.
In the February 2009 parliamentary elections, the VU won 13 seats and the FBP captured 11, while the Free List took the remaining seat. Prime Minister Hasler was replaced in March by Vice Prime Minister Klaus Tschütscher of the VU, who subsequently formed a coalition government with the FBP.
Liechtenstein, a leading offshore tax haven, has traditionally maintained tight bank secrecy laws. However, the principality in 2009 signed tax information sharing agreements with several countries and agreed to comply with transparency and information-sharing standards outlined by the Organization for Economic Cooperation and Development (OECD). Following a 2009 agreement with the United Kingdom, Liechtenstein passed laws in July 2010 which will oblige those holding offshore accounts in Liechtenstein to declare their assets to tax authorities and pay as much as 10 percent in taxes evaded over the past 10 years.
Liechtenstein is an electoral democracy. However, the unelected monarchy won greater authority in 2003, making it the most politically powerful in Europe. The unicameral Parliament (Landtag) consists of 25 deputies chosen by proportional representation every four years. These freely elected representatives determine the policies of the government, but the monarch has the power to veto legislation, dismiss the government, and appoint judges. Voting is compulsory.