By BERTRAND BENOIT, DAN PIMLOTT and HUGH WILLIAMSON

Liechtenstein has become the focus of further international attention after the US launched an investigation into alleged tax evasion by its citizens. European countries have also followed Germany's lead and taken action.

A US Senate committee said yesterday it had begun an investigation into alleged tax evasion by "many" US citizens via LGT, the bank run by Liechtenstein's royal family.

Carl Levin, a Democratic senator who chairs the subcommittee on investigations, said he was launching an inquiry after the emergence of alleged tax abuses in the tiny European principality.

"The subcommittee has been investigating the use of offshore jurisdictions and institutions to perpetrate tax abuse," he said. "The case involving LGT bank is proof that the problem has not gone away, and the subcommittee will continue to explore all different angles to this problem."

LGT said it would not confirm that its clients were being investigated.

"It is my understanding that many US citizens have . . .hidden assets at this bank . . . I intend to investigate this matter further," Mr Levin said on Thursday.

The US Treasury loses out by as much as Dollars 100bn (Euros 67bn, Pounds 51bn) a year in taxes because of offshore tax evasion, out of a annual total of Dollars 345bn in unpaid taxes, according to estimates by the subcommittee on investigations.

Liechtenstein was listed as one of 36 "offshore secrecy jurisdictions" that deserved scrutiny by the Internal Revenue Service in an anti-tax haven bill that Mr Levin and Barack Obama, the Democratic presidential hopeful, sought to pass last year.

The IRS declined to comment and the Department of Justice said it was "unaware" of any investigations into US tax evasion in Liechtenstein. In response to the German tax investigation last week, Sweden's opposition parties said yesterday that Liechtenstein should not be allowed entry to the European Union's border-free Schengen zone until it became more transparent on who holds special trusts in the principality.

Leif Pagrotsky, a senior Swedish Social Democrat legislator and former trade minister, told the Financial Times that Vaduz must loosen bank secrecy. "The Swedish government should stop Liechtenstein's entry to Schengen" when it comes before a meeting of EU interior ministers in Brussels next Thursday, he said.

The Swedish parliament could at a later date block Vaduz's entry during the ratification of Schengen's enlargement, as the government had only a narrow majority and a few government-aligned legislators might change position, he added.

The Swedish government, which supports Liechtenstein's Schengen entry, could not be reached for comment. As a Schengen member, Sweden can block Liechtenstein's entry, as entry into the zone is contingent on a unanimous vote by all 24 member countries.

Separately, Finland has requested help from Germany in identifying whether any Finns are listed on the disc of Liechtenstein bank client data obtained by German prosecutors, according to Finnish media reports.

In Germany, investigators widened their net to include bank employees suspected of assisting tax evaders and even trustees of LGT.

Bafin, the financial markets and banking supervisor, said it could ask the prosecutor for information about the banks if the accusations were confirmed.

"A breach of tax law at a bank is certainly something we would be very interested in," a spokesman said.

Government officials in Berlin said they hoped the publicity generated by the crackdown would "scare" tax evaders at home into stepping forward before they were uncovered, in exchange for more lenient sentences.

"There are 75,000 trusts in Liechtenstein held by Germans," one official said. "When we offered our last amnesty for tax evaders, only 100 stepped forward. Now, you and me know the rest are not in Liechtenstein just for the returns . . . There is an entire economic elite out there that has to understand this must stop."

Business leaders complained that politicians had used the investigation to foster an aggressive anti-business mood in the public.

Jurgen Grossmann, the chief executive of RWE, Germany's second largest energy group, said one alleged rotten egg should not be used to discredit the whole batch. Mr Grossmann said: "The moral behaviour of one person shouldn't be extrapolated to discredit a whole class of managers and an entire system." Additional reporting by Richard Milne in Frankfurt

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