Feb. 27 (Bloomberg) -- Else Voegeli says she's been catering to German tax evaders for 40 years at her hotel in the mountains above Liechtenstein's capital, Vaduz. She's counting on the principality's banking secrecy laws to keep them coming.

``They've always complained they had to pay so much tax -- I always understood that they took some of it abroad,'' said Voegeli, 73, who runs the Alpen Hotel at the Malbun ski resort. There's nothing wrong with saving ``a little bit of black money for their families.''

Liechtensteiners are clinging to the country's tradition of banking secrecy to keep their economy humming in the face of a global tax evasion probe focused on the microstate wedged between Austria and Switzerland. The investigation, which began in Germany, has spread to 13 countries from the U.S. to New Zealand.

Liechtenstein's economy was mostly agrarian until after World War II, when the country used low taxes and strict banking secrecy to attract wealthy depositors and turn itself into a financial center. About 26 percent of Liechtenstein's 4.3 billion Swiss-franc ($4 billion) economy is based on finance, almost twice the proportion of Switzerland.

The current investigation began after German spies paid 5 million euros ($7.4 million) for a computer disk containing the details of citizens suspected of using Liechtenstein-based foundations to avoid taxes in their home countries.

The accounts in question are at units of LGT Group, the financial holding company owned by Liechtenstein's royal family. LGT has about 100 billion francs under management, according to the company's Web site.

Prince Fights Back

``The protection of the private sphere and business and banking secrecy, which has been violated by this data theft, is a valuable asset for us,'' Justice Minister Klaus Tschuetscher said in an interview last week in Vaduz.

In response to the probe, Liechtenstein last week introduced legislation that would establish a legal difference between charitable foundations and those set up for private purposes.

Crown Prince Alois, 39, last week called the probe an ``attack'' on the principality. In an interview two years ago, the prince said the people of Liechtenstein would reject any attempt to do away with banking secrecy.

Hans Geiger, a professor at Zurich University's Swiss Banking Institute, said Liechtenstein's banks will lose clients if the country relaxes its banking secrecy laws.

``Liechtenstein should improve the protection of privacy, rather than reduce it,'' Geiger said. ``Otherwise, they might as well give up on themselves.''

`Stereotypes'

Locals are keen to show they are more than just bankers.

Industry and manufacturing account for 40 percent of the country's economy, with services contributing 26 percent and agriculture and households 7 percent, according to the government. Drill-maker Hilti AG and Ivoclar Vivadent, the world's largest producer of false teeth, are among the top employers.

``It's always the same, these stereotypes,'' said playwright Mathias Ospelt, 44. ``Always the bank logos, the rich people. No one digs deeply beneath the surface.''

Liechtenstein's gross national income per inhabitant was 103,000 francs ($96,000) in 2004, according to the latest government figures. While Liechtenstein isn't included in World Bank statistics, those figures put the country ahead of top- ranked Luxembourg, where the figure was $56,380.

`Uncooperative Tax Haven'

Across the Rhine from Switzerland, Liechtenstein is roughly the size of Washington, D.C. Cars in the streets of Vaduz bear German, Swiss and Austrian license plates. There's a similar mixture of accents in souvenir shops, cafes and banks.

The House of Liechtenstein has ruled the territory since it was created as a principality within the Holy Roman Empire in 1719. In the shadow of snow-covered peaks and the 900-year-old princely castle is a court winery that's been in the hands of the ruling family since 1712.

Liechtenstein, Andorra and Monaco are the only states on the Paris-based Organization for Economic Cooperation and Development's list of ``uncooperative tax havens.'' Countries such as Switzerland and Austria also have banking secrecy laws but work with other governments on tax issues.

While Liechtenstein has tightened its laws to prevent money laundering, the principality is exploiting its banking secrecy laws by refusing to share information on tax-evasion, said Grace Perez-Navarro, deputy director of the OECD's Center for Tax Policy and Administration.

``They really haven't done anything to deal with tax evasion,'' Perez-Navarro said. ``It's a serious problem.''

Liechtenstein's banks have made efforts to clean up their image. They stopped allowing intermediaries such as accountants and lawyers to open anonymous accounts for their clients and increased identity checks to fight fraud and money laundering.

`Not Up for Discussion'

Weakening banking secrecy isn't being considered, said Michael Lauber, head of the Liechtenstein Banking Association.

``The protection of the private sphere in Liechtenstein is basically not up for discussion,'' he said. ``The banks will, however, cooperate within the European legal framework.''

Transparency International, a Berlin-based organization that campaigns against corruption, says Liechtenstein should loosen its confidentiality protections.

``We don't expect them to get rid of bank secrecy altogether, but to at least implement an element of transparency,'' said Sylvia Schenk, chairman of the group's German branch.

At her 100-year-old mountain chalet, hotel owner Voegeli is confident her country won't give in to international pressure.

``We're not the only country doing it -- Luxembourg does it too, and Switzerland,'' she said. ``We've got banking secrecy. They'll never take that away.''

To contact the reporters on this story: Patrick Donahue in Berlin at pdonahue@bloomberg.net; Joshua Gallu in Zurich at jgallu@bloomberg.net

Last Updated: February 27, 2008 04:35 EST