VADUZ, March 31, 2008 (AFP) - Liechtenstein on Monday said a Spaniard arrested in connection with a probe into the financing of Spain's Basque separatist movement ETA had established a foundation here but denied that a bank account had been blocked.

Liechtenstein authorities were reacting to a report Sunday in the Spanish newspaper El Pais that, acting on a request from a Spanish judge, they had frozen bank accounts suspected of having been linked to ETA.

The prosecutor's office here said authorities in August 2006 had opened an investigation into suspected money-laundering by a Spanish citizen who was the beneficiary of a foundation in Liechtenstein through a Swiss bank account.

The probe was launched after the company responsible for managing the foundation discovered that the Spaniard had been arrested in Spain in 2006 on suspicion of having taken part in ETA extortion schemes, according to a statement from the prosecutor.

'Suspicious movements were carried out via the Swiss bank account of this foundation,' the statement said.

But it added: 'No account or assets were found in Liechtenstein. For that reason, no account has been frozen nor have funds been seized.'

Liechtenstein authorities concluded their probe at the end of 2006 and in January 2007 asked their Spanish counterparts to carry on with the investigation.

EL Pais on Sunday said ETA, which is blamed for more than 800 deaths in its 40-year campaign for an independent Basque nation encompassing parts of northern Spain and southwestern France, funded its armed activities through a 'revolutionary tax.'

Liechtenstein 'was one of its favourite places' to 'hide the extortion money,' according to a secret investigation launched by Spanish judge Baltasar Garzon, El Pais said.

The alleged frozen accounts run into thousands of euros (dollars), it said, adding that they were opened in the names of people linked to a bar in the northern Spanish town of Irun, near the French border.

Liechtenstein is currently in the limelight over a giant international tax evasion scandal.

Australia, Austria, Britain, Canada, France, Germany, Greece, Italy, New Zealand, Spain, Sweden and the United States have launched probes into holdings by their citizens in Liechtenstein following reports that people from these countries had dodged taxes and deposited their money in the principality.

Liechtenstein's LGT bank claims that tax inspectors are working from a list with the names of 1,400 of its clients -- 600 of them German -- that was stolen in 2002.