| The Government has announced that it will legislate to force greater transparency around the ownership and control of private companies in New Zealand. This is a positive move that will help the fight against domestic corruption, money laundering, tax evasion, and the general use of New Zealand as a haven to hide the money of foreign oligarchs.
Commerce Minister David Clark announced yesterday that Cabinet has agreed to introduce legislation to establish a public register of the “beneficial ownership of companies”. This will require the accurate listing of who really owns and controls businesses here. And it will involve some strong compliance measures.
This is a real blow to wealthy vested interests attempting to keep any riches and ill-gotten gains secret from the public. Corporate New Zealand is being made to tidy up its act.
The fact that the current system has existed for so long should be a huge concern for those New Zealanders wanting to create a fairer society that is less influenced by the pernicious impact of oligarchs and the corrupt. For although New Zealand is often seen as the least corrupt and most transparent country in the world – and we regularly top the annual Transparency International Corruption Perception Index to reinforce this – current laws make it very easy for wealth and its owners to hide here.
The existing companies register simply isn’t much use, something the recent passage of the Russia Sanctions Act 2022 exposed to public view. In reality neither the government nor the public can easily locate the companies in which the oligarchs hide their riches here.
Some call this “legitimised secrecy”. According to the NGO Tax Justice Aotearoa, a “convoluted structure of companies and trusts” are established “so that minimal tax is paid and no-one knows who owns what or where.” Corruption and money laundering are naturally allowed to flourish in such secrecy.
Those against greater transparency cite the need for New Zealand to retain its world-leading “ease of doing business” here. They say compliance costs will also be too great on the corporates. The Government says it has come up with a scheme that balances the privacy and costs of business versus the right of the public to know and be protected from corruption. The complaints of vested business interests about this new law should give some certainty to the public that the right thing is being done. NZ Venture Capital Association protesting the new law is probably something the Labour Government will celebrate.
Reform has been a long time coming
The Government will introduce legislation later this year, but it’s already been a very long time coming. New Zealand has been signed up to the inter-governmental global money laundering alliance, the Financial Action Task Force, for decades, and increasing pressure has been applied on this country by that body for nearly a decade. Judith Collins first made some noises about implementing such a law in 2016 when she was Minister of Commerce. Then, with the change of government, Kris Faafoi got the ball rolling, but it seemed to get lost in consultation for years.
This week the Financial Action Task Force put public pressure back on countries like New Zealand, which may have led to the announcement yesterday. Oddly, David Clark says that Cabinet actually made the decision back in December but has kept it secret until now.
Loopholes in the new rules
Along with a bouquet, the Labour Government also needs to take a brickbat for giving an exemption to trusts. Although this long-contentious sector was recommended to be included, the Government suggests it would be too much hard work to extend the rules to trusts.
The International Financial Action Task Force will be disappointed, as they strongly advocated for trusts to be included. Similarly, Tax Justice Aotearoa (TJA) and Transparency International will have their excitement about the new initiative heavily tempered. One TJA spokesperson, Louise Delaney, commented that “trusts are cleverer than companies at hiding assets.”
Today’s editorial in Stuff newspapers also condemns this omission, pointing out that the Ministry of Business, Innovation and Employment “didn’t recommend that move, acknowledging that privacy and confidentiality have historically been recognised as an essential virtue of trusts. Many a rogue would concur.”
So why were trusts left out of the new legislation? Obviously, law firms have lobbied hard for the exemption. The compliance costs for them would be considerable, concerns about privacy for trust owners have been highlighted, and threats of lengthy legal challenges would have made the Government think twice about venturing into a fight with the legal firms.
However, there is some impact on trusts. David Clark has explained that the proposed changes would still capture cases where shares in companies are owned by trusts.
There is good cause to be sceptical about how much change this really represents, given the track record of previous efforts. The Herald’s Matt Nippert – a long-time investigator into this area – says: “Herald reporting last October on the Pandora Papers showed, despite past reforms, New Zealand trust and company structures were still being misused by wildly controversial figures – including Russian billionaires convicted of fraud, and a Moldovan oligarch facing sanctions in the United States.”
The public will soon get a chance to have its say on the proposed legislation. As often with such complex legislation there might well be fishhooks and unintended consequences from this type of regulation.
The consultation period will be a time for those interested in tax fairness, corruption, and transparency to support the reforms, but also to push the Government to strengthen them. Hopefully, there will be a particularly strong focus on the elephant in the room – the exemption being given to the hundreds of thousands of trusts. If such secretive vehicles are allowed to continue to be shielded from the sunlight of public inquiry, then confidence in the new system will be more than just a little dented. |
Transparency was the watch word when this government came to power .Unfortunately it seems to have been forgotten.