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The government has announced that it will legislate to impose greater transparency regarding the ownership and control of private companies in New Zealand. This is a positive step that will help tackle domestic corruption, money laundering, tax evasion and the general use of New Zealand as a haven to hide money from foreign oligarchs.
Trade Secretary David Clark announced yesterday that Cabinet had agreed to introduce legislation to establish a public register of ‘beneficial ownership of businesses’. This will require the precise listing of who actually owns and controls the businesses here. And that will involve strong compliance measures.
It’s a blow to the wealthy vested interests who try to keep the wealth and ill-gotten gains secret from the public. New Zealand companies are forced to clean up.
The fact that the current system has been around for so long should be of major concern to New Zealanders wishing to create a fairer society less influenced by the pernicious impact of the oligarchs and the corrupt. For although New Zealand is often regarded as the least corrupt and most transparent country in the world – and we regularly top Transparency International’s annual Corruption Perceptions Index to reinforce this – current laws allow very easily to wealth and its owners to hide here.
The existing business registry just isn’t very helpful, which the recent passage of the Russia Sanctions Act 2022 has revealed to the public. In reality, neither the government nor the public can easily locate the companies in which the oligarchs hide their wealth here.
Some call this “legitimized secrecy”. According to the NGO Tax Justice Aotearoa, a “convoluted structure of companies and trusts” is set up “so that a minimum tax is paid and no one knows who owns what or where”. Corruption and money laundering are naturally allowed to thrive in such secrecy.
Those who oppose greater transparency cite New Zealand’s need to retain its world-leading “ease of doing business” here. They say compliance costs will also be too high for businesses. The government says it has developed a system that balances privacy and business costs with the public’s right to know and to be protected from corruption. Complaints from vested commercial interests about this new law should provide some certainty to the public that the right thing is being done. The NZ Venture Capital Association’s protest against the new law is likely something the Labor government will celebrate.
The reform is slow to come
The government will introduce a bill later this year, but it has been a very long time. New Zealand has been a member of the global intergovernmental alliance against money laundering, the Financial Action Task Force, for decades, and there has been mounting pressure on the country from that body for nearly a decade. Judith Collins first made noise about the implementation of such a law in 2016 when she was trade minister. Then, with the change of government, Kris Faafoi got the ball rolling, but he 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. Curiously, David Clark says the Cabinet actually made the decision in December, but has kept it a secret until now.
Loopholes in the new rules
As well as a bunch, the Labor government must also take a brick to grant an exemption for trusts. Although it has been recommended to include this long-contentious sector, the government suggests that it would be too difficult to extend the rules to trusts.
The Financial Action Task Force International will be disappointed, as it has strongly advocated the inclusion of trusts. Likewise, Tax Justice Aotearoa (TJA) and Transparency International will find their enthusiasm for the new initiative heavily tempered. A TJA spokeswoman, Louise Delaney, said “trusts are smarter than companies at hiding assets.”
Today’s editorial in the Stuff newspapers also condemns this omission, pointing out that the Department for Business, Innovation and Jobs “has not recommended this decision, recognizing that privacy and confidentiality have historically been recognized as an essential virtue of trusts”. “.
So why were trusts excluded from the new legislation? Obviously the law firms lobbied for the exemption. Compliance costs for them would be substantial, concerns over trust owner privacy were highlighted and threats of lengthy legal challenges would have made the government think twice before venturing into a fight with trust firms. lawyers.
However, there is some impact on trusts. David Clark explained that the proposed amendments would still cover cases where corporate shares are held by trusts.
There’s good reason to be skeptical about how much change this really represents, given the track record of previous efforts. The Herald’s Matt Nippert – a long-time investigator in this area – said: “The Herald’s October reporting on the Pandora Papers showed, despite past reforms, that New Zealand’s trust and corporate structures were still misused by highly controversial figures – including Russian billionaires convicted of fraud, and a Moldovan oligarch facing sanctions in the United States.”
The public will soon have an opportunity to comment on the bill. As often with such complex legislation, there may well be hooks and unintended consequences of this type of regulation.
The consultation period will be a moment for those interested in tax fairness, corruption and transparency to support the reforms, but also to push the government to strengthen them. Hopefully, particular focus will be on the elephant in the room – the exemption being given to the hundreds of thousands of trusts. If such secret vehicles are allowed to continue to be shielded from the sunlight of public inquiry, then confidence in the new system will be more than a little shaken.
– Democracy Project