By Gareth Vaughan
Commerce and Consumer Affairs Minister Kris Faafoi says improving the transparency of the beneficial ownership of New Zealand companies and limited partnerships remains a priority for him, with cabinet decisions expected in the second quarter of this year.
The Ministry of Business, Innovation & Employment (MBIE) issued a consultation paper in June 2018 proposing to increase the transparency of the beneficial ownership of NZ companies and limited partnerships. Information about the beneficial ownership of companies and limited partnerships is not collected by MBIE's Companies Office, although Companies Registrar Ross van der Schyff can request it for law enforcement purposes. Submissions were sought by August 2018 and the process has dragged on since then.
However Faafoi told interest.co.nz that increasing the transparency of the beneficial ownership of companies and limited partnerships "remains a priority for me."
"Introducing such a regime into New Zealand involves costs that need to be worked through. The Government is taking a closer look at costs and how they would be funded before finalising any proposals. I can provide further details once Cabinet has made decisions, which we expect to do in the second quarter of 2020," said Faafoi.
Behind the scenes there may be concern that improving the transparency of company and limited partnership ownership could loosen NZ's firm grip on first place for starting a business in an annual World Bank doing business survey in which NZ last year also ranked first for the ease of doing business.
The World Bank survey gave NZ 99.98% as its score for starting a business, the number of procedures required to do so is just one, it takes just half a day and the cost, as a percentage of income per capita, is 0.2%. Whilst this is great for legitimate business people, it has also come in handy over the past decade for those with nefarious intent. There's a long list of NZ companies, trusts, financial service providers and limited partnerships that have been embroiled in criminal activity all over the world. See more on this in our three part series with part 1 here, part 2 here and part 3 here.
In late October last year a MBIE spokesman told interest.co.nz MBIE had been developing policy proposals to support the legislative changes for a beefed up beneficial ownership regime, and aimed to seek Cabinet approval on the proposals in coming weeks.
Asked for an update on this last week, the MBIE spokesman said although beneficial ownership remains a high priority for the Government, some issues need to be resolved before policy proposals go to Cabinet.
"MBIE is now aiming to seek Cabinet decisions in the second quarter of 2020," the MBIE spokesman said.
Issues related to costs were being worked on, he added.
"There are costs associated with introducing a new beneficial ownership regime that need to be worked through before policy proposals go to Cabinet. These include the costs of incorporating beneficial ownership information into Companies Office registers, the costs of enforcing the new requirements on corporate entities, and the ongoing costs of keeping beneficial ownership information up-to-date."
In its 2018 consultation paper MBIE said staff would undertake further work to try and quantify the potential benefits and costs of the options before finalising advice to Ministers. This advice will include looking at the overall compliance costs and where these costs fall, MBIE added.
The consultation paper highlighted three options for the disclosure of beneficial ownership information. MBIE said its preferred option was one where companies and limited partnerships would be required to identify their beneficial owners, keep the information up-to-date and provide it to the Registrar. Beneficial ownership information would also be publicly available on the companies and limited partners’ registers.
MBIE has proposed a definition of ‘beneficial owner’ that aligns with the one used in the Anti-Money Laundering and Countering the Financing of Terrorism Act to ensure consistency between the two systems.
Based on this definition individuals may be a beneficial owner of a corporate entity because, for example, they:
a. own more than 25% of the corporate entity;
b. hold or control more than 25% of the voting rights in a company;
c. control the corporate entity through close family relationships, personal connections or contractual associations;
d. hold senior management positions in the corporate entity and, thereby, exercise control over the daily or regular affairs of the corporate entity. And;
e. can appoint or remove the corporate entity’s directors, general partners or senior managers.
MBIE has said trusts will be excluded from the beneficial ownership regime due to their historic privacy and confidentiality strengths, and to avoid increased costs for individuals, businesses and the Government itself. This decision came under stinging criticism from Ron Pol, a legal management consultant and principal at AMLassurance.com who completed a PhD on the policy effectiveness of anti-money laundering laws. Pol said the reasons for excluding trusts from beneficial ownership transparency were "remarkable for having been expressed out loud."
Additionally the NZ Police's latest National Risk Assessment of Money Laundering and Terrorism Financing notes trusts are an extremely attractive vehicle for money launderers and terrorism financiers to use to hide the identity of beneficial owners.
In the consultation paper MBIE noted criminals can obscure the true ownership of a corporate entity using a web of intermediaries and different business structures based in multiple jurisdictions. Such complex ownership structures can be used to enable money laundering, terrorism financing, drugs or arms trafficking, tax evasion and to hide assets. It cites the high profile examples of NZ companies SP Trading Ltd, which attempted to smuggle weapons from North Korea to Iran in contravention of United Nations sanctions, and Tormex Ltd, which facilitated money laundering for Mexico's Sinaloa drug cartel with over US$680 million moved through Tormex bank accounts in 2007 and 2008. In these cases MBIE says more effective access to beneficial ownership information could have helped to detect crime, prosecute the individuals involved, and deter the mis-use of NZ companies.
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