Government rejoins the long and winding road towards a beneficial ownership register for companies and limited partnerships. But what about trusts?

The Government's Transnational, Serious and Organised Crime (TSOC) Action Plan features New Zealand's latest push to introduce a beneficial ownership register for companies and limited partnerships, something our government first committed to explore a decade ago.

On December 20 Associate Police Minister Casey Costello unveiled an all-of-government plan to tackle organised crime. This includes plans to; "Implement a beneficial ownership register for companies and limited partnerships."

The push will be overseen by the Ministry of Business, Innovation & Employment (MBIE), with success to be measured by a;

Reduction in the misuse of companies and limited partnerships for illicit purposes, including money laundering, bribery and corruption, insider dealings, tax evasion, and terrorism financing, by assisting law enforcement agencies to “follow the money” in financial investigations. Increased location of assets in order to confiscate proceeds of crime, support of work to counter foreign interference, and countering TSOC.

Whilst NZ's cheap and simple company registration system is great for legitimate businesspeople, it has been exploited for nefarious purposes, including by overseas interests, resulting in damage to NZ's international reputation. 

Criminals can and do obscure the true ownership of a corporate entity using nominee directors and shareholders, a web of shell companies, intermediaries and complex business structures based in multiple jurisdictions. Such ownership structures can be used to enable investment scams, money laundering, terrorism financing, drugs or arms trafficking, tax evasion and to hide assets. 

Information about the beneficial ownership of NZ companies isn't currently collected by MBIE's Companies Office, although Companies Registrar Sanjai Raj can request it for law enforcement purposes. The Government has described beneficial owners as "the natural persons who ultimately own or, directly or indirectly, exercise effective control over a corporate entity."

Costello told interest.co.nz the beneficial ownership register is part of the TSOC action plan approved by Cabinet, and work "will be progressed" on it.

"From my perspective, the beneficial ownership register will help prevent organised criminal groups from being able to disguise business structures and hide assets," Costello, a NZ First MP, said.

Register will be 'tailored to NZ’s context'

Commerce and Consumer Affairs Minister Scott Simpson is responsible for work on the beneficial ownership register.

"The Government expects to progress work on a beneficial ownership register within the [TSOC] Strategy’s five-year timeframe. The pace will also depend on broader government priorities. Significant work has already been completed by MBIE and other agencies. This includes utilising previously drafted legislation, with further work to be done on the finer details of the register," Simpson told interest.co.nz.

"New Zealand’s approach has been informed by the Financial Action Task Force’s recommendations, as well as the experiences of countries such as Singapore and the United Kingdom. The register will be tailored to New Zealand’s context, and our shared legal foundations mean international developments continue to be relevant," Simpson, a National Party MP, added.

The Paris-based Financial Action Task Force, or FATF, is an inter-governmental body that sets international standards, and is considered the global money laundering and terrorist financing watchdog. In its most recent country assessment, or mutual evaluation, of NZ released in 2021, FATF highlighted accurate and current company, limited partnership and trust beneficial ownership information was among "major gaps in NZ’s framework."

Improving the transparency of the beneficial owners of NZ companies has been talked about in government circles since at least 2016. It emerged in 2017 that MBIE was considering the creation of a public central register of company beneficial ownership information following a commitment made at a London Anti-Corruption Summit in May 2016, which was attended by then-Police Minister Judith Collins.

Ten years ago Collins said NZ was committing to; "exploring the establishment of a public central register of company beneficial ownership information."

In March 2022 the Labour Party's then-Commerce and Consumer Affairs Minister David Clark said the Government would introduce a bill to Parliament changing the rules around beneficial owners of NZ companies and limited partnerships, but not domestic trusts, in an attempt to make it easier to tell who the ultimate owner or controller is, and thus reduce misuse of these entities.

Clark's 2022 announcement followed the FATF stepping up its expectations around beneficial ownership for member countries such as NZ. Clark's successor as Commerce and Affairs Minister, his Labour colleague Duncan Webb, said in 2023 work was continuing on an exposure draft of the Corporate Governance (Transparency and Integrity) Bill.

The Bill didn't, however, see the light of day ahead of the 2023 election and in 2024 the then-Commerce and Consumer Affairs Minister, National's Andrew Bayly, told interest.co.nz improving disclosure on the beneficial owners of NZ companies and limited partnerships wasn't currently under active consideration.

At the time Bayly was reforming the Companies Act and said a beneficial ownership register would add a small compliance burden to companies, and didn't fit well with the measures to modernise the Companies Act. Furthermore Bayly said its complexity would delay the finalisation and introduction of the other reforms.

However, in a cabinet paper Bayly acknowledged the Ministry of Justice, NZ Police, Serious Fraud Office, NZ Customs Service, Ministry for Primary Industries, and the Public Service Commission had expressed concerns about not including proposals for a beneficial ownership register as part of his reforms.

FATF's 2021 assessment of NZ also highlighted concerns about insufficient measures for adequate, accurate and current information on domestic trusts, noting NZ doesn't have a register of all domestic trusts and suggesting the Government consider introducing one.

"Domestically, trusts are widely used in New Zealand and there are comparatively fewer measures to enable law enforcement to detect the abuse of trusts for money laundering and terrorist financing purposes," FATF said.

FATF noted the common use of domestic trusts in NZ with up to 500,000 in existence, used for a range of purposes including as holding vehicles for assets such as the family home.

Figures out last year showed the number of NZ foreign trusts has slumped more than 80% since the rules around them were tightened in the wake of the Panama Papers in 2016.

'No final decisions have been made' on a register for trusts

Associate Justice Minister Nicole McKee told interest.co.nz she had examined the case for establishing a beneficial ownership register for trusts.

"I acknowledge that such a register could provide benefits for law enforcement agencies in tackling organised crime, by helping to identify the existence of trusts, associated assets, and the natural persons behind them. Improving the ability of authorities to build a complete picture of complex financial arrangements is an important objective," McKee, an ACT MP, said.

"However, the establishment of a trusts register would also involve material costs to the Government and would impose additional compliance and regulatory burdens on trustees. At this stage, those costs and impacts are not yet well understood. I also have concerns about the security and protection of the sensitive information such a register would hold."

"Further work is therefore required before Cabinet is asked to make any decisions, including a comprehensive assessment of costs, benefits, and privacy implications. No final decisions have been made, and any consideration of whether to proceed with a register will occur at a later stage, once that work is complete," McKee said.

In 2022  the Ministry of Justice said the possibility of introducing a register of beneficial ownership for domestic trusts should be reexamined because the landscape has shifted significantly since the Law Commission rejected the idea in 2013.

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