As the Government shows signs of perhaps finally running out of patience with offshore entities abusing New Zealand's Financial Service Providers Register (FSPR), another batch of dodgy companies has emerged, again dragging NZ's international reputation through the mud.
This batch have all done so via Denmark's GXG Markets, which touts itself as the European growth market for SMEs. GXG is authorised and regulated by the Danish Financial Supervisory Authority, Finanstilsynet.
The first NZ financial service provider to feel the wrath of GXG Markets was the Quro Trust, which gives a Christchurch address as its registered address. In a December announcement GXG said its regulatory team was sanctioning the Quro Trust with termination of its membership.
'Price systematically pumped' & 'inappropriate language'
Termination came after Quro was, among other things, fined €5,000 for completing an off-market transaction whilst suspended from trading. GXG says the share price of Campeao Lotto and Gaming Corp (CLG) increased by more than 300% during six months as a result of trades being systematically placed and matched by the Quro Trust.
"The price has systematically been pumped by a small margin on an almost daily basis," GXG said.
"The Quro Trust submitted a clarification on the 19th of November 2014, which by the GXG regulatory team has not been found appropriate. The clarification did not address the questions raised in a proper manner, and furthermore did not contain the material requested by GXG Markets. In addition thereto the email sent by the company contained inappropriate language and accusations directed against GXG Markets."
"The GXG regulatory team has found that the trading pattern of the Quro Trust in the CLG shares is deemed as price manipulation," GXG said.
Quro's financial service provider details say its country of origin is the USA. Companies Office records show a now struck off company named Quro Savings Ltd, with the trading name Quro Bancorp, co-owned by Vancouver resident Javen Carlton King, and Californian resident Steven Anthony Joseph Medley.
Quro Trust's website says it specialises in providing global financing to public companies, and helping companies obtain stock exchange listings.
"We also help both public and private companies and wealthy individuals to 'internationalize' to protect wealth and expand operations," Quro says.
Medley's also involved with another NZ financial service provider, Oppco Savings & Loans Ltd, whose business address is in Awapuni, Palmerston North. Oppco's website says it specialises in a variety of services for wealth management, and helps companies achieve public listings of their stock on the GXG Markets Exchange and other markets. There's also a company registered through the Companies Office named Oppco Savings & Loans Ltd in which Medley is listed as sole director and shareholder.
Another NZ financial service provider that has run foul of GXG is London Capital NZ, which although deregistered from the FSPR in 2013, appears to have effectively re-emerged as Asia Finance Corporation, which registered as a NZ finance service provider in 2013. (Both featured in this Naked Capitalism blog in 2013).
Bryan Leonard Cook is a shareholder of both. London Capital NZ Ltd is still registered as a NZ company, and has a website with a secure login. In February this year London Capital NZ's membership of GXG Markets as a corporate adviser and broker was terminated due to "extensive non-compliance" with GXG's rules.
"London Capital NZ has been advisor for several companies which have been the subject of regulatory cases regarding severe and extensive non-compliance with GXG's market rules for the trading venues First Quote, Main Quote and Official List," GXG said. "Furthermore, in several high profile cases, London Capital NZ has refrained from responding to GXG Markets' enquiries to companies which London Capital NZ has had the responsibility of advising."
"The regulatory team has found that London Capital NZ hasn't been able to provide the necessary advising of companies to which London Capital NZ has been appointed corporate adviser," said GXG.
According to a March article in The Australian, Cook has been held in a German jail since June last year while authorities investigate him and his globe-spanning financial services empire, the London Capital group, for serious fraud and market manipulation, allegedly involving more than a dozen companies. Cook and London Capital NZ also cropped up in the NZ Herald during March.
'The sky's the limit'
Another NZ financial service provider to raise eyebrows at GXG is called RST Capital Trust. In February GXG terminated RST's membership as a GXG corporate adviser and broker. This, GXG said, was because RST Capital Trust had been acquired by new owners.
"The changes constitute such a change of RST Capital Trust's business that there is no identity between the RST Capital Trust that was initially authorised as GXG corporate adviser and broker and the RST Capital Trust after the informed acquisition," GXG said.
RST Capital's website says "the sky's the limit with RST Capital," whose head office address is in Nelson.
"Registered as a Financial Service Provider out of New Zealand with operations around the world, RST Capital is a multifaceted online financial service company," it says.
RST Capital Corporation Ltd, registered via the Companies Office, and purportedly in the business of money changing, is apparently owned by Malaysian resident How Keat Chiong, who bought the company from Panama resident David Allen Richer last September. Richer remains a director.
NZ regulators 'engaging with' Asia Finance via natural justice
Interest.co.nz has sought comment from GXG Markets, which it has pledged to provide but is yet to do so.
In terms of NZ's regulators, a spokeswoman for the Financial Markets Authority (FMA) says the FMA has been considering the registration status of Asia Finance Corporation and engaging with the firm about its status on the FSPR.
"Asia Finance has provided the FMA with a number of submissions and we are now considering our options within the statutory process. Our current review of the FSPR and the companies register is ongoing and we are unable to comment further on individual companies," she said.
Via a statutory process for deregistration, the FMA is able to remove entities from the FSPR when registration gives a misleading impression of activity or regulation in NZ, or may harm the integrity or reputation of the register. Last month it used this power for the first time, kicking 23 entities off the FSPR.
A spokesman for the Ministry of Business, Innovation & Employment (MBIE), which oversees the FSPR and Companies Office, said although London Capital NZ was deregistered from the FSPR in March 2013, the Quro Trust, RST Capital Trust, and Asia Finance Corporation Ltd all remain registered financial service providers.
"No action is currently being taken by the Registrar in relation to these entities," the MBIE spokesman said.
"Under powers introduced in 2014 the FMA is able to follow a statutory process for deregistration from the FSPR, where registration gives a misleading impression of activity or regulation in New Zealand, or may harm the integrity or reputation of the register. The process involves giving notice to the person who it is seeking to deregister and providing an opportunity to respond," the MBIE spokesman added.
"The Registrar may also commence the deregistration process if she is satisfied that any of the following grounds for deregistration apply. The FSP is no longer qualified to be registered, has failed to notify the Registrar of details of the FSP’s membership of an approved dispute resolution scheme, is not in the business of providing a financial service (at any time after the expiry of 3 months after registration), has been registered because of a false or misleading representation or omission, or has made payment for a fee which has been dishonoured, declined or reversed."
The FMA process allows firms to respond to its concerns and to submit reasons why they should be allowed to remain on the FSPR. This process follows the natural justice principles.
1,000 companies carrying out banking activities free of regulatory oversight
Significant criminal activity involving NZ registered companies and financial service providers overseas has come to light in recent years including the chartering a plane to fly North Korean weapons to Iran, money laundering, tax fraud, and Ponzi schemes. Taking advantage of NZ's simple company and financial service provider registration and this country's good international reputation, their only real ties to NZ may be a suburban postal box, virtual office, or small accounting firm provided as their address.
In 2011 then-Commerce Minister Simon Power said the Reserve Bank believed about 1,000 shell companies incorporated in NZ over three years had been used to carry out banking activities free of regulatory oversight and "many" seemed to be undertaking fraudulent activities. Furthermore, Power said 143 NZ registered companies were implicated, over a four year period, in criminal activities overseas with NZ Police and the Customs Service receiving 134 enquiries about them.
There's plenty of assistance on offer, for a fee, for those wanting to set up NZ financial service providers. A range of entities have promoted the perceived benefits of the NZ jurisdiction, highlighted in our 2012 story here. And there's even a "how to" book on setting up a company in NZ and using it to provide banking services to clients anywhere in the world entitled 'The land without a banking law; How to start a bank with a thousand dollars.'
Included with the Companies and Limited Partnerships Amendment Act last year were measures aimed at making life harder for those looking to misuse the FSPR. These included; all companies need to have one or more directors either resident in NZ or who live in an "enforcement country," where the company has an ultimate holding company prescribed information about that holding company must be disclosed, and in an application for registration, every director will need to register their full name and place of birth.
MBIE smelling the coffee?
There are signs that after years of embarrassment, the Government is finally running out of patience with NZ registered but overseas operating financial service providers and companies dragging this country's reputation through the mud. (See all our stories on offshore finance companies here).
An issues paper on reviews of the Financial Advisers Act and the Financial Service Providers (Registration and Dispute Resolution) Act, released by asks for advice on how to deal with overseas financial service providers misusing the FSPR.
"A large number of offshore financial service providers have attempted to register in New Zealand in order to give the misleading impression that they are regulated here. While changes have been made to the legislation to address this problem, it appears to be an ongoing issue. We are seeking stakeholder views of the significance of the problem and whether further changes are needed to address it," MBIE says.
MBIE notes that some offshore providers have gone to "some lengths" to set up shell NZ operations.
"While this may not have an impact on New Zealand businesses or consumers directly, as these providers typically avoid offering services to New Zealanders, it creates a risk to both New Zealand's reputation as a well-regulated jurisdiction and to the reputation of legitimate New Zealand financial service providers," says MBIE.
Registration vs licensing
MBIE goes on to say other similar jurisdictions don't have this issue, or at least not to the same extent, because typically they licence all types of financial service providers.
"In contrast New Zealand opted largely for a registration regime because licensing can impose significant costs on financial service providers, thereby creating a barrier to entry and reducing competition."
The MBIE paper asks; "Do you consider misuse of the Register by offshore financial service providers is a significant risk to New Zealand’s reputation as a well-regulated jurisdiction and/or to New Zealand businesses?"
And; "Are there any changes to the scope of the registration requirements or the powers of regulators that should be considered in response to this issue?"
One of the entities highlighted in our 2012 article, Atrium, includes information about the Companies and Limited Partnerships Amendment Act on its website in the section about NZ financial service providers, indicating it remains active in helping create NZ companies. NZ, Atrium says, is recognised as a "premium jurisdiction."
"(NZ) provides the all advantages of all traditional financial centres, and is recognized as a true onshore financial centre which is not blacklisted by any jurisdiction or authority in the world," says Atrium.
Submissions on the MBIE paper are due by 5pm on July 22. A second document will then be released later in the year recommending potential changes to the regulatory regime.
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