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Law targeting dodgy NZ company start-ups set to pass by end of year, PM Key says; 'Important NZ preserves reputation'; Says trade-offs had been made for ease of registration

Law targeting dodgy NZ company start-ups set to pass by end of year, PM Key says; 'Important NZ preserves reputation'; Says trade-offs had been made for ease of registration

By Alex Tarrant

A law change aimed at improving New Zealand's international reputation by targeting shell companies registered here and carrying out fraudulent activities overseas is set to be in place by the end of the year, Prime Minister John Key says.

Speaking to media on Monday afternoon, Key said trade-offs had been made by allowing New Zealand to be the easiest place in the world to set up a company, and that the government needed to get its regulatory ducks in a row to target the misuse of the New Zealand Companies Office register.

It was important New Zealand preserved its international reputation, Key said.

The Companies and Limited Partnerships Amendment Bill is set to finally receive its first reading in Parliament, possibly this week, after being drafted and put on the order paper last year by former Commerce Minister Simon Power.

The Bill will introduce requirements for New Zealand-registered companies to have a registered director or agent living in New Zealand. That person would be legally responsible for an entity's administrative affairs and would have responsibility, along with other relevant people, if that entity failed to comply with its reporting and record-keeping obligations.

The Bill will also give the Companies Registrar enhanced investigative and removal powers, along with the power to warn the public about suspect entities via a note in the companies register. Read more in the Bill's explanatory note here.

The Bill is part of the government's work programme aimed at cracking down on the misuse of the New Zealand companies register.

The programme also includes the development of a risk assessment framework to identify risks on the register, enhanced monitoring of company registrations, and improvements to information sharing between the Companies Office and Inland Revenue Department to identify and risk assess inactive companies.

New Zealand is ranked by the World Bank and International Finance Corporation as the easiest of 183 countries in which to start a business. Commerce Minister Craig Foss told in April that, other than the changes currently mooted, the government's programme would not seek to make it harder to register a company in New Zealand.

Last year, Simon Power said the Reserve Bank believed about 1,000 shell companies incorporated in New Zealand over three years had been used to carry out banking activities free of regulatory oversight and "many" seemed to be undertaking fraudulent activities.

Power said 143 New Zealand-registered companies were implicated, over a four year period, in criminal activities overseas including smuggling, money laundering and tax fraud, with the New Zealand Police and the Customs Service receiving 134 enquiries about them.

One of the latest cases is that of First Capital Savings & Loan Ltd, which was accused of running a US$25 million Ponzi scheme in the United States. Its American CEO is now facing 15 years' jail time after pleading guilty to wire fraud and money laundering charges brought by the Acting US Attorney for the Northern District of Illinois.

See more in Gareth Vaughan's article, A New Zealand company's US Ponzi scheme features the 'USA Tomorrow' newspaper, presidential hopeful Ron Paul, Panama, three Peruvians and a Dutch bank account.

'Trade offs were made'

Foss told Prime Minister John Key last week that progress was being made "rapidly" on targeting the misuse of the companies register, and the Bill should become law by the end of the year, Key told media at his post-Cabinet press conference on Monday afternoon.

Asked whether it was too easy to set up a company in New Zealand, Key said he did not think so.

“It’s been one of the advantages of New Zealand, that we’re a relatively cheap and easy place to set up a company, but it’s obviously important that we preserve our international reputation. On that basis we’ve been changing legislation around those issues," Key said.

The government was conscious of the issues, he said.

“We generally think New Zealand’s a good place to operate from, but I think it’s an important step that we get our 'legislation ducks' lined up, and we haven’t done that [previously]."

Key said he met with Foss about the issue last week and, "he gave me confidence that process is progressing rapidly.”

There had been some obvious trade-offs with having New Zealand as the easiest place in the world to set up a company, Key said.

“There have been certain things that we’ve rejected as recommendations for the structure of a company, if you like, and [where the directors are domiciled]. But we are working through that issue," he said.

Key said Foss had given an assurance that progress was being made.

“I think they’re fairly confident [that] by the end of the year the legislation will be passed and the issues will be resolved," he said.

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The best way to stop dodgy finance companies registering is for someone to have eyeball contact with  person registering the company. The more automated the system and the fewer humans in the loop the more opportunity for the crooks to succeed. 

Why can't they just fix the problem, why do they need to modify laws? Laws set by the Government  should set principles, getting into technical details is a going too far.