After a week of pressure over Panama Papers, Key says an independent expert will review NZ's overseas trust disclosure rules; Labour wants full inquiry; Peters wants full Commission; ICIJ sees more NZ names to come

Prime Minister John talking to reporters in Parliament on November 3. Picture by Lynn Grieveson for Hive News.

By Bernard Hickey

The Government has bowed to a week of demands for an inquiry into New Zealand's overseas trust disclosure rules in the wake of the Panama Papers.

Prime Minister John Key said in media interviews this morning he would take a proposal to cabinet for an independent expert to review New Zealand's overseas trust disclosure rules.

Later, Finance Minister Bill English and Revenue Minister Michael Woodhouse announced the Government had appointed former PwC Chairman John Shewan to conduct an independent review of disclosure rules by June 30.

"Ministers decided that in light of the 'Panama Papers' being released last week, it's worth looking at whether the disclosure rules are fit for purpose and whether there are practical improvements we can make," English said.

"Our rules require foreign trusts to be registered and to keep detailed financial and other records, which can be requested by Inland Revenue and passed on to tax authorities in other countries. In addition, we have a strong tax treaty network with the express purpose of discovering and preventing tax avoidance," he said.

"As we've said, we're open to considering changes to disclosure rules if that is warranted. So we've asked Mr Shewan to take a thorough and independent look at the current regime to check that it's fit for purpose."

Woodhouse repeated the Government's view that New Zealand was not a tax haven.

"Claims that New Zealand is a tax haven are wrong. We have a robust tax base and we're operating under stronger disclosure rules introduced by the previous Labour government in 2006," he said.

Woodhouse noted the OECD had called a special meeting to discuss the Panama Papers in Paris this week and an Inland Revenue representative would be sent to that meeting.

"We will certainly consider any issues raised there and we're prepared to look at changing the disclosure rules if Mr Shewan's review finds this is warranted," Woodhouse said.

Key folds after week of pressure

Earlier, Key flagged the review.

"It's highly likely the government will ask an expert in this area to undertake an independent review," he told Guyon Espiner on RNZ.

Key also announced the plans for the review on TV3 and NewstalkZB.

Key said he would not rule out changing the disclosure rules, although he again defended the rules.

"The advice that we have is that New Zealand's not a tax haven, it's compliant with OECD, in fact I think we're ranked in the top 20 of disclosure and good practice," he said.

"There can be negative reasons and we obviously need to make sure we have the proper processes and procedures to ensure we don't get those. But there are also very legitimate reasons and New Zealand is a very good place in terms of being open, transparent."

The OECD announced over the weekend that it would hold an emergency meeting on Wednesday to discuss the Panama Papers.

Key says didn't use trusts himself

Key also specifically denied having personally used tax shelters or overseas trusts in the past. He said he had had a superannuation fund in Singapore when he worked there and he said he would not be releasing his tax records, as David Cameron pledged to do over the weekend.

"We have very strong rules in New Zealand around pecuniary interest. I'm quite comfortable and very confident of my tax record," Key told Espiner.

"I use the best people. I don't use sheltering vehicles - I've never used those."

The back-down on the review followed a week of questioning in Parliament and calls by tax and other experts for tougher disclosure rules.

'NZ has very weak laws'

The pressure ramped up over the weekend as those who have seen the Panama Papers said there would be further revelations and that Mossack Fonsceca had advised its clients that New Zealand had weak disclosure rules.

Neil Chenoweth, who has been behind the International Consortium of Investigative Journalists (ICIJ) firewall containing the papers, reported in the Australian Financial Review in more detail on Sunday how political figures in Malta had used New Zealand trusts.

Chenoweth reported Mossack Fonseca's New Zealand staff provided advice they received from an executive at Nexus Trust that: "NZ has very weak laws in regard to due diligence; they only require utility bill and passport. Trust companies are not required to hold a licence."

He wrote there was no need to register who put assets into a foreign trust, known as the "settlor", and he reported that a Staples Rodway lawyer had written: "The New Zealand definition of 'beneficial owner' is different to that of many other jurisdictions, in that we do not require due diligence on the person/s who will benefit from the funds."

"In other words, you never have to explain who gets the money – and Mossack Fonseca never needed to know either," Chenoweth wrote.

More NZ names to come

Meanwhile, the Centre for Public Integrity's CEO Peter Bale told Lisa Owen on TV3's The Nation that he expected more detail about New Zealand names and the use of New Zealand vehicles would emerge in coming weeks.

The Centre for Public Integrity includes the International Consortium of Investigative Journalists (ICIJ), which has access to the 11.5 million documents leaked from Mossack Fonseca.

"You can be absolutely certain, I think, or as near to certain that there will be significant numbers of New Zealanders and of New Zealand entities, certainly New Zealand entities, within this data set," Bale said.

"Our hope is that, as with other large data sets that we’ve done, it will be made available in the next couple of months, publicly," he said.

Information sharing doesn't work

Tax Justice Network spokesman John Christensen told Corin Dann on Q+A that New Zealand's double taxation and information exchange agreements were "pretty useless."

"And we've seen that across the world. They're useless because they only work on the on-request model. That is if a tax authority elsewhere gets wind of the fact that someone might have a trust in New Zealand, then the courts might permit information exchange. That simply isn't good enough," Christensen said.

"We now need to move to a new era of automatic information exchange where the trustees of a trust based in New Zealand will automatically inform the tax authorities, who will pass that information on to the tax authorities in the third-party country," he said.

"I'm afraid the existing tax information exchange agreements are worthless."

'Full Inquiry or Commission needed'

Labour Leader Andrew Little called for a full Independent Inquiry into the details coming out of the Panama Papers.

“One tax expert isn’t going to solve this, especially one appointed by a Prime Minister who doesn’t think hiding their finances behind tax free funds is morally wrong," Little said.

“Labour has called for an inquiry as soon as the Panama Papers were released – New Zealanders don’t want the global super-rich hiding their money here and not paying tax. A full inquiry must instead assure New Zealanders that everyone pays their fair share and that we are not part of an international tax evasion racket," he said.

Little said Key had been cagey about his own personal finances. "He must come clean if he has directly or indirectly benefited from funds in a tax haven. The last thing our international reputation needs is for rumours to swirl around our Prime Minister’s tax affairs."

New Zealand First Leader Winston Peters called for a full Commission of Inquiry, adding he would have no confidence if it was led by the IRD's head of international strategy John Nash. Peters criticised Nash in this Parliamentary question on Thursday, shortly before being thrown out of Parliament for a second consecutive day.

Later, Peters criticised the appointment of Shewan, saying he was involved in a number of high profile cases, including disputes between Westpac NZ and the IRD and the Penny and Hooper case. He said Shewan had been advising the Government for years. 

"New Zealand First wants a proper inquiry with the full powers to obtain disclosure and by a body not contaminated by New Zealand establishment associations," Peters said.

Green Co-Leader James Shaw also called for a broader public inquiry, saying the limited review showed the Prime Minister was in damage control.

“While I welcome the Prime Minister’s U-turn on New Zealand’s foreign trusts, appointing a single tax expert is unlikely to lead to the kinds of reforms we need to protect our country’s reputation," Shaw said.

“Appointing a single expert insider could result in a whitewash. Any inquiry into New Zealand’s foreign trusts also needs expertise from the Inland Revenue Department (IRD), transparency and anti-corruption experts, international tax law experts, and an opportunity for public input," he said.

“Any inquiry without IRD input will be meaningless. IRD are at the heart of this issue, having direct oversight over foreign trusts and responsible for information sharing with overseas tax authorities. They first warned the Government about this issue back in 2013. Any inquiry without expert input from anti-corruption specialists will similarly be problematic, as a single tax expert will not be expert at protecting and restoring New Zealand’s reputation overseas."

(Updated with comments from James Shaw, detail about review and its expert John Shewan, reaction from Peters)

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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58 Comments

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13

But just last week he said this was all to blame on Labour.

Anyway, hopefully this includes looking at all the illegal Chinese money flooding the property market. And properties bought will illegal money need to be confiscated.

Not everything is illegal. When it gets desperate it becomes an illusion.

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Please explain to me how foreign Chinese are buying property when the most they can legally take out of their country in 50k USD per year. That isn't even enough for a deposit.

And please don't say condescending rubbish like that, it's obvious, especially after what has been revealed and that HK is their busiest office.

Here you go SpaceX, this BBC article should answer your question about how vast amounts of money is being sneaked out of China.

BBC article: Panama Papers: How China's wealth is sneaked abroad
http://www.bbc.com/news/world-asia-china-35957228

Also suggest that you scroll down to the Juwai news clip and see New Zealand light up like a Christmas tree as being one of the main target areas for property investment.

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10

Mr. JK will not venture close to that.. he wouldnt want to affect his rich Chinese mates..

Same song, voice just has a different accent. Don't look left, look right.
Same here, same as UK.
Sold out, don't understand quite why?.
It is all a big game..
Maybe, just follow my leader...the new game in town...fundamentally.

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Appointing one foreign expert is a way of any Government department tries to get the answer that they want. This is a cover up it's not a real investigation. After the expert says everything is ok, or do some fluffing around the edges the PM will point to the expert's involvement. It's clear that National has something to hide, and if someone digs around enough they could find some deliberate tax avoidance or worse.

What we should be doing to save NZs reputation is to find tax cheats and inform the relevant tax departments. Prosecutions are needed.

Cover-up - no

Its a fire-retardant in the hope the fire will burn itself out and other issues come along

IRD have enough trouble administering New Zealand's tax laws. Administering other countries tax laws by finding "the tax cheats" would be quite a big ask.

As for "prosecutions are needed", the point of all this stuff is that it's legal. Not even in IRDs wettest dreams can you prosecute people for complying with the law.

Some will be complying with the law but not all. There will be some criminal activities uncovered as this plays out, not everyone will be squeaky clean.

Bit like buying a squeaky toy. Try them until you find one that that issues a pleasing sound.

Agreed. It is the money laundering aspect that is the most important thing that needs investigating.

JK has gone back up a couple of notches from a low base in my estimations this morning.

Agreed (again) Penguin. Salacious as the current revelations may appear, even if all the MossFon papers were available, it is still only the tiniest tip of the iceberg.

Nor just because MossFon represent only 5% or so of the market, with a few other big players and then tens of thousands of other legal and accounting firms in nearly every country that also set up such structures.

Also because company incorporation firm records won't show the vast majority of transactions undertaken by their corporate structure creations. MossFon may or may not be complicit or wilfully blind in some of it, but for the most egregious stuff it's very likely they really do have no idea to what use many of the structures were put by some of their least savoury clients.

The papers will thus likely tend to skew towards legitimate and slightly whiffy uses, with the relatively 'normal' people such as the politicians and the super rich keeping the firm involved to hold their hands through what they thought was a secret maze.

The real investigations, to find the transactions conducted by drugs cartels, corrupt politicians looting their countries' wealth, arms and sex traffickers, tax evaders, and all their ilk, and their necessary money laundering colleagues, will take much longer, and will at best use MossFon data as a starting point only.

Or at least to the extent that the law in various countries allows them to use such evidence. The legality by which it was obtained, and issues of legal privilege over the material, and perhaps the need in some places to build a case (already potentially emerging) of the prospect of wilful knowledge by professionals thus helping pry open the privilege and thus the capability to use the papers evidentially, may delay the deep law enforcement investigative grunt necessary to uncover the most serious criminal activities.

From Friday.

See Ian Hislop (of Private Eye) explain why this is a big story [from 1:30 onward]
https://www.youtube.com/watch?v=KS1oJkGgeYg

will our bloke have Dave's problem.
even in Sudney markets Labuan's back been an old time fav for basing the SF and bonus cheqs.
Lion City its gloves off.
as for London, any remember the story when the moneybrokers (MAI) tried bonus pmts in gold bars to get around tax on folding?

the records would tell.
when sorting something out and filling the forms as applicant or respondent, you don't get the option of being the judge and the jury as well.

as for London, any remember the story when the moneybrokers (MAI) tried bonus pmts in gold bars to get around tax on folding?

I had bonuses paid in bullion that was never allocated, but available for immediate pre-arranged sale in exchange for folding at a fixed, fee less rate to reflect the nominal bonus sum. The ploy was to allow the bank to avoid paying National Insurance on behalf of the employee recipients, but PAYE was still deducted at source.

Why do we need a foreign expert? I thought we have thousands of them working at IRD! just setting up a white wash. Honestly, where the hell are the opposition and media with any backbone?

Because it's not a good idea for Departments to set policy, or even to be seen to see policy.

Well you might want to tell IRD that in regard to taxing gold!

I rest my case. . .

No expert required! If money is in these Trusts and not having tax taken from while in NZ or from their own country it then qualifies as a 'haven'.

"expert" is a word thrown around way to often by dodgy MP's

Because it's not a good idea for Departments to set policy, or even to be seen to see policy.

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It is only that Key has found himself standing in international headlights that has forced him to move. His first response was to highlight $24m of value to the New Zealand economy, meaning it should be seen as a good thing. He followed this with attacks on the Greens, Labour and others for bringing the sector to attention, or for suggesting there may be nefarious activity involved. His claims on necessary oversight and disclosure have been shown as hollow. His statement to the House that New Zealand has disclosure arrangements with Malta has been discredited - at least via the information on the IRD website.

Why this history of shifting his ground? Key's wriggling and obfuscation suggests it's an area in which he's highly conflicted. I suspect that he has an overriding veneration for the moneyed - his whole working life, in forex, was engaged in smooching and rewarding the very wealthy. These are still his favoured peer group - in which the forex professional they knew is now ('Who woulda believed it?') a Prime Minster. Upsetting any in this international peer group, or having any light shone on their world, is a deeply unattractive prospect to Key. And New Zealand's reputation? Who cares? But, avoid them as he's tried, the headlights are now on beam.

NZ's reputation was treated as a joke in Spain's 6pm TV news on Saturday, and in Malta the PM's facing mounting calls for resignation swirling around NZ offshore trusts. Part of the issue is that our old-style form of offshore trusts is tarnished with the reputational baggage of the traditional tax haven type structures now coming home to roost. Getting out of the business entirely with complete beneficial ownership requirements and/or creating a new model may be potential alternatives to explore.
http://www.interest.co.nz/opinion/80991/ron-pol-says-tax-haven-misses-po...

Do you think a searchable register of settlers, trustees, and beneficiaries, with a copy of the Trust Deed would do it?

Do you think a searchable register of settlers, trustees, and beneficiaries, with a copy of the Trust Deed would do it?

Yes, certainly one solution, and one favoured by Transparency International. England has the first register, in force last week, to commence in a few months' time, and several other countries are developing their own.

Yet this works only if established well. So for example a companies register alone, with beneficial owners/actual directors is not enough if it excludes other structures such as (common law) trusts and (civil law) foundations. A transparent structure owned by an opaque structure is an expensive exercise in futility if it retains opacity.

There are also issues (as being debated in EU) whether a public register, or restricted to tax/law enforcement. Good arguments both way.

Searchable public registers. New Zealand already has one for companies and directors. Norway has one for tax. The technical aspect is not too difficult.

I suspect that the difficulty lies in having the requisite political will.

Yep. EU grappling with that very issue.

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I believe this is all now to just buy time till all the facts and names come out. By then they will claim "it's no longer happening so no need to act". Problem wash away. Deny, deflect, obstruct, then drip feed until public have got tired of the whole subject.

as i said the other day
step 1 deny there is any issue or problem. Completed
step 2 blame labour. Completed
step 3 water it down with a wet bus ticket change giving plenty of time for "wink wink" people to get out. getting in an (friendly) expert to suggest which wet bus ticket to use

Just so long as they don't throw the baby out with the bathwater. . .

You mean like they did with H&S reform? Creating an entire new feast of litigation for lawyers and insurers?

Just goes to show what a waste of time the likes of GCSB etc are and how their abilities are overhyped. If this ain't a national security and reputation threat then.....but no, they rather just ignore that and watch the whistleblowers in this country like Hager

Maybe those Panamanian Trusts are all blind trusts and the owners don't know whats in them.

Sell that to "Tui"

Maybe we have been sold to overseas interests, but no one has dared tell us ..yet.??.

FYI updated with John Shewan announced as the independent expert.

An interesting choice. I hope he has the scope to look intensely at the issues involved.

on an industrial scale...
http://www.bbc.com/news/business-31147276

Accountancy firm PricewaterhouseCoopers (PwC) has been accused of promoting tax avoidance "on an industrial scale", in a report by MPs.

It is said to have helped hundreds of clients cut their corporation tax bills by setting up bases in Luxembourg. Earlier this week the Archbishop of Canterbury said companies should pay tax wherever they earned their profits.
PwC said it disagreed with the Public Accounts Committee report but added that the tax system was "too complex".

The report was based on an evidence session held in December, at which PwC gave evidence.
"We believe that PricewaterhouseCoopers's activities represent nothing short of the promotion of tax avoidance on an industrial scale," said Margaret Hodge, chairwoman of the Public Accounts Committee (PAC). Margaret Hodge MP
We consider that the evidence that PwC provided to us in January 2013 was misleading. Margaret Hodge, Chair, Public Accounts Committee

She said PwC had written more than 500 letters to the tax authorities in Luxembourg, on behalf of more than 300 international clients.

The tax avoidance schemes, which are legal, involve companies diverting profits to tax havens like Luxembourg via a series of loans between different parts of the business.
The profits are eventually taxed in that country, but often at tiny rates.

poacher turned game keeper?
till 2012 chairman of... PwC after 35 years with the firm.
http://www.stuff.co.nz/national/queens-birthday-honours-2012/7038654/She...

Independence redefined

Retiring PricewaterhouseCoopers chair John Shewan .... appointed independent expert

How can he possibly be independent ????

He is knee deep in it - right up to his eyebrows - can't claim ignorance

Listen to the Silence

If this was in Australia the laughter and ridicule would be deafening

Listen to the sounds of silence in New Zealand

Ditto the law commission report on trusts that has been going on. Take a look at the stooges appointed by Amy Adams.....Apart from Nicola Peart, as far as I can see they are all industry bottom feeders with a vested interest in keeping the trust game pumping. Where are the lawyers from the serious fraud office, police, IRD, crown law and so on. You know, the people that get thwarted by the use of trusts by those who wish to avoid personal responsibility?

http://www.scoop.co.nz/stories/PA1505/S00584/minister-puts-trust-law-ref...

Seems Dave's thinking similar
In the cat-and-mouse game between tax collectors and taxpayers, Edward Troup, executive chair of Her Majesty’s Revenue and Customs, is not alone in having played for both sides.

Educated at Oundle school and Oxford University, the 61-year-old former corporate lawyer is now overseeing an official inquiry into any wrongdoing arising from the Panama Papers tax leaks.

Troup turned from poacher to gamekeeper in 2004 when he left Simmons & Simmons to work on corporate tax policy in Gordon Brown’s Treasury.......

http://www.theguardian.com/politics/2016/apr/11/edward-troup-advising-ta...

Troup looks unlikely to lead any earth-shaking reforms at HMRC, according to one leading tax lawyer who knows him. “If you think the world needs to be changed you don’t appoint Edward Troup to that job,” said Jolyon Maugham QC, an expert in taxation law.

Maugham described Troup as “a civil servant’s civil servant - very bright, very sophisticated and extremely pleasant”. But he said he is unlikely to agree that there should be greater transparency in HMRC’s arrangements with big corporations.

Snap, thats all the cards.

One could make the 'poacher turned gamekeeper' argument about the PWC connection... Shewan has been excellent in the Productivity Commission work.

There's also the Pullar-Strecker point. http://www.stuff.co.nz/business/opinion-analysis/78776917/foreign-trusts...

If one inhabits a jurisdiction prone to 'All Your assets are belong to Us' moments, then having some fraction of said assets safely locked away from the hands of Arbitrary Raiders is not something to discourage entirely.

Because, standards of probity and behaviour do Vary across the world.....

Excellent in what way? - spell it out - information is a two way street - who is to say he wasn't using that position to feed back to his masters and provide a dampening influence on the commission doing anything corrective

Australia has already spat the dummy. As from Jan 2016 all foreign based organisations will be taxed at the same % rate as the parent makes profits - to heck with profit shifting

Taxed on what? Income? Profit?

There's a biiiiiig difference between the two.

If the parent is making 20% profit as a percentage of global sales, the local profit is then deemed to be 20% of local sales, and taxed accordingly

Thanks.

Fairly ugly.

Too right Waymad and not too many people come from 'All your assets belong to us" places.

"When the Swiss went to look at all those accounts held by British nationals they found that instead of there being vast numbers of tax evaders there were in fact vast numbers of resident but non-domiciled and non-UK resident British nationals with accounts. Neither of whom owe any UK tax on the money that they’ve quite legally put into a Swiss bank account. Please do note that this isn’t a flaw or a loophole. This is how the system works: it’s only Americans (and Eritreans) who have to pay home country taxes wherever they live in the world."

http://www.forbes.com/sites/timworstall/2016/04/10/david-camerons-panama...

The OBN is alive and kicking well ?

And Bernard Hickey's opinion of the appointment?

Silence

Just another example of many where ordinary hard working kiwis are denied anything resembling a level playing field in their own country a bloody disgrace yet national go up to 50% in the polls it beggars belief

Because at root, the Panama Papers are not about tax. They’re not even about money. What the Panama Papers really depict is the corruption of our democracy.

http://www.theguardian.com/news/commentisfree/2016/apr/10/money-offshore...

Oh ... they depict a lot more than that

1. Although NZ is right in the thick of this mess, possibly a central player, YET no-one in NZ knew anything.

2. All the information being released comes from overseas - they know more about us than we do

3. There were 400 investigative journalists carefully selected from around the world from reliable news and media outlets (that's an indictment) - tells you how good our media isn't

4. Not one was chosen from NZ - you might wonder why

5. NZ is a giant cocoon like biosphere - the outside world does not exist

6. The populace is sedated

Yes,
Godzone country, if you can sell that you can do anything.
Mind you the aussies were sedated with "The lucky country"

John Shewan's former PwC outfit is itself deeply mired in all these allegations. It's like brInging VW in to check the emissions on international car imports!