Gareth Vaughan questions whether PM John Key is stuck in a pre-GFC time warp given his position on NZ's overseas trusts

By Gareth Vaughan

Way back in the dim, dark 1980s Rob Muldoon rather surprisingly picked up a role as narrator in the camp musical the Rocky Horror Picture Show.

One of the best known songs from the show was called Time Warp. This was quite fitting for Muldoon at the time given the once popular Prime Minister had been swept from office in 1984 against the backdrop of a fast changing world that he appeared increasing out of touch with.

Bizarrely I thought of the Time Warp song on Monday when reading and hearing current Prime Minister John Key's comments on New Zealand being embroiled in the Mossack Fonseca global tax dodging and asset hiding scandal.

According to Key, New Zealand's trust regime does not represent a tax haven and he is rejecting calls for a tightening of the regime around overseas trusts. Key also said the offshore trust industry generates about $24 million a year in revenue for New Zealanders.

As is well known, prior to entering politics Key was a highly successful currency trader making a fortune in the free wheeling 1980s and 1990s. However, his attitude to secret NZ trusts helping overseas politicians and crooks dodge taxes in their homelands and hide assets, made me think our Prime Minister hasn't moved on from the days before the Global Financial Crisis (GFC).

The GFC, remember, was a time when global banking behemoths, like the one Key had worked for in Merrill Lynch, collapsed, got taken over or bailed out costing taxpayers trillions of dollars. Citizens in many parts of the developed world lost faith in high finance. Tax collecting has become more important for cash strapped governments - witness the US FATCA initiative, the OECD's BEPS project and now its AEOI initiative.

Perhaps once admired in some circles for being able to sidestep the intimidating taxman, wealthy individuals not paying their fair share of tax are no longer admired. The public is now interested in tax, which has shifted the goalposts. The tide has gone out on tax avoidance.

Hence I find it immensely disappointing to see our Prime Minister on the wrong side of this issue.

Tax's dirty water equivalent

It strikes me that this legal yet unethical and immoral use of NZ's reputation through our secretive trusts, is to tax what the water quality, or lack there of issue, is to our clean green "100% pure" environmental image. It's simply a bad look and something we need to address post haste.

And frankly we didn't need this massive international leak of documents from a Panamanian law firm to point out that we have a problem. It has been evident for years.

In this submission to the Ministry of Business, Innovation & Employment last July on the related problem of the misuse of NZ's Financial Service Providers Register by offshore financial service providers, I noted these comments from the Wilmington, Delaware headquartered Atrium Associates LLC, which is an international company formation agent.

"If you are looking for a financial services or Forex licensed entity, we usually suggest New Zealand, Mauritius or Seychelles."

"If properly structured, a New Zealand resident company can operate as a tax free offshore company," Atrium adds.

I open with Atrium's comments to highlight there are a range of sophisticated operators out there scouring international company and tax laws so they can help clients - for a fee - maximise their "financial efficiency" and conduct their affairs "under absolute confidentiality."

A 2012 Cabinet paper noted the Companies Office monitored 77 such entities.

Another example? Here's Equinor Trust Ltd, a NZ registered trustee with links to Kiwi Deposit Building Society from a 2013 article.

In a background and business rationale paper provided to the Reserve Bank, Williams said Equinor Trust is responsible trustee for almost 150 trusts with assets "conservatively" worth more than €5 billion being boats, planes, real estate, bankable assets and share participations. Equinor Trust specialises in the establishment and operation of New Zealand foreign or exempt trusts for high net worth and wealthy families and is a wholly owned subsidiary of the Copenhagen-based Equinor International A/S, which he said specialises in onshore international wealth and tax planning and management.

"In short Equinor has some very interesting client relationships with some of the world's wealthiest individuals and families (located in all parts of the world), and their bankers and advisers," the paper said.

The €5 billion, or just under NZ$8 billion, Equinor Trust is said to oversee is equivalent to more than half the total NZ$14.5 billion of KiwiSaver funds under management.

And there's the NZ registered, but overseas operating financial service provider Breder Suasso. Here's some of what it has said about NZ trusts.

"The New Zealand Foreign Trust regime is considered to be one of the best if not the best offshore trust regimes in the world today."

And; "A properly established trust provides virtually 100% protection against creditors."

Plus; "In New Zealand there are many cases of personally bankrupt individuals who have been unable to pay their taxes or have failed in business but who still live in mansions and drive Ferraris owned by their trusts and there is nothing anyone including the Government can do about it."

Onto the 6pm TV news

Some of this sounds remarkably similar to what we heard from Mossack Fonseca yesterday. So it's not new and government officials and Cabinet Ministers have known for years NZ's reputation as a well regulated South Pacific paradise is at stake. But what the Mossack Fonseca leak has done is take the issue global, put meat on the bones, and domestically get the issue onto the 6pm TV news. 

NZ is beloved by Transparency International's Corruption Perceptions Index, and by the World Bank for the ease of doing business here. But make no mistake NZ's good international reputation is now on the line. This has been hard won and could be easily lost. And I for one put a much higher price tag on it than the $24 million figure bandied about by Key.

In a defence of NZ's tax system yesterday Revenue Minister Michael Woodhouse said we don’t tax foreign income earned by foreigners. What Woodhouse neglected to add was that we will, however, help foreigners hide it from their domestic tax authorities for a fee. (Here's the scant foreign trust disclosure currently required by IRD).

As reported in Bernard Hickey's story yesterday, IRD even advised the Government three years ago to review the tax treatment of foreign trusts and warned of the risks to NZ's reputation.

"Our foreign trust rules continue to attract criticism, including claims that New Zealand is now a tax haven in respect of trusts," the IRD wrote.

"This is largely because the mismatch between our rules and those of other countries may result in income not being taxed either in New Zealand or offshore. To protect our international reputation, it may be necessary to strengthen our regulatory framework for disclosure and record-keeping."

Sunlight is the best disinfectant

Prime Minister, sunlight is the best disinfectant. It's time full details about foreign trust beneficiaries, the nature of the assets and source of assets held were fully disclosed. Perhaps this could be done by setting up publicly available register?

As a small, remote country at the bottom of the world - clinging onto a good reputation - it's time NZ showed itself to be a fully fledged player in the global fight against tax havens and offshore financial services hubs associated with international pariahs such as Panama.

Under repeated questioning from journalists, and following numerous calls for tougher disclosure rules, Woodhouse said on Tuesday the IRD was working with the OECD on a review of the framework for disclosure around trusts and Key said NZ would change its rules if required. So perhaps there is hope the Government will be dragged kicking and screaming into doing the right thing.

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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26 Comments

Here we are. Down at the bottom of the world, where the sun don't shine.
We have a reputation, but it's not actually a good one.

http://www.interest.co.nz/opinion/78051/gareth-vaughan-wonders-whether-s...
When is the sign going up so everyone knows - not just the wide boys?

John Key is probably friends with some of the people implicated in this. I can see it is a problem when you are a multi millionaire and your advisors and peers are implicated.......

One might assume John Key has offshore investments in tax havens himself - bloody difficult to criticise other wealthy folk doing the same thing.

Dobrydan - actually I've heard rumours about you and secret trusts - standard tactic to come on social media and accused others to deflect attention

JK has two trusts a family one JP & BI Key Family Trust and a "blind" investment one the Aldgate Trust. he has publicly spoken about them many times, even yesterday in parliament
a lot of our current and past politicians have them so its a bit of self interest as to how or what to change.

...and yet a blind trust is accepted as being okay? The public has a right to know what their polticians have invested in, if they dont like a light shinning on their affairs, then don't run for public office.

How can the public have any confidence that the polticians are not acting in self interest. Time to up the anti and challenge the acceptability of these also.

LOL!!

the largest building in the world

Malcolm Turnbull - PM of Australia - Net Worth $133 million

A speech to the Senate highlighted numerous investments made by Prime Minister Malcolm Turnbull into corporations based in the Cayman Islands. - focused on three corporations based in the Cayman Islands which Turnbull has invested in: the Zebedee Growth Fund, the Bowery Opportunity Fund and the 3G Natural Resources Offshore Fund.

According to the United States Securities and Exchange Commission, the Zebedee Growth Fund is incorporated in a building called Ugland House, located in the Cayman Islands.

Ugland House is the headquarters of nearly 19,000 corporations. US President Barack Obama, has said that “either this is the largest building in the world, or the largest tax scam in the world.”

“There is only one reason people invest in the Cayman Islands – so they don’t have to play by the same rules of the rest of us,”

https://www.laborherald.com.au/economy/whats-malcolms-money-doing-in-the...

Where is JK's money? - Anybody had a look at his parliamentary register disclosure?

Keep smiling and distract people with the flag.........nice one JK

Good find. A few locals appear on the list.

Now some of the Kiwi names are in the open the IRD can investigate the beneficial owners and see if the foreign income has been declared.

Are we a"shonky" country?

Geoffrey Robertson QC, the human rights lawyer, tells Today that offshore tax havens allow “vast numbers of wealthy people to hide their wealth”: "A blind eye is being turned which has enabled some firms that are on international sanctions lists to move their money in total secrecy to avoid those sanctions.”

He says the laws of “rather shonky countries like Panama and little islands allow the very rich to hide and move their wealth and to an extent that it enables them to beat international sanctions it becomes a worry".

Britain is "at the height of international tax avoidance by allowing these little remnants of empire" to have tax secrecy laws and "enable offshore trusts and offshore companies to operate without transparency”, Mr Roberson adds.

The problem of sovereignty means "these islands can set up their own regimes" so this is a problem that needs to be resolved internationally.

He is calling for lawyers to be subject to the same "know your customer" regulations as the banks.

Either close the foreign trust loophole or charge them 24 billion so we can all stop paying taxes. It's a free market after all, no?

cant do that..ShonKey wants to attract these high net worth people so that we can become the switzerland of the South Pacific

NZ has a self-inflicted reputation as a country of hobbits, infantile aircraft boarding videos and a singer who despises her own race. And in places like India it also has a reputation as a country where fruit pickers are regarded skilled professionals and whose consulate staff are cheap.

I hate to say it, but NZ has a lot of potential - still - but no prospects of turning it into anything of much substance also thanks to generations of flatminded politicians and their media groupies.

New Zealand could have been even greater. I was searching for the phrase "Prussians of the South Pacific" and found this PDF, The Subtle Science:- by Bernard Cadogan on a government web site.
http://www.treasury.govt.nz/downloads/pdfs/tgls-cadogan-3-paper.pdf
Emphasis mine.

Thus began the nation-state that produced the New Zealanders whom Sir Keith Sinclair
called the “Prussians of the South Pacific”. Even the All Black colours are the Prussian
black and white, a rare colour scheme for any country. Thus a liberal capitalist enterprise
state with a native protectorate and multiple governments became a unitary consolidating
statist entity. Military training and military service was a fact of life for men between 1840 and
1971. Sport reinforced it.
What was intended to be a Jeffersonian agrarian republic of
homesteaders, citizens and militiamen, turned into a State-driven society propelled by a
Heath Robinson debt- engine. Civic modesty and egalitarianism flourished. We lived under
an incredible social discipline

James Belich reminds us of the repressive behaviour that New Zealanders resorted to.
When I stayed in East Germany in 1986 I was reminded in part of 1960s New Zealand.
Freedom and personal liberty were not the value for us that it was in the United States. This
is an insight as old as Leslie Lipson.
Solidarity and civic discipline and propriety prevailed instead. The Kiwi clobbering machine and the tall poppy syndrome were all cultural expressions of what Montesquieu discussed in the Esprit des Lois- the necessity that democracies and classical republics have had to impose galitarian conditions and socialrestraint on citizens.

I feel we threw the baby out with the bath water somewhere in our history.

Very interesting source, thanks for that.

Heath Robinson Death Engine, a gem in that. Never would have thought I would be giving you a thumbs up, you might redeem youself yet :-P

ShonKey... classic !!!

He needs another distraction perhaps changing the National Anthem.

..a colleague of mine reports a conversation in the last few days with a very well known and respected Auckland barrister (Ill give away no more than that... I know who he is). The guy was insistant that foreign Trust are a tax dodge and he was aware of billions he had personally assisted offshore himself. Who does Key think he is kidding.....

A Law unto himself - our laws are white-pakeha rules and don't apply to him

The Law Society should unleash the Audit Dogs immediately.

The law fraternity are supposed to self-regulate and report suspicious transactions

For whats its worth, we should be clipping the ticket for much more than $24m! Thats hardly worth the risks involved.

...has anyone asked how that figure was worked out? How did JK happen to have it at his fingertips...and so on. Either plucked out fo thin air or his shonky mates have been advocating behind the scenes to not destroy their pork trail...

Tax secrecy, possibly should be called "privacy", is one thing.
Money laundering, corruption, bribery, keeping-funds-from-your-spouse, are also reasons a foreign settled trust is an attractive vehicle in your garage. Although, of course, it's your cousin's garage and you have no knowledge of what is in it, let alone any keys in your hand.

Clearly Keys motivation is something other that the $24 million that this activity brings into the country. Once again this sort of revelation calls into question who's interests is serving. Given the damage this sort of thing is doing, certainly not New Zealand's. When are we going to wake up?