Ron Pol compares one part of NZ's foreign trusts regime to a criminal getaway car manufacturing industry and asks whether the PM will take action or double-down on offshore trusts

By Ron Pol*

As public disclosure of some of the so-called ‘Panama Papers’ nears (assuming that the International Consortium of Investigative Journalists (ICIJ) will ignore Mossack Fonseca’s last ditch “cease and desist” demand), a flurry of activity again forces the Prime Minister to make a choice. 

Will John Key continue doggedly defending New Zealand’s foreign trusts industry, holding the Shewan review up his sleeve to assert that “the Government has always said it will consider any issues raised” if later forced to change tack? Or will he now choose to do so on his own timing? 

New revelations increase pressure 

A series of new revelations has added to the pressure. It seems that John Key’s “trusted lawyer” Ken Whitney – who had used the PM’s name to successfully lobby for Inland Revenue’s proposed review of foreign trusts to be shelved – hasn’t been a lawyer since February

It was also reported that the High Court had earlier found a trust Whitney helped set up for a bankrupt property developer described as “a prolific user of trusts” – for whom Whitney was also “a trusted advisor” – had been a “sham trust”. Justice Wylie said that “the intention from the outset was to mislead, to conceal [Whitney’s client’s] identity, and to enable him to carry on business in this country, notwithstanding his bankruptcy.”

The judgment itself contains more disturbing findings.

On the political front too, seemingly contrary to assurances the Prime Minister received that Whitney had never worked or dealt with Mossack Fonseca, it emerged that Whitney had given the Panamanian firm a professional reference for another Auckland law firm

In the New Zealand Listener on Thursday I said that the very design of New Zealand’s offshore trusts “enables and facilitates serious crime”. The article also noted that despite most of the media focus on a controversial Overseas Investment Office ruling, there was already evidence of the potential misuse of New Zealand corporate vehicles, and outlined a series of such cases. 

The following day, The Australian Financial Review, with full access to the ICIJ documents, provided more detail about some of those cases and others, and shared the story soon after with Stuff, in The Panama Papers New Zealand link revealed. 

Interest.co.nz reported that the whistleblower ‘John Doe’ mentions John Key personally, the only world leader called out, for remaining “curiously quiet” about New Zealand’s role “in enabling the financial fraud Mecca” (although curiously referencing the Cook Islands). This was widely reported throughout the weekend.

Not content to await the ICIJ release, Canadian tax authorities obtained a court order requiring that country’s biggest bank to hand over details of customers with “relationships or connections” to Mossack Fonseca. 

Even a so-called ‘lame duck’ President nearing the end of his term, and without Congressional support, decisively used executive powers to start forcing transparency in US corporate vehicles. Amongst a series of co-ordinated initiatives targeted at US company incorporation and beneficial ownership transparency, the Obama administration said it was also “closing a loophole” enabling foreigners to hide behind anonymous entities formed in the US. Like New Zealand’s foreign trusts, vehicles with no local tax and disclosure obligations could be used to shield the foreign owners of overseas assets and bank accounts. Simply acknowledging the reality, new rules were designed to help “prevent criminals from using companies to hide their identities and launder criminal proceeds.” 

On TVOne News tonight (Sunday), Andrew Little said that Labour would “get rid of” New Zealand’s offshore trusts industry. The Greens adopted a more nuanced approach, focused on a distinction between legal and illegal uses (Newshub 8 May). TVOne also announced tonight that a group of New Zealand journalists led by Nicky Hager had been given access to the Mossack Fonseca documents, and would start to release their findings on Monday morning.

Action here too?

Will the pressure of these events prompt the Prime Minister to take more affirmative steps, and face the week on his own terms? 

It might make sense politically, helping cauterise the political pressure of the past few weeks, and better position the government to answer anything significant that might come out of the Hager and ICIJ releases on Monday and Tuesday mornings respectively.

 “That was then, we’ve fixed it, move on, nothing to see” is a time honoured tactic. It may also help reduce any reputational impact affecting Helen Clark’s bid for the UN top job. 

Beyond the political arena, in terms of the economic and social impact of any solution which might be proposed, policy effectiveness then becomes the yard-stick. The question is not simply whether “something” has been done, but “will it work?” 

In a general sense, here are a few questions that might help test whether any proposed solution is meaningful and effective. 

1. Will it actually help stop criminal misuse of New Zealand’s offshore trusts regime? The United Kingdom’s new requirements for corporate beneficial ownership, for example, excludes trusts, and inadvertently allows criminal misuse to continue. 

2. If it does stop criminal misuse, will it be effective immediately? A US Treasury crackdown requiring beneficial ownership data for real estate purchases in New York and Miami was announced months in advance, and limited to specified transactions, enabling all but the dumbest criminals to avoid it with ease. 

3. Will it lock in criminal assets to prevent and reduce flight, effectively enabling existing criminal misuse to be uncovered, prosecuted and criminal proceeds seized and forfeited?

4. Will New Zealand share information multi-jurisdictionally to enable effective seizure and forfeiture (and if we’re smart, share any proceeds)? 

It’s likely that relatively little criminal proceeds will be held in New Zealand, because Kiwi offshore trusts are designed, in effect, more like a criminal getaway car than a bank for criminal proceeds. As well as their legitimate uses, New Zealand offshore trusts are perfectly suited as part of the secrecy and ownership web enabling criminals to hide assets and profits wherever in the world they actually want to invest. 

So, if say a Mexican cartel has $1 billion invested in Manhattan, Miami, Vancouver and London real estate, held by a string of Nevada and Wyoming LLCs and a clutch of BVI entities, in which Kiwi offshore trusts alongside Belize, Panamanian and Seychellois corporate vehicles are listed as shareholders, will we co-operate to facilitate seizure of criminal funds anywhere in which New Zealand offshore trusts are involved? 

Doubling-down on the status-quo?

Early indications today (Sunday) suggest however that the government might double-down on its bet, in effect hoping that the issue will blow over. Key denied that Whitney’s provision of a reference constituted “working with” Mossack Fonseca, ignoring the obvious implication about whatever form of association Whitney may have had for the reference to carry any weight.

The Prime Minister also batted away the whistleblower’s reference to him as “confused”, adding that New Zealand is responsible for the Cook Islands’ foreign policy and defence, not tax. He suggested that Europeans may be confused because the Cook Islands shares New Zealand’s currency.

He also repeated (in video) his earlier assertions about the OECD’s high rating of New Zealand’s tax system, without mentioning that the OECD had pointedly exposed gaps in our offshore trusts and companies regime, such as allowing nominees and not maintaining beneficial owners’ details, or the “serious deficiencies” noted by the OECD and Financial Action Task Force in other reports (as noted here earlier).

Likewise, extolling recent changes requiring resident directors, the PM didn’t mention that in the most celebrated case, involving arms trafficking by a New Zealand registered company, it had a New Zealand resident director with no idea about the transaction or who was really behind it.

Before tonight’s announcement that New Zealand journalists may now have access to the full set of Mossack Fonseca documents, the Prime Minister may have been briefed that there are likely to be relatively few ‘smoking guns’ in the ICIJ release on Tuesday. For a series of reasons seemingly overlooked by some media outlets anticipating a vast treasure trove of easily reportable illegality, the ICIJ release seems more likely mostly to expose smaller pieces of many puzzles, requiring painstaking investigation to follow the criminal trails. 

Only a limited tranche of documents will be released, mainly company incorporation data, without many of the emails and personal identification material. The ICIJ have indicated that they will also seek to balance not breaching the privacy of innocent people and focus on what’s in the public interest. That’s easy enough with politicians, but any ‘unknown’ people excluded may be either innocent or criminal users of corporate secrecy vehicles. Even if their corporate vehicles are exposed, without all the supporting ‘personal’ documentation, criminals not known by journalists may remain hidden. 

Likewise, journalists with access to all of the documents may be unable to differentiate between innocent and criminal ‘unknowns’, which may help explain why most coverage so far has focused on the use of opaque structures by politicians and other famous people, with less focus on criminal use. Law enforcement agencies with greater capability for identifying criminal misuse have not had access to the files, and the forthcoming release may involve limited materials even in relation to those included. 

Moreover, the ability to use the documents evidentially to base prosecutions will in many countries be limited, due to the nature of the documents, the manner in which they were obtained, and the form in which they are released. Intelligence, evidence and enforcement capability are materially different. This fundamentally affects the value of any documents released. Many of the documents that will be released will also have company and nominee ‘owners’ listed, with further details held in registries and incorporation firms elsewhere, making tracing the real owners impossible. 

Mossack Fonseca themselves don’t even know the beneficial owners of many of the firms they established, and many will involve legitimate transactions (such as the Disney example noted earlier on Interest) and innocent people

Nor will their files contain details of criminal transactions undertaken by the corporate vehicles established by Mossack Fonseca, after their involvement ended. 

As a wholesaler, the Panamanian firm established companies for some 14,000 law firms and other intermediaries worldwide. Those other firms will better know who the real clients are than Mossack Fonseca, and neither may know what criminal activities hundreds of thousands of shell companies and trusts got up to after they were established. 

For these and other reasons, the limited release of documents may not meet the heightened expectations in some newsrooms and elsewhere. 

From a political perspective, it is possible that the Prime Minister’s advisers observed common misperceptions permeating the media and opposition discourse suggests that dashed expectations of some vast treasure trove of immediately reportable tax evasion (a widely reported misperception regarding New Zealand offshore trusts, eg Newshub 7 May and TVOne 8 May) may allow the Prime Minister to sit back and watch as ardent supporters and a disappointed media do the rest. Distraction and confusion in some media outlets and opposition parties may be enough for the dominant discourse to turn. So, ‘staying the course’ remains a viable option. 

New Zealand journalists with access changes the dynamics

Tonight’s announcement that New Zealand journalists have access to the full dataset changes the dynamics. The Mossack Fonseca documents will still be limited by most of the factors noted above, but until now only overseas journalists had access to the full dataset, with much of the New Zealand coverage led by a single Australian journalist. Local journalists with local knowledge will inevitably have more impact. 

My guess is that the kiwi journalists (Nicky Hager, Radio NZ and TVNZ) only got access to the papers fairly recently. They uncovered what they claim, and has long been known (as here and here), likely tax evasion by foreigners not paying taxes due in their own countries. New Zealand unlike other countries has chosen not to tax offshore trusts, so there is no criminality involved, at least in relation to Inland Revenue. (There may have been misuse of other corporate vehicles by New Zealanders, yet to be uncovered, but all those using Kiwi offshores trusts will be foreigners).

The issue in relation to tax evasion is that New Zealand’s foreign trusts regime, whilst useful for legitimate transactions, is also the perfect getaway vehicle for criminals elsewhere (such as those evading taxes due to other countries, and other criminal activity). 

Is New Zealand a tax haven? 

Of course it is, as pointed out in Interest on 11 April: “For ordinary kiwis then, New Zealand is no tax haven. All New Zealanders pay tax, comprehensive details are collected, and information is shared with other countries. But one special group may well regard New Zealand as a tax haven, as the IRD informed the government a few years ago. Foreigners who set up offshore trusts pay no tax and enjoy complete secrecy on their ownership and activities." 

"The problem with the current model is not that foreigners pay no tax on offshore trusts. That’s a matter for government policy (although it would be good at least to align such policies with other countries to stop people taking advantage of the different rules and avoid paying tax entirely)."

"Nor is it inherently a problem that secrecy is afforded to such corporate structures…. Offshore trusts and companies also serve many legitimate purposes, such as for joint venture partners in different countries working on confidential transactions." 

"The issue for policymakers is… to base policies recognising that these attributes, especially secrecy, are as attractive to some of the world’s worst criminals as for legitimate businesses. The policy response is therefore not simply to retain the blanket secrecy status quo or to replace it with wholesale transparency. Neither may be optimal." 

Although some might say it’s not our job to support other countries’ tax bases, as I said before these latest revelations that “that’s exactly the role of reputable countries and the rationale of information-sharing… We can’t expect help from others sheltering those ripping off our tax base if we give them two fingers. Likewise, extolling a corruption-free reputation, while selling corporate vehicles enabling corruption. We can’t have it both ways.

Core issue remains unaddressed

Whatever option the Prime Minister selects over the coming days, however, if the underlying policy goal is to detect and prevent serious crime – including tax evasion and money laundering enabling the continuation and expansion of drugs and human trafficking enterprises, corrupt officials looting their countries, and other serious crime – the real issue remains unaddressed, more than a month later. 

The core issue, it seems to me, is not whether the selected Mossack Fonseca files that ICIJ choose to release demonstrate obvious criminality, nor if local journalists can tease out more examples than their overseas counterparts. Apart from a crop of new cases, the ICIJ release might be expected primarily to show some of the corporate structures involved. In most cases, more detailed specialist investigation into the corporate vehicles and activities they actually undertook will be needed to identify criminal misuse. 

This suggests that for New Zealand policymakers, the question is not whether Kiwi offshore trusts were used for illicit activities. Establishing that comprehensively will require political resolve, and considerable resources and determination over several years. (Although access to the full dataset by New Zealand journalists may escalate this process). 

The real question – from a crime prevention perspective – is whether Kiwi offshore trusts can be used for illicit activities. Certainly, they are used for many legitimate purposes, but their design also makes them an almost perfect vehicle for undertaking criminal transactions undetected, and for hiding vast amounts of criminal proceeds. 

In short, the design of New Zealand’s foreign trusts regime enables and facilitates crime, so the policy choice is as stark as it is simple.

We could wait until any number of reviews, inquiries and years of investigations reveal the full details of some of the ways in which New Zealand offshore trusts have been used as criminal getaway vehicles. 

Or, originally intended for legitimate purposes, if New Zealand has inadvertently created a criminal getaway car manufacturing plant, and if the government still wants to be in the offshore trusts business for legitimate purposes, we could simply bolt on an effective criminal immobiliser. President Obama didn’t wait for the results of a review, or what the ‘Panama Papers’ might reveal, or years of investigations to find out exactly how similar vehicles were misused. He frankly recognised that the design of similar corporate vehicles can be misused by criminals, and sought to close it down. Some gaps remain, but decisive leadership sought to close the most glaring holes. We have a similar choice. And whether we do it now, or later, we’re back to the set of questions outlined above. At least, that is, if the goal is crime prevention, and if we want any solution to actually be effective.

The design of our foreign trusts regime doesn’t prevent crime. It enables and facilitates crime.

As Peter Dunne rued, the system was probably created with honest intent, and most service providers are scrupulous. But if we wanted to create a vehicle for drug dealers and organised crime groups to protect and expand their operations, it would be almost identical to the one we have.

Other options are available, including at least one that could conceivably prevent criminal misuse and deliver competitive advantage to a “clean” trusts industry [as outlined here and here]. Recalibrating other policy settings might also recover significant criminal proceeds, with international co-operation boosting our reputation and government coffers. 

Selecting good policies requires frank assessment of the status quo, examining policy options and choosing the most effective.

-------------------------------------

*Ron Pol is a crime prevention specialist with AMLassurance.com. A former lawyer, and legal business consultant, Ron has devoted more than two years to conducting in-depth doctoral research in policy effectiveness, policy outcomes and anti-money laundering crime prevention.

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62 Comments

will JK do anything, if past track record is to go by no he will do nothing unless forced to.

John Key is on record as saying the "government will consider any issues raised with respect these foreign trusts" .

There is no way he would allow New Zealand's zero corruption image to be destroyed , why would he ?

Lets not forget that foreign trusts set up here are not illegal , and can be set up just about anywhere in the Commonwealth and in the UK for that matter ( they never have been illegal ) and many if not most of these were set up under Helen Clark's watch

Pity NZ is not going to the polls in July like Australia.

It will be interesting to see what happens in Australia if Labour win and negative gearing gets nuked.

New Zealand votes every three years. What more do you want? A general election every year? More often if you don't like the result?

Try being able to kick a government out if they prove too unacceptable for the public without having to wait for an election. Currently there is no way unless they are blatantly criminal and the Governor General can be convinced to apply his emergency powers.

Of course there isn't. We don't live in a 2 bit banana republic. We live in a democracy where you get your say every election cycle. If you don't like who is running the place..... leave! I did in 1999 when Labour put taxes up on people earning more than 60k. National aren't doing a bad job. Sure, always room for improvement but I'd say they will get one more term after this one.

You can't be serious! National are looking like the most corrupt Government ever. They have even managed to look worse than Helen Clark's one, when it comes to corruption and head in the sand do nothingness! And any Government voted into power is not accountable to the public until the next election, and we all know that the choice is a poor one at elections. That is not democracy but a poor reflection of lip service to the word.

Please leave the jokes untill Friday please...its only Monday and your comment made me spill my coffee
(fattutu)

it's true we won't have an early election Murray, but Prime Ministers know that they can be 'gone by lunchtime'. When the chips are down the rest of the pack will turn on them.

Agreed, but that's more about political acceptability among their own. how about the general public? having a PM deposed by their own party is one thing, but what if the problem is the whole, or at least a majority of the ruling party? How do we get rid of them? The damage they can do in just one or two years could be significant.

"Or, originally intended for legitimate purposes, if New Zealand has inadvertently created a criminal getaway car manufacturing plant, and if the government still wants to be in the offshore trusts business for legitimate purposes, we could simply bolt on an effective criminal immobiliser. "

Yep, let's do that. And one for onshore trusts as well.

These vehicles are too useful to be thrown out with the bathwater in a stupid knee-jerk reaction.

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Handy to have an ex-NZ IRD staffer as an agent in NZ for Mossack Fonseca.
How many other insiders or ex NZ Govt employees are assisting this entire business of using NZ as an offshore Trust.

It's the old revolving door trick. In the USA, Government departments are full of ex Goldman Sachs etc employees and vice versa. It just keeps things ticking along nicely for them. This resulted in a lot of dodgy things during the GFC (and that is an understatement). I wouldn't be surprised if ex Merrill Lynch Key has bought this sort of dodgy behaviour with him.

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Just an observation but on the role of lawyers in this matter. Trained to understand, interpret and apply the law, it seems far too many of them turn their skills to finding, and advising their clients on ways to avoid being subject to them. Of course because of how much they charge, this means that only the rich can do this.

Mossack Fonseca say that everything they did was legal, as are all the kiwi lawyers involved. There are cracks already apperaring in MossFon's narrative in terms of their apparent knowledge or wilful blindness in relation to certain activities, so this may come to be tested. There may be similar issues here with some in due course, but I'm willing fully to accept that the vast majority if not all Kiwi lawyers involved complied fully with the law.

But that's the point, as you say, and as President Obama before us, the very issue is that it is legal. Everyone will have their own opinion of whether its right or moral for lawyers to have done all this, but the buck really stops at politicians.

This has been known about for years, and many political parties have had positions of power and influence during its course. If the law is an ass in this area, we could shoot the animal, or we can halter it. That is a job for politicians.

The test, I reckon, then becomes whether it will be effective, in terms of actually achieving its policy objective, not just some immediate political objective for one party or another.

Heck, here's a thought, they could even get together and do something that works well for New Zealand. Yeah, I know, hopelessly naive now...

I would have thought that it is the role of politicians to outsmart such lawyers, by being proactive and diligent about closing any loopholes that the politicians did not want to exist. If the loopholes persist for an extended period of time, we therefore have either incompetent, or complicit, politicians.

Most likely complicit , as they will be vested interests and would not be introducing laws that will impact adversely on themselves. There are many laws in NZ that demonstrate this. The only way that this would change is if somehow the politicians become more accountable to the public.

Great piece Ron. Many thanks.

What would a "effective criminal immobiliser" look like and how could it be applied?

cheers

Bernard

Thanks Bernard, the initial outline of one possible "effective criminal immobiler" is noted in my piece here on 11 April, and in the NZ Listener last week. Links below.

I'm not suggesting this is the only policy option. Shutting the whole thing down, public registers, etc, are others often suggested, but they can be blunt instruments with some very significant consequences on the legitimate side of this business, so (ideally) should be done in full knowledge of and intending the consequences.

Nor am I suggesting it's a complete blueprint. The recent Obama executive action, the UK register, and the NYC/Miami intiatives for example all have holes themselves, but it is possible to craft something that cauterises the criminality (and ideally helps mop up some of it up, the figures bandied about are truly astonishing), and which from a policy effectiveness perspective actually works. This, I think, is important.

Action for the sake of action just kicks this can of worms down the road. That's why I thought it might be helpful also to outline a few questions that should be considered in the context of policy effectiveness, so that whatever solution adopted actually works in terms of achieving the policy objective. (The numbered questions in this piece, above)

Interest 11 April:  http://www.interest.co.nz/opinion/80991/ron-pol-says-tax-haven-misses-point-new-zealand%E2%80%99s-reputation-offers-competitive

Listener 5 May: http://www.listener.co.nz/current-affairs/money/opinion-whats-blocking-effective-policy-debate-about-new-zealands-foreign-trusts-regime/

What is the 'legitimate side of this business'. Just asking.

Good question KH. One it appears some pollies still haven't asked, although last night on Newshub seems Greens have got it. Example I like best is Disney. Wanted to buy swamp land to build Florida Disney without artificially ramping up prices. Used series of opaque companies to buy land secretly. Then when built, put the names of the corporate vehicles used in gold lettering on the upper story windows of part of the park. Another is if companies from different countries are looking to work together to say build a factory in a third country without alerting the opposition until they're ready.Essentially, secrecy (for legitimate purposes) is not a bad thing. If any Govt wants to facilitate that, it's a legitimate policy option. Trouble is, the way ours is structured, NZ foreign trusts are equally attractive and useful for illicit use as for legitimate purposes.

This morning's 6am release from the Kiwi journalists who have now been given access to the Mossack Fonseca files is here.

https://www.tvnz.co.nz/one-news/new-zealand/panama-papers-investigation-nz-absolutely-conclusively-tax-haven

Thanks for Article Ron.
I don't see any reference to Ken Whitney's Antipodes group in that article. Clearly he is involved in this activity so one must assume that he has no dealings with Mossack Vonseca. As he was leading the charge to preserve the trust activity, this suggests that there are other networks around the world working in the Dodgy trust/Tax avoidance industry with which he and by association Key are involved.
While these papers have revealed extensive activity, they are not revealing it's full extent. When you think about it it is highly unlikely that just one player would have this market cornered. It is obviously lucrative so you can be pretty sure that there will be a whole bunch of similar groups at it.

Thanks Chris-M, the article was already plenty long enough I felt, Sunday night, without getting too much into Whitney. We don't yet know the full extent of any dealings he may have had with MossFon.

And MossFon files, although very revealing in terms of what was long known but seldom actually seen, are not even the speck on the tip of the iceberg. With an estimated 5% or so of the market, they're one of the biggest half dozen or so wholesalers, so although for soime they were closely involved at every step, for vast numbers they will have established the structures and passed them on, with little further involvement. Tens of thousands of other firms have also set up various opaque corporate structures for their clients directly. Many will know the ultimate beneficial owners, and what the structures were used for. Especially those used for legitimate uses. But many will know only one, or neither. Especially those intended for illict purposes.

If you were wondering which rocks you should be looking under .. pay attention

While New Zealand is wallowing in the shadows of guesswork and drawing possible inferences the AFR and Neil Chenowith are naming names

No mucking around - check out the difference
http://www.smh.com.au/business/the-economy/the-panama-papers-chinese-ric...

Remember, Chenowith and Fairfax have had this material for 2 years

have you wondered why, maybe they thought our journalists are too close to our political parties.
now its out in the open they can include them

Wilson Parking, mentioned here just 3 weeks ago, gets a going over in AFR Panama Papers above
http://www.interest.co.nz/opinion/81293/land-tax-just-foreigners-come-jo...

Taxation is at the heart of it - where do you think the profits are going?

It is said that people are known by the company they keep and NZ is one of 21 tax havens according to SMH.
Shame it turned out like this.

thanks iconoclast, missed that one. Yes, my guess is that the NZ journo's have only had access a very short time, so more will come out here too.

It will likely get very noisy over the next few weeks. The trick will be to pick out the critical pieces. Of course, most NZ tax evaders will show up only in other countries' material, and theirs will show up in ours, so journo sharing is needed to properly expose that element.

But other criminality will show up for all who have access. And the initial German reporter in that piece says there is definitely evidence of arms dealing, drugs trafficking, etc. As well as listing evaders, those are the leads to follow.

But there's a bigger political issue, and one partly for the journalists themselves. I appreciate from a media perspective why ICIJ say they wouldn't share with law enforcement, but the whistleblower has said he would if not prosecuted. This may represent a global test of political will, ie:

To be truly effective, in terms of detecting, prosecuting and preventing serious crime (and have a decent chance at seizing criminal proceeds), the journalists should work with enforcement agencies. Detecting and exposing criminality is one thing. Being able to do somerthing about it, with a proper evidential basis for prosecutions and reducing flight capabailities (people, assets, cash), is another.

Yes there are bigger issues, and one partly for the journalists themselves

My take on this:-
There was a preliminary release of 2½ million documents over 2 years ago which disclosed the tip of this iceberg, wherein the Cook Islands were identified by the New York Times as an active Tax Haven back in 2013. (see link below)

Once upon a time Rarotonga was known as a protectorate of NZ. It is largely funded by the NZ taxpayer. NZ has a great deal of responsibility.

Until recently I was living in Australia at a time when the ATO commenced its wide-sweeping Wickenby investigation which swept up a lot of tax-rorts emanating out of the Cook Islands. It was in the financial news daily. I was very aware of it. Occasionally I put up a comment here on interest.co.nz referring to it. What was surprising was the silence from the NZ media. Nothing. Not a peep. It was as if it wasnt happening. Cook Islands? Who are they? Nothing to do with NZ.

This isn't new. It seems as if the ICIJ clamped a lid on it when they realised the scope and depth of what they had and didn't release any more after that initial release

It is hard to believe that the Australian Government and the ATO were not communicating with the NZ Government and IRD from as long ago as 2010. Somewhere, from both sides of the issue all discussion has been shut down and the media have gone on their way

http://www.nytimes.com/2013/12/15/business/international/paradise-of-unt...

A coalition of journalists from RNZ and One News - along with journalist and author Nicky Hager has spent last week pouring over the Panama Papers to uncover New Zealand's role in setting up shelf companies for the Panamanian Law Firm, Mossack Fonseca. Nine to Noon speaks to Nicky Hager, RNZ's Jane Patterson and Adrian Sawyer, a Tax professor from Canterbury University.

http://www.radionz.co.nz/audio/player/201799962

You're right, Ron, to focus on global political will. This is the simple, essential issue. As you say, governments around the world have known about the issue for decades. But the question has to be asked, as to where the greatest influence on political will comes from.

Part of the answer appears in an article in The Atlantic, May 2016, http://www.theatlantic.com/magazine/archive/2016/05/why-luck-matters-mor..., 'A recent study by the political scientists Benjamin Page, Larry Bartels, and Jason Seawright found that the top 1 percent of U.S. wealth-holders are “extremely active politically” and are much more likely than the rest of the American public to resist taxation, regulation, and government spending'.

Governments globally are pretty much beholden to the influence of the very few, their advisers, their interests, and their money. And politicians and civil servants around the world, and perhaps increasingly, step smoothly between both worlds and rarely outside the comforts of either. John Key is by no means unusual in this.

Excellent piece workingman, thanks for sharing. I've spent a lot of time with some of the behavioural science literature, and it really does have a huge influence on decisionmaking at all levels.

The cognitive scientist Donald Hoffman uses evolutionary game theory to show that our perceptions of an independent reality must be illusions.

https://www.quantamagazine.org/20160421-the-evolutionary-argument-agains...

Global Political will is the crux isn't it. As Ron has identified earlier the leaker has offered to help authorities if given immunity from prosecution. So lets say he gets that from ours, provides critical information that say pisses off the Yanks or Brits and they seek extradition. Will that immunity protect him? I suspect as Workingman has indicated that the rich and powerful would bring considerable pressure to bear to punish someone for putting their affairs under the spotlight. And likely a few of these if they cannot do it legally will do so with other means once the persons identity becomes known. "Enemy of the State" sort of encapsulates the concept. As many have commented on this site before, these people will do what they need to avoid being accountable.

Workingman, you highlight the obvious solution to this issue. In an age of increasing wealth/influence inequality, we still get one egalitarian opportunity every three years to cast influence through the ballot box. The elites are so terrified of this power that poll and focus group incessantly to test drive their messaging. There is now a whole industry that has evolved to manipulate our thinking designed to preserve the status quo.

Fortunately we now have the internet, sites like this and whistle blowers like John Doe which can help us cut through the spin and uncover the truth. We are just missing the key ingredient which is higher participation in the political process to action that knowledge. I intend putting my money where my mouth(keyboard) is and hopefully others here will too. It is our only insurance policy.

Wilson Parking tax payments is another IRD should be looking at. Free parking for New Zealand Citizens as compensation would be a fitting outcome.

Ron from what I can glean your biggest problem is the criminal activity that can occur from these trusts ...isn't hacking and the passing on of private details a criminal offense? As far as I am concerned hacking is breaking and entering it is an invasion upon privacy.

What percentage of these offshore Trusts have ended up in court for undertaking criminal activity?
What type of convictions arose from those court cases?

It would be better to have a flat-rate, one glove fits all approach, APT tax system that applies to everyone and every type of transaction, absolutely NO exemptions, those domiciling their offshore accounts here treated the same as locals on each transaction.......you can't stop people from undertaking illegal activity......but you can clip the ticket on that activity and get some traceability....

Another way of looking at the current policies is to look at what would have happened if NZ hadn't implemented them.....All that Earthquake damage and GFC issues may well have nudged NZ over a cliff.

Are you suggesting a Tobin Tax? I like the concept, but too many don't and I'm not sure why.

APT Tax includes those transactions that the Tobin Tax was to address.
https://en.wikipedia.org/wiki/Automated_Payment_Transaction_tax

Just google APT tax there are many good reads on it.

True enough notaneconomist. If it was an external hack, internal/external theft, that may be a crime, depending on the relevant country(s) laws.

Corporate vehicles (trust, shell companies, foundations, etc) have long been used by criminals, and there are many convictions. But very often (due to the secrecy afforded criminal use as it is for legitimate use) it only comes to light when investigations uncover the predicate crime. In the NZ context, a methamphetamine importing gang is arrested, and the various corporate vehicles they used (even bog standard ones like normal companies incorporated solely to be named on shipping documents) come to light.

I think the information and stories that have been published to date is doing nothing more than confusing Joe Public. No doubt some criminals do hide their assets behind a Trust structure...we do not know if criminal activity is any worse with those who have a Trust and those who don't.

What people need to know is that there are Trust Deeds, Settlor, Trustees and Beneficiaries. Pretty much the same in Panama as in NZ etc. And beneficiaries can be added or take off depending upon the Trustees and the clauses.

Having a criminal conviction for criminal activity is one thing but aren't the assets of that Trust still protected for the criminal as they don't own the assets the Trust does or I should say the Trustees.....so what is there to gain? absolutely nothing as the assets are still safe.

Can anybody list for me legitimate reasons for having a trust in a foreign company that is opaque as best. Being trying to identify those and not coming up with many. (and don't tell me 'because you can' or 'it's legal to do so'.

You assume every country has an honest government. Most do not.

do you include NZ as honest, plenty of questionable deals being done in the last few years

Yes, I do. By and large you are not likely to get the local MP or police chief demanding a few thousand dollars when he is a bit short, or else.

so you discount philip field then who was not only convicted but kept in parliament too long when it smelt bad.so others could stay in power
also others i can name that have been swept out of parliament before anything came of it,
and lets no mention the sky city deal or the saudia deal that both smell.
i personally think that our parliament is not as clean as people think and there is a lot of questionable deals and practices done

I had a crack at answering that above in response to your earlier query KH

and thanks Ron. But do we think there is a lot of this 'legitimate' demand. Probably not.

To be fair KH, I don't really know. Because they're so secret, the best we have is educated guess. MossFon gives some visibility, but that too is limited, for reasons outlined above. You may well be right. 

Ron. I don't think my setup is unusual in New Zealand. I have a 'family trust' two 'companies', used to be three, and also taxed in my own name.
While it is private to some extent it's not very secret. All of it can be scrutinised by the tax department, ex spouses, creditors, business partners etc.
Seems to me that to move into further into secret mode with complexity would be for the purpose of screwing somebody out of something.
Sure we don't know the proportion, but there is no reason to be involved with overseas people, who involve New Zealand, for no other reason than creating complexity and fog.

KH , you are being naïve , if you were an Indian trader in Uganda, a Chinese commercial property owner in Jakarta , a Christian businessman in Lebanon, a Belgian miner in the Congo, a European doctor in Irag ,or a Jewish commodity broker in Syria, or even an Indian landowner in Fiji , you would be very likely to have an offshore Trust .

That's the reason people have offshore trusts , to shield their hard earned money from corrupt thieving Governments ,military coup leaders, invaders , civil wars and evil regimes

Really boatman. The only one you are fooling is yourself. Oh dear.

Why do we need trusts at all?

As I see it, it's not about trusts per se. Different countries have different entities, company, corporation, LLC, foundation, etc. Each has different rules (resident directors, corporate & nominee directors/shareholders, etc). And it's then all on for international arbitrage. Sometimes one country is good for some things, it tightens up, and the industry moves on to use the next. So, addressing just one doesn't solve the issue, if another can be used in its place (As with the UK's new register). 

maybe not foreign trusts, per se, but fraud uncovered by Australian banks (ANZ, Westpac) of ' likely less than a billion $' in mortgages - backed by "fraudulent Chinese income documents" - involving hundreds of mortgages for each bank.

http://www.theage.com.au/business/banking-and-finance/westpac-anz-invest...

Unidentified financial risks are the thing that bothers me the most. Hopefully this isn't on a large enough scale to cause a bank stability issue.

Hope is a lovely spot. In fact Nelson fullstop.

However banking-wise, one hears of the most unexpected accomplise stories.

ELYSSE MORGAN, BUSINESS REPORTER, ABC: And that's all for The Business. I'm Elysse Morgan. Thanks for watching.
(Elysse rises from news desk and walks off)
BEN KNIGHT (voiceover): When ABC business reporter Elysse Morgan got her loan documents back from the bank for signing, she found something wasn't right.
(To Elysse Morgan) So what did you spot?
ELYSSE MORGAN: Oh, we spotted that my income had been massively inflated to what it normally is. There's a line that says, "Your monthly income." It was correct for my husband's. And then for mine, it was inflated by around 38 per cent.
BEN KNIGHT (voiceover): She says she never found out who changed the figures on her loan application.
(To Elysse Morgan) What were they thinking: trying this not just on any member of the public, but an ABC business journalist?
ELYSSE MORGAN: As a business journalist... you have to think to yourself, "What's in the interest of the organization or the institution to pump that up?"
I'm on a pretty good salary. So you've only got to think to yourself: are they taking it from, say, a AA to a AAA rating? Ah, is it more convenient for them to have those sorts of figures? I don't know.
BEN KNIGHT (voiceover): Which is exactly what Lindsay David says is going on.

LINDSAY DAVID: If the banks show the international investment community that they're lending to very, very credible borrowers - ah, credit-worthy borrowers - then it's very, very easy for the banks to tap into very cheap debt and to be able to sell off residential mortgage-backed securities with a AAA rating.
Ah, for one reason or another our politicians do not want to touch this. Er, ASIC does not want to touch this. And basically, ah, that is a- a serious problem, because we know that the mortgage market in this country is contaminated with junk debt.

http://www.abc.net.au/4corners/stories/2016/05/02/4451883.htm

@dictator. Nah, it's only many trillions, so they say, so, nothing to worry about...

NZ Govt implemented these changes in 2011:

"The Government recognised that this tax treatment was not sensible from a policy perspective. New Zealand should not be imposing tax on foreign source income derived by foreign investors, simply because that income is derived by a New Zealand fund. Furthermore, a Government appointed task force, the International Financial Services Development Group, pointed out that if New Zealand can make itself attractive as a residence location for foreign funds, there is an opportunity to create additional jobs and income."

http://www.chapmantripp.com/publications/Pages/New-Zealand-now-an-attrac...

The foreign Trusts also piggybacked on these changes brought in deliberately and purposely by the PM.