Lessons learned from the Panama Papers

Daniel King

Brendon Wilson

by Daniel King & Brendon Wilson

Transparency International New Zealand

Writing for Employers and Manufacturers Association

BusinessPlus Magazine

We’re all bemused by the recent media excitement over the John Doe leaks of the Panama Papers.  But amongst this excitement, the leaks have highlighted the need in New Zealand for more transparency and strengthening of existing legislation covering foreign trusts. Rightly or wrongly, New Zealand has received less than desirable global media coverage for our role in many cases.  The Panama Papers have caused a stir globally by identifying huge numbers of offshore legal/financial structures or ‘vehicles’ located in countries other than the residences of their beneficial owners.

The implication is that many times, even this huge number of publicised cases also exist under other ‘arranger’ companies and countries.  In many countries the only formal records are held by a law firm in the offshore country - the true owner of the assets is not identified and cannot be discovered.  Where New Zealand is that offshore country, this lack of transparency and record-keeping in our legal requirement is problematic and damaging to our reputation.

We can assume that not all foreign trusts are involved in illegal behaviour, but given the lack of information captured, who knows if the proportion is high or low? In many cases these trusts have been established for legitimate purposes and take advantage of the confidentiality and relative security of New Zealand’s financial and legal systems and New Zealand’s good reputation.  However, it is important to remember that 80% of money-laundering involves trusts - structures which have been deliberately used for this purpose to make it easier for the perpetrators to hide from justice.

Transparency International New Zealand identified this risk in their benchmark 2013 National Integrity System Assessement report.  Without a central register holding basic information, funds can be hidden in New Zealand-based foreign trusts with no identification of beneficial owners, whether they be of good or bad repute, and whether the funds they involve are of legal or illegal origin.

We do welcome the New Zealand government’s current inquiry into New Zealand’s foreign trust rules, but we are most concerned that its limited scope won't tackle the risks of financial crime links to the country's companies and trusts.  New Zealand has consistently scored highly (but recently dropping) in the Transparency International Corruption Perception Index, and New Zealand has an enviable reputation for integrity in business.  To retain this reputation, it is essential that New Zealand takes early, firm action to keep our world standing in this area, and reassumes the leadership position we’re proud to hold.

We recognise that global focus is required in order to address these issues. It is important that New Zealand is strongly involved in international efforts to combat misuse of trusts and companies, in co-operation with both countries and NGO’s globally – and not, as at present, become complacent in this activity.

In our efforts to maintain our integrity as a nation, we owe it to ourselves to widely discuss and agree workable remedies, both here in New Zealand and in international forums, and to firmly and quickly implement the best solutions.

Why would New Zealand not aim at holding a reputation for high integrity world-wide?

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