Public register of beneficial owners saves time and money

By Suzanne Snively

Chair Transparency International New Zealand

It is useful to explore how New Zealand’s seven commitments (see previous article) were set at the London Anti-Corruption Summit (ACS) held in May 2016.

In 2015, the Commonwealth Secretariat and UK Government decided to take a world leadership role in anti-corruption, hosting two events in London in May 2016.

These events just so happened to begin on 11 May, the same date that Transparency International New Zealand (TINZ) hosted a Forum in Wellington at Parliament’s Banquet Hall. The purpose of this Forum was to learn more about the omnibus anti-corruption legislation which resulted in 15 new Acts passed (with cross-party support) in Parliament in November 2015. Amongst other things, the legislation was designed to implement practices to protect New Zealand from the impact of international organised crime and corruption.

All of these events had been organised prior to the publication of the Panama Papers just over a month earlier in early April 2016.

Eventful 11 and 12 May 2016

Commonwealth Leader Baroness Scotland

Commonwealth Leader Baroness Scotland hosted a packed Anti-Corruption Conference.

Former UK Prime Minister David Cameron 2016 London Anti-Corruption Summit

Former UK Prime Minister David Cameron at the 2016 London Anti-Corruption Summit.

The Honourable Judith Collins MP

Corrections Minister, Judith Collins

TINZ WorldCup20 New-Zealand First MP Tracey Martin May 2016

New Zealand First MP Tracey Martin describes her Party's position in regards to the importance of addressing corruption during the Accountants and Lawyers World Cup 20 Forum held at the Parliamentary Banquet Hall 11 May 2016. Also on the panel left to right as Marama Fox, NZ Party, Paul Foster-Bell, National Party, Grant Robertson, Labour Party, James Shaw, Greens.

(At exactly 2pm, the panel broke up as the MPs all walked next door to the Parliamentary Chambers where the Prime Minister John Key was sent out by the speaker for disrespectful responses during the Panama Papers debate)

Prime Minister John Key about to be thrown out of Parliament

Prime Minister John Key about to be thrown out of Parliament

Imagine the show if viewers could have viewed four video cameras screening in four different locations over the 48-hour time frame of 11 and 12 May 2016.

  • One camera could have focused first on Commonwealth Leader Baroness Scotland hosting a packed London Anti-Corruption Conference for Civil Society on 11 May and then on former UK Prime Minister, David Cameron, hosting world Presidents and Prime Ministers at the London Anti-Corruption Summit (ACS) on the 12th.
  • The second camera could have followed Corrections Minister, Judith Collins, who was New Zealand’s representative joining world leaders at Cameron’s ACS. Minister Collins’ involvement had been kept secret and was a surprise because less than six months earlier she returned to Cabinet after being on the back-benches because of emails she sent the Minister for the Serious Fraud Office. She also had an unexplained relationship with Oravida (a Shanghai based NZ export company) while Minister. At the time of the ACS, the seven commitments New Zealand made were a weak reflection of her Government’s robust anti-corruption legislation passed back in November 2015.
  • Minister Collins’ surprise selection meant that TINZ representatives in London were unable to provide background material that might have led to stronger leadership from New Zealand, the country with a world-wide reputation for integrity and whose public sector consistently is regarded as number one for its anti-corruption policy.
  • Meanwhile in New Zealand on 11 May 2016, another camera might have been focused on the top lawyers and accountants who were with TINZ members at the Forum in Parliament’s Banquet Hall listening to a panel of Parliamentarians and public servants presenting details of the omnibus anti-corruption legislation that Parliament passed in November 2015.
  • The fourth camera could have been focused right next door on Parliament. This is where all the action was. As public servants described aspects of the Government’s new anti-corruption legislation at the TINZ Forum, Parliamentarians were arguing about the Panama Papers.
  • Shortly into the debate, Speaker of the House, David Carter, threw out Prime Minister John Key for his un-parliamentary behaviour. Apparently poorly advised, the PM had responded defensively to questions about New Zealand’s vulnerability to harbouring the foreign proceeds of crime and corruption as had been revealed by the Panama papers.

Back to 11 May 2016, several TINZ directors stayed up all night - after hosting the Forum in Parliament - to provide background that would help shape the choice of the Government’s ACS commitments the next day. We were enthusiastic about our country’s direction in progressing anti-corruption policy. After all, Parliament had finally, unanimously, ratified the United Nations Convention Against Corruption (UNCAC) in November 2015 (10 years after committing to it). This was in conjunction with passing into law the comprehensive omnibus anti-corruption legislation. Unfortunately we were unable to deliver the background information to Minister Collins in time.

The Government has taken positive steps to combat the misuse of companies and trusts in recent years and TINZ applauds this work. The tightening of company director rules in 2014 and the introduction of AML reforms following the Panama Papers, are great examples of the Government taking action. The May 2015 events accelerated several additional, positive initiatives:

  • The implementation of phase 2 anti-money laundering (AML) practices that make it harder to hold bank accounts and assets in anonymous accounts or using fictitious names,
  • Very quietly, the Inland Revenue Department (IRD) is implementing a Common Reporting Standard devised by the Organization for Economic Cooperation and Development (OECD). The new code aims to ensure automatic information sharing between tax authorities globally.
  • The Government's implementation of tougher disclosure requirements for foreign trusts as a result of the Shewan Inquiry. These requirements have produced a significant drop in registrations, strongly suggesting that there were a number of foreign trusts involved in activities that don't stand scrutiny.

Now, just over a year and a half on from May 2016, the record shows that New Zealand is falling behind when compared with other countries’ anti-corruption commitments as indicated the New Zealand Government's lack of progress in meeting its ACS commitments.

A particular shortcoming is the Government's progress on developing a public register of beneficial ownership. Its latest direction is to implement recommendations from the Shewan Inquiry which are limited to creating a central (unpublished) registration of beneficial owners of foreign trusts. There is no action on the ACS comitment to create a company beneficial ownership register or a strategy for making both public.

A wider database, including a public register of beneficial owners of all overseas legal entities (companies and trusts) will save costs and be much more effective in protecting New Zealand from the impact of offshore grand corruption.

Corrupt officials, drug dealers, fraudsters and tax evaders are increasingly using foreign companies and trusts to move their illicit funds anonymously. The implementation of AML practices has made it harder for them as explained above. As a consequence, criminals have turned to corporate vehicles to avoid detection when laundering their proceeds of crime.

A beneficial ownership register of all legal entities including companies as well as foreign trusts is the solution for New Zealand. It is a key tool for piercing the corporate veil. A beneficial ownership register increases transparency deferring criminals initially and then helping law enforcement agencies to trace criminals and their assets during investigations.

For over 14 years, TINZ has called on the Government to introduce a public beneficial ownership register. High profile scandals that provide visibility to the issue include the use of New Zealand companies to avoid North Korean sanctions in 2009, and to funnel $2 billion of corrupt funds out of Kyrgyzstan’s largest bank in 2012.

The Companies Office should be given sufficient resources to take a proactive role in this area.

The direct costs to the taxpayer involved in setting up a public register would be offset by significant costs savings to businesses through reduced duplication where, currently, every organisation dealing with foreign depositors or investors must keep a separate register. It would also make it easier and more cost effective for New Zealand organisations to comply with existing AML laws.

Most importantly, though, there are massive benefits to all New Zealanders.

Ultimately, a public register of beneficial ownership is necessary to send a strong message to corrupt officials and other criminals that they are not welcome in New Zealand. This message protects all New Zealanders from crime that contributes to higher priced goods, housing shortages and reduces the potential harm from the drug trade.

A public beneficial ownership registry will send a message reinforcing New Zealand’s reputation as a good country and as a good place to do business.

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