Beneficial Ownership: Brain Food Webinar recap
Suzanne Snively, ONZM
Chair and MC of the webinar
Transparency International New Zealand Inc.
The aspirational outcome for this webinar is that we can build a team to bring about changes to the law, policies and practice around the registration of overseas beneficial ownership.
The attendance and feedback to this first ever Transparency International New Zealand webinar was beyond expectations. We are pleased at the level of New Zealand's determination to prevent corruption.
A Beneficial owner is a person or organization that has the right to receive income or profits from a property or investment. They are the ones who benefit even though the legal title may appear to belong to another person or entity.
New Zealand’s looseness around the registration of overseas beneficial owners leaves us very exposed to corruption in the form of very costly white-collar crime. We are also seeing more evidence of some of the world’s biggest drug gangs in New Zealand, who are likely to be laundering money through New Zealand.
Beneficial Ownership around the world
TINZ Director, Dr John Hopkins presented on the different laws about beneficial ownership in different countries around the world.
Through his role as an Associate Investigator on a European Union funded project examining Anti-Corruption Mechanisms in the South Pacific Region, Dr Hopkins provided an outline of both the threat and legal changes required. He provided a map showing how few countries have policies in place regarding beneficial ownership.
- the general concept of a beneficial ownership register and why it is a good idea
- why it is difficult to identify the owner(s) of a trust
- how trusts are currently being manipulated to disguise who truly maintains control of the funds.
Dr Hopkins pointed out that it is important to identify who actually benefits, rather than simply reporting a person or entity as an owner.
New Zealand developments
Professor Mark Bennett from Victoria University's Faculty of Law, outlined the coalition government's current review of beneficial ownership, noting that it is in the process of going to Parliament with its findings.
How do we get this government to prioritise the tightening up of our beneficial ownership policy?
How do we create a register dataset that will help prevent use of New Zealand's trust system to launder money?
The 2013 New Zealand Law Commission report recommended against creation of a public register of beneficial ownership. Unfortunately, this has since been mentioned as a reason to not progress changes to trust legislation. A compromise to consider is that New Zealand Foreign Trust registration could have different features from those for registering the beneficial owners of New Zealand-owned trusts.
The European Union's 5th Anti-Money Laundering Directives require beneficial ownership registers that include trusts. The 5th (and latest directive) extends registration requirements beyond trusts, with tax consequences to most 'express trusts'. This has not been put into effect yet in England where the consultation document indicates certain ‘low risk’ trusts will be excluded from registration and as a result, the information will not be open.
Overall, New Zealand needs to move forward on trust registration to keep up with European Union developments. English trusts are going to be registered, challenging the previous view there, that trusts are fundamentally private and should not be registered.
Private/public information dilema
It is important to consider the specific information required by both companies and trusts registers. It is challenging to require information about an organisation's private financial affairs to be publicly accessible. If information about trusts is similar to that required in the companies register (even without telling the general public about financial affairs in any detail), it would normally be sufficient for police and financial intelligence units to investigate when dealing with money laundering and criminal offences.
Active webinar discussion about beneficial ownership
An active question and answer session followed the two presentations.
A key insight was that the 2009 -2013 Law Commission Report, which recommended against the registration of beneficial ownership, was focused on New Zealand Trusts where the beneficial owners were often families and/or entities where the beneficial owners were all New Zealanders. It was the Panama Papers in 2016 (refer earlier newsletter) which brought the magnitude and nature of international corruption into focus. This exposed the risks to New Zealand if laws here are not tightened up, at the very least to require the registration of foreign beneficial ownership.
A public register would reduce the duplication created by the anti-money laundering legislation where currently each business and financial organisation has to maintain its own register of overseas beneficial owners.