The Pandora Papers reveal how New Zealand-based trusts have been used to shelter assets of the corrupt and powerful.
This week the New Zealand Herald, as part of its Pandora Papers collaboration released the first of its data on people that have used New Zealand’s trust structure to build and hide their wealth. It includes business people and politicians from Russia, Romania, China and Brazil, some of whom are facing serious corruption and money laundering charges in their home jurisdictions. They have hidden vast sums of money using New Zealand foreign owned trusts as a safe front.
Recent disclosure improvements
Prior to 2017 New Zealand was known as a tax haven for foreigners who could avoid taxes and hide their identities under the umbrella of New Zealand’s reputation.
Since 2017 New Zealand foreign owned trusts have had to disclose the identities of their beneficiaries and basic information on their assets to the IRD.
A 2017 law change set up a register of foreign trusts and a requirement for the provision of a trust deed, particulars of the settlor and the beneficiaries and a copy of the accounts.
This law change has resulted in a 75% reduction in the number of NZ foreign trusts registered to 2,807 in 2020.
The trust regime requires further improvement
Despite the 2017 change, problems remain with both foreign owned and domestic trusts. These were noted by the recent Financial Action Task Force (FATF) review of New Zealand’s effectiveness in combating financial crime and the financing of terrorism:
“Domestically, trusts are widely used in New Zealand and there are comparatively fewer measures to enable law enforcement to detect the abuse of trusts for money laundering and terrorist financing purposes. New Zealand also does not tax trusts with overseas settlors, which has created a market for New Zealand foreign trusts to be used as asset protection vehicles.”
Unlike other jurisdictions, New Zealand foreign trusts are taxed by residence of the settlor (the effective owner) rather than through the residency of the trustee (New Zealand based). As long as the settlor and assets of the trust are located outside of New Zealand, the trust will not be subject to New Zealand tax. Inland Revenue holds information on all New Zealand foreign trusts however this information is not publicly available, and generally hard to access.
FATF recommended that New Zealand consider developing a complete trust and company service provider register to be accessed by Anti-Money Laundering and Countering Financing of Terrorism Act reporting entities and other agencies.
TINZ recommends more than that. New Zealand should remove the ability for settlors to avoid or hugely mitigate tax and financial transparency obligations in their own country.
Transparency International also favours much greater transparency of New Zealand based foreign owned trusts because, as the Panama and Pandora Papers have and will show, it is transparency that shines the light on the corrupt.
The FATF also recommended that New Zealand implements measures to mitigate the money laundering and terrorist financing risks of nominee shareholders and directors and ensure their full transparency. "This could include requirements on such nominees to disclose their status and the identity of the nominator to MBIE and when dealing with reporting entities."
The FATF is currently starting to review the effectiveness of its Recommendation 25 which urges countries to have “adequate, accurate and timely information on express trusts, including information on the settlor, trustee and beneficiaries that can be obtained or accessed in a timely fashion by competent authorities.“ New Zealand is co-chairing the review of Recommendation 25, and Transparency International will be an active advocate for this review.
Pandora Papers Background
Pandora Papers The largest investigation in journalism history exposes a shadow financial system that benefits the world’s most rich and powerful.The International Consortium of Investigative Journalists
Pandora Papers: Sweeping reforms needed to rein in lawless offshore industry Transparency International
Pandora Papers: Everything you need to know about the biggest data leak in history The New Zealand Herald (includes New Zealand specific references in the document trove)
Why The Post published the Pandora Papers investigation The Washington Post