You can't stop money flows you don't know about

Adam Hunt
TINZ Director

It is heart-breaking that it has taken a war, but finally around the world countries are uniting to target Russian kleptocrats and corrupt money flows by freezing assets and revealing beneficial ownership.

It is a legal requirement that businesses monitor their customers for those who are subject to sanctions, so as I write thousands of organisations will be feverishly updating systems with new names, placing them on watch lists so that they can check that current and prospective customers can be legally engaged. This is not an easy chore.

The targets of these sanctions have become very good at hiding. They have a willing army of morally bankrupt professionals to conceal their assets, as we discover whenever a whistleblower reveals the inner workings of international money management

We know why people hide their wealth – many fear it will be taken from them through tax, but some are even more concerned that their crimes will be revealed, and that could lead to loss of not only money, but of their power to enjoy it.

Fighting this ever-changing landscape of legal smoke and mirrors is a constant battle to uncover truth, and a good starting point is a register of beneficial ownership. Just as it is quite useful to be able to find who really owns a car or house, having a reliable database of other assets (like companies and trusts) and their true controller would save an enormous amount of effort for sanctions and anti money laundering activity.

But the rich and powerful like secrecy, and so these registers are rare. Where they do exist (such as our New Zealand Companies Register) there is little policing or verification. The resistance is strong. The concealment industry is rich and trots out the tired excuse that is always a sign they are nervous; “there’s no point, it’s too easy to avoid”. This is partly true, but that’s a bit like saying there’s no point in locking our cars as vehicle security can be defeated. When something is morally wrong it should be fought, not just ignored because it is difficult.

It is right to have an aversion to regulation and seek ways the market can be forced to self-police. But when we are dealing with global forces of corruption, self-regulation isn’t enough. Over recent years the topic has been avoided by the Government and the Law Commission. The latter dodged the issue with a recommendation for more work. Meanwhile MBIE left trusts out of scope for its review of beneficial ownership registers (because of the Law Commission review), then closed its consultation in 2018. We have heard little since, waiting to see if anti money laundering rules will fill the gap.

But those rules inflict a burden on everyone, and what is forgotten is that these registers would make life easier for the majority. For example, if NZ were to introduce a voluntary register of trusts it is possible those who choose to use it could be subject to reduced checks. Or perhaps we could learn from our bank withholding tax regime: failure to register incurs a higher default tax rate.

We have an opportunity to help drive international and local change. The Financial Action Task Force recently met to decide whether to recommend that countries implement registers of beneficial ownership. In the context of the unfolding Russian invasion of Ukraine it is likely they will support stronger rules.

In New Zealand: we are currently in a phase of consultation on anti money laundering law. This is a rare window to drive those international recommendations into local law quickly.

To counter the voice of the rich and powerful we need to make some noise.

This is an edited version of Adam’s article in the New Zealand Herald 4 March 2022.

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