Is New Zealand doing enough to combat money laundering, profit shifting and tax avoidance?

Monday, 3 of April, marked the first anniversary of the publication of the Panama Papers. During the past year, these have attracted a great deal of media attention which provoked international condemnation of fiscal fraud.

A week long global campaign by the Global Alliance for Tax Justice was held to coincide with this anniversary. The purpose of the Global Action is to increase public pressure on governments around the world to end global tax avoidance and evasion.

The high human cost of corruption and tax evasion highlights the urgent need for country to country reporting to stop profit-shifting by multinational corporations.

A report recently launched by Transparency International “Doors Wide Open” identifies that despite international commitments, current rules and practices are inadequate to detect money laundering, as anonymous shell companies and secret trusts allow corrupt cash to flow to real estate markets without undergoing proper due diligence by the professionals involved in the deal. The report states that real estate accounted for up to 30% of criminal assets confiscated worldwide between 2011 and 2013.

New figures published by the Tax Justice Network provide a global estimate of tax loses of $500 billion a year, while the IMF researchers estimated even a higher figure of $600 billion per year. According to these sources, New Zealand is annually losing between 0.52 and 0.76 billion dollars equal to 0.29 % to 0.42% of its GDP.

New Zealand's role surrounding trusts was highlighted by the following:

• The Panama Papers themselves exposed the use of New Zealand trusts for laundering money and hiding assets.
• Tax avoidance in the case of Maurinho, the soccer coach, who moved millions of dollars into a New Zealand Trust.
• Money laundering and luxury asset purchases in the case of Jho Low, a Malaysian financer and billionaire.

What has been the New Zealand response after having been labelled as a tax haven? After an initial dismissal by the Government, an Inquiry into Foreign Trust Disclosure Rules was quickly conducted leading to fast tracking of Phase 2 of New Zealand's legislation on anti-money laundering and combating the financing of terrorism legislation. The proposed Bill requires trusts to publish annual financial statements and register of beneficial owners for the use of Police and Regulators.

Lawyers and accountants that set up companies for customers will need to identify their customers and beneficial owners, as will real estate agents when they represent clients. (Transparency International New Zealand has been tracking the progress of this bill. See AML Phase II Detailed Submission (September 2016), TINZ recommendations on the Phase 2 AML/CFT, and our submission of 20 April 2017.

New Zealand is one of 100 countries that are adopting a code of Common Reporting Standards (CRS). The new code was devised by the Organisation for Economic Cooperation and Development (OECD) and aims to ensure information sharing between tax authorities. The NZ Inland Revenue Department has adopted the OECD 15-point plan designed to tackle profit shifting.

There is no doubt that New Zealand is moving in the right direction; but that isn't enough.

The New Zealand Government has not yet committed to a beneficial ownership register for companies. The current companies register lacks the details on the natural person pulling the strings and controlling the company.

Furthermore, the current companies register and proposed trust register are not to be publicaly available. Yet, public access to these registries would go a lot further to minimize the risks of money laundering, profit shifting, corrupt asset purchase and tax evasion.

Transparency International advocates for the establishment of public registers containing information on the beneficial owners of trusts and of any companies owning or purchasing property.