Transparency Times June 2018

From the Chair June 2018

Suzanne Snively ONZM Chair Transparency International New Zealand

Suzanne Snively ONZM
Chair
Transparency International New Zealand

Business confidence, falling after last year’s election, has been buoyed by news that the Government is in discussion with the European Union over a new free trade agreement.

The Coalition Government has also taken steps to progress the Comprehensive and Progressive Trans Pacific Partnership (CPTPP) and to refresh the China Free Trade Agreement (CFTA). Business leaders believe that these agreements are beneficial to their growth.

The Government is promoting negotiations to progress these agreements on the basis of the potential positive impact in terms of jobs and prosperity for New Zealanders.

Given our small population, new markets for growing exports are a factor that can generate better living standards. Despite being regarded as a trading nation, New Zealand exports are below 30% of GDP. These are amongst the lower levels for developed countries. Deeper penetration into export markets across a wide range of businesses is required to achieve better living standards.

For all New Zealanders to benefit from free-trade agreements, it is time that these agreements are transparent. Trade agreements need to lower the barriers of trade, not just for big business but also small and medium-size businesses. SME’s account for over 92% of New Zealand enterprises, yet it is large and influential businesses and trade groups traditionally represented in trade negotiations. Greater engagement throughout the economy can only happen through greater transparency in trade negotiations.

Genuinely progressive and inclusive agreements have potential to bring benefits to exporters and consumers alike, while maintaining product standards that Kiwis care about. They multiply the opportunities to trade into overseas export markets and to reduce our cost of living through cheaper imports. These factors in combination support an environment for growing high-quality, high-wage local jobs and enable out local businesses, small, medium and large to grow.

New Zealand’s free trade agreement with China has resulted in a significant increase in value and volume of exports to China. New Zealand’s exports to China, five years before the 2008 Free Trade Agreement came into effect, were worth $1.4 billion. Today, annual exports to China are $26 billion after ten years of exponential trade growth. A question is whether  these exports have generated high-quality and high-wage jobs given that a large proportion of these exports are raw materials such as pine logs with limited added value.

The EU has estimated that a free trade agreement with them could result in up to a $2 billion boost to New Zealand’s GDP, and up to a 20 per cent increase in New Zealand exports to Europe.

New Zealand is known for its exports of agricultural products to the EU. In fact, services sector trade to the EU made up 41 per cent of New Zealand’s total exports in 2017. Services such as the education and training, financial and insurance services, and, engineering and architectural consultancies are significant export enterprises that also add value and generate quality jobs.

For Free Trade Agreements (FTAs) to offer additional significant new opportunities for both sides to expand, it is time now to stop the misleading rhetoric about the past agreements being “free, transparent, open and accountable”.

In 2015, the EU Ombudsman delivered a decision about EU FTAs. The point she made is that in a globally-networked world, citizens simply won’t put up with the secrecy that has been a feature of FTAs to date.

With transparency, it is possible to consider a full range of trade options so that businesses of any size or sector can meet the economic challenges of the decades ahead.

Everyday Kiwis need to see tangible benefits from trade agreements: Where are the lower costs for consumers? Where are the jobs? Transparency is a way of shedding light on the factors that lead to products like food and other consumer goods becoming available at lower cost while maintaining quality.

In the absence of transparency, how do businesses and consumers know if there is a level playing field through reductions in tariffs, duties and other trade barriers?

Since the UK joined the European Economic Community 40 years ago, trade agreements have been negotiated behind the scenes by government experts heavily influenced by special interests.

For trade agreements to realize their potential in increasing returns to trade, they need to be open, transparent and comprehensive. New Zealand can pave the way through a better, more open conversation when negotiating trade agreements.

To negotiate a transparent FTA with the EU would be an outstanding achievement. Its primary objective should be for all New Zealanders to see and understand the provisions of the agreement, and through this, identify ways to benefit from it. At the start, New Zealand can insist on rules of engagement that are open, transparent and designed to engage businesses to participate in shaping the agreement.

As Trade Minister David Parker says of the EU FTA: “We share so many values in pursuit of a better world. Human rights, environmentalism, multilateralism and trade. This will be good for us all.”

There will be an even better chance that we all benefit if other shared values underpinning the trade agreement, include transparency, accountability and inclusivity.

Trust, transparency and business

Declan Mordaunt
Member with Delegated Authority
Affiliations, Civil Society Network and T20 Professional Services Network

Declan Mordaunt
TINZ Member with Delegated Authority for T20 Professional Services Network

Under the title of “the Trust Crisis”, the April/May Edition of Acuity (the magazine of Chartered Accountants Australia and New Zealand) contains two articles on the topic of trust and business. Each emphasises the important role of trust for businesses and the need for transparency. The days of “trust me” on a say so, are well gone.

The first article titled “Who can you Trust?” by Susan Muldowney looks at the impact of recent high profile corporate scandals such as the Commonwealth Bank of Australia (CBA). It refers to the annual Trust Barometer Report prepared by the global communications and marketing firm, Edelman, which shows a continual global decline in consumer trust in businesses over the past five years.

This is no real surprise considering the range of scandals that have hit global businesses over the past few years. The article goes on to question if the problem (lack of trust) is unfixable or is it simply a by-product of modern society where so much information is available at the touch of a screen. The transparency of information, often required by regulators, leads to the consumer having a greater understanding – or perceived understanding – of business practices. Equally in a world requiring more and more startling headlines, the media seek to deep dive into the data to gain a better understanding and even better headlines. Headlines are what sells news and further fuel the consumer perspective on business. Rarely is it the case that good news sells papers.

The second article is titled ‘The Barometer of Trust’ by Tim Dean. He notes that in Australia trust in business fell 3% since last year, to 45%. The surprise here is that the decline was not more significant.

Tim notes that less than half the population trust business to “do what is right”. He goes on to note that trust is the “lubricant of reciprocal exchange and reciprocal exchange is at the heart of commerce. Our society and commerce cannot function effectively when the community lacks high levels of trust.”

Importantly for New Zealand, less trusting countries tend to have poorer performing economies and lower average incomes. Foreign investors are far less likely to invest in such countries and they require higher returns when they do.

Dean goes on to note that transparency can make businesses uncomfortable. By visibly incurring a cost or taking a risk intended to benefit customers and stakeholders, a business is sending a significant message that it takes trust seriously. Importantly, businesses need to note the old adage that “trust is hard won and easily lost” and be ever vigilant in their pursuit to remain “trusted”.

What does this mean for New Zealand?

The recent damage done to and by businesses in Australia has so far mainly missed New Zealand. In broad terms, there is a higher level of trust in business here and so far, we have avoided the major crisis created by the likes of CBA and AMP.

Many believe that trust is core to the “Kiwi Way.” This applies as much to the business world as it applies to politicians and the Government sector.

To maintain this trust, we need to embrace changes in society referred to earlier about the availability of information, and the plethora of journalists anxious to deep dive for information in the pursuit of creating a headline.

This is not a criticism of journalism but a reality based on the availability of information and the consumer needs for headlines. A bad headline is enough to damage trust and often there is little opportunity to protect the brand after the headline has been made, whether guilty or not.

More Business Transparency

This brings us to the need for more business transparency. We understand the need for business to protect trade secrets or key competitive information. We accept that this is imperative to maintaining effective competition.

More business transparency is needed however, when it comes to issues which impact consumers or society more generally (for example tax). They need to tell “the good, the bad, and the ugly” – regularly. Then, businesses need to be seen to be working to offset the bad and ugly by demonstrating the plans in place to rectify the issues. Failure to report transparently will lead the general public to the conclusion that they are not facing up to their corporate responsibilities with a resulting backlash on their brand.

There is no choice – businesses must be transparent to embed trust and protect their value. The alternative is lost value and, ultimately for some, failure.

Open Government Partnership needs your ideas!

Open Government Partnership needs your ideas!

David Dunsheath

TINZ Member with delegated authority for Open Government

Transparency Times Newsletter Co-editor

Preparation of New Zealand’s Open Government Partnership National Action Plan (OGP-NAP) 2018-2020 is well under way, coordinated by a dedicated small team within the State Services Commission. A much sought-after objective is being pursued from May to July to engage civil society, i.e. our community of citizens, in the bottom-up development of this new NAP. 

As reported in the May issue of Transparency Times, a series of multi-city workshops have engaged a diversity of citizens to think afresh about what open government commitments they wish the government to adopt. However to date, the number of participants is small and unlikely to be representative of the wider population. 

In addition, we are all invited to contribute on-line with new ideas and by voting and commenting on existing suggestions already posted, as well as by adding your own new ideas. It is pleasing to note that simple, once-only registration is required to become an active participant in the OGP online consultation process.

The ultimate commitments within the new NAP, each with underlying targets, will become focused on at least one of the following OGP themes:

  • providing easier access to information
  • increasing accountability
  • improving transparency
  • strengthening integrity
  • enabling greater citizen participation in government decision-making

Using the raw ideas contributed, a process of analysis, theming, then synthesis will be undertaken in additional workshops attended by elected representatives from each initial May workshop. Finalised commitments once assembled within the drafted NAP, will pass through the Cabinet process for plan approval by end of August. Progress towards achieving these commitments will, as with the previous NAPs, be subject to international scrutiny at both mid-term (June 2019) and plan completion (June 2020).

Longer term planning objectives straddling two or more future NAP durations, can be accommodated by a series of two-yearly commitments that are achievable in each 2-year planning period, respectively.  

Meanwhile, the current 2016-2018 NAP will be completed this June, at which time the Government will publicly publish its own self-assessment of its success. Also, an independent review will be undertaken for international scrutiny. With each of these two reviews, the wider public will be encouraged to view and comment on their findings.

However, State Services Commission must implement significantly more effective ways to educate civil society about OGP and the opportunities currently being provided to express opinions and vote on preferred initiatives for inclusion in the 2018-2020 NAP.

The Open Government Partnership, headquartered in Washington, is a multilateral initiative that aims to secure concrete commitments from governments to promote transparency, empower citizens, fight corruption, and harness new technologies to strengthen governance. In the spirit of multi-stakeholder collaboration, OGP is overseen by a Steering Committee including representatives of governments and civil society organizations. Over 70 participating countries and 15 subnational governments have made over 2,500 commitments since the OGP’s inception in 2011, to make their governments more open and accountable.

TINZ welcomes two new directors

Transparency International New Zealand welcomes two new interim Directors, Prof John Hopkins and Henry Lynch.  They will be taking over terms recently vacated by Conway Powell and Mark Sainsbury.

Professor John Hopkins

John Hopkins

Dr. John Hopkins is a Professor of Public Law at the University of Canterbury with a long record of working in the fields of public integrity and the Rule of Law. He has previously worked at a number of other Universities in New Zealand and the UK and held visiting positions in the field of global governance at the Central European University, Budapest and Georgetown University, Washington DC, among others.

John is currently a national rapporteur in the Global Justice Project’s Rule of Law project and more recently has worked on the Rule of Law and corruption issues in a Pacific context and jointly heads a European Union funded project examining corruption in the Pacific.

He recently was the lead author for TINZ’s submission to the OECD periodic review of the Foreign Bribery Convention.

Henry Lynch

Henry Lynch has worked predominantly in the financial services area for over 30 years, holding a number of varied locations and roles. His current work in strategic planning, executive leadership and governance at Board level, builds upon his 35 years corporate experience with 25 years in Executive, CEO and Board roles.

Henry Lynch

Henry has served as a director of a number of organisations, primarily in the financial services and insurance sectors. He was Chief Executive Officer of Co-op Money NZ and Co-op Insurance NZ from September 2010 to April 2018.

He expects to be heavily involved in the TINZ Financial Integrity System Assessment (FISA).

Henry is a keen follower of all sports, enjoys family time, travel, reading and is an avid walker. Henry is a 6th Degree Black Belt in Aikido (a martial art) which has schools in New Zealand and Australia, where he is Chief Instructor for Australasia. In 2009, Henry was inaugurated into the New Zealand Martial Arts Hall of Fame and in 2012, he was inducted into the Australasian Martial Arts Hall of Fame in Cairns.

 

Budget day gold nuggets

Hon Minister of Finance, Grant Robertson, at Pre-Budget media lockup 17 May 2018

David Dunsheath

TINZ Member with delegated authority for Open Government

Transparency Times Newsletter Co-editor

The Minister of Finance, Hon Grant Robertson, presented his 2018 Budget on 17 May to a fanfare of both ‘too cautious’ and ‘not cautious enough’ commentaries from across the political spectrum.

Transparency International New Zealand (TINZ) was represented by David Dunsheath and Anne Gilbert, who probed the Budget for twinkling gold nuggets which align to TINZ’s aspirations. The following ‘new-initiative’ resource funding items of interest to TINZ come from Summary of Initiatives in Budget 2018.  It remains to be seen how the budgeted additional dollars will be allocated. 

Overarching key funding of government resources

  • Funding that “contributes to a programme of system-wide digital and data initiatives [to] support and enable agencies to effectively meet key government commitments including a more open government, strengthened democracy, public participation and improved service provision.“> (p56)

Open government

  • Funding forthe establishment of an independent Climate Change Commission (p39).

    Ideally, the Commission will create a permanent, non-partisan process for successive governments to periodically set/review their objectives, and be transparently measured and expertly assessed annually, on their performance.

  • Funding to “significantly increase NZ’s overseas aid, especially to the Pacific … to help address significant unmet financial needs for major … challenges such as the effects of climate change, increasing regional and global humanitarian need, financing gaps in the multilateral system, and the social environmental constraints to sustainable development.” (p43)

    TINZ hopes this will allow for the resumption of administration funding for the Pacific Island chapters of Transparency International: PNG, The Solomon Islands and Vanuatu, extended to Fiji and other Pacific countries in the future.

  • Funding to “support the development of the School Leavers’ Tool Kit [with which to] equip school levers with the practical skills, knowledge and capabilities they need in adult life.” (p53)

    Improved awareness of civics (the study of the rights and duties of citizenship) is a key recommendation TINZ’s Integrity Plus 2013 New Zealand National Integrity System Assessment.

Open data

  • Funding will allow NZ’s continued leadership role “in ensuring that international carbon markets (developed under the Paris Agreement) have environmental integrity [and] allow the development of high-integrity options for NZ, should governments choose to supplement domestic action with international reductions in the future.” (p33)
  • Funding “to ensure that the NZ Emissions Trading Scheme remains fair and accurate for participants.” (p34)
  • Funding “to collect baseline housing quality data for [the Healthy Homes Guarantee Act 2017] … so that we have better information about the state of our hosing stock” (p41)
  • Funding to improve the Household Economic Survey “and fund investigation into improvements in data methodology and integration, to allow more precise measures of child poverty in NZ” (p43)
  • Funding of “an information system … to improve the performance and transparency of NZ’s science investments … providing data on research expenditure, associated activities, outputs, people skills and outcomes.” (p46)
  • Funding to “establish an Enforcement Oversight Unit to improve the consistency, effectiveness and transparency of council enforcement decisions.” (p52)

Anti-corruption

  • Funding for “securing, maintaining and managing the increasing number of [ill-gotten] assets placed in the custody and control of the Official Assignee” (p36).
  • Funding for “proactively disrupting [illicit drug] smuggling activity offshore, strengthening security of supply chains and targeting the cross-border flow of criminal proceeds.” (p37)
  • Funding for more effective employment services, including “the Labour Inspectorate’s focus on serious and systemic breaches of employment law” (p38).

    TINZ supports deepening the Government’s developed procurement practices with objectives including the elimination of ‘modern slavery’ practices.

  • Funding to “support an effective immigration system, by strengthening border security and improving screening of people coming to NZ, in order to lift compliance with immigration requirements” (p42)
  • Funding to enhance “offshore management of [supply chain] risks relating to imports [to] increase the trust we have in our export partners that good [biosecurity] practices are being followed before products are exported to NZ.” (p54)

Improved democracy

  • Funding to “support a coherent package of work that aims to facilitate discussion and action on new and innovative directions for education system [including] a number of strategies, regional follow-up hui and the formation of advisory groups for a number of work streams” (p38)

    TINZ sees this as ideally including improved awareness of the role of civics training and education while also creating greater community participation in the spirit of Open Government.

  • Funding to “enable the Electoral Commission to carry out the necessary preparatory work ahead of the 2020 General Election” (p41)

    Included in this funding should be an improved awareness of civics – the study of the rights and duties of citizenship – and resultant increased participation.

  • Funding of recommendations from the recently formed Ministerial Advisory Group on Public Media “to support the contribution of public and private media to an informed democracy” (p42)

 

Modern Slavery – Part 3

Tod Cooper
Member with delegated authority for
Procurement/ Online Training/ Whistleblowing

by Tod Cooper

TINZ Member with Delegated Authority for

Procurement, Whistleblowing

Third in a series of articles to build awareness on modern slavery, particularly in New Zealand.

In the previous issue of the Transparency Times, I noted that New Zealand sectors including construction, dairy, fishing, horticulture, hospitality, international education and sex work are at risk from Modern Slavery (see Modern Slavery part 1 and Modern Slavery part 2)

New Zealand examples of Modern Slavery and exploitation

Sadly, examples of modern slavery and exploitation abound in New Zealand. The sheer volume of news articles on this topic is overwhelming. How much more is undetected?

Below are a few recent examples:

  • Faroz Ali was convicted by the High Court in 2016 for multiple charges of human trafficking and exploitation, the first conviction in New Zealand for Human Trafficking. (see Modern day slavery and human trafficking in New Zealand.)

    The treatment of his victims was appalling.  Most of the victims were poor, living in difficult circumstances. Faroz prayed on their desperation for a better life.

    Crown prosecutor Luke Clancy said “that instead of having this opportunity to work and make money and provide for their futures, they were exploited, left with nothing and had to return to Fiji ashamed … that they had been misled, deceived and ripped off.”

  • The former owner of Christchurch bar and eatery, Sequoia 88, has been banned from hiring staff for three years after he included an illegal clause in staffs’ employment contracts where they would forfeit their holiday pay if less than six weeks’ notice was given when resigning. (see Business owner banned from employing staff after serious breaches)

  • Director Jag Rawat of Pegasus Energy Limited, which operated as a BP station in Hastings has been ordered to pay upwards of $132,000 in arrears to two ex-staff and $120,000 in penalties. (see BP franchisee owes $250,000 for breaching employment law.)

    Labour Inspectorate regional manager Loua Ward said “The affected employees (migrants) were not paid the minimum wage, or holiday pay. They were subjected to unlawful premiums being deducted from their pay and were at times working up to 16-hour shifts, with lesser hours falsely recorded in the business’s records.”

    “The pair was made to live in accommodation provided by the employer and pay excessive amounts in rent, despite poor living conditions where they were required to sleep on the floor.”

    “The employees continuously received threats from Mr Rawat saying that he would cancel their visas and they’d be forced to leave New Zealand if they spoke up about the mistreatment. Mr Rawat also threatened trouble in the employees’ home countries on return.”

  • Jail, home detention for Filipino restaurateurs over exploitation of workers in Auckland.

    “An Auckland restaurateur has been sentenced to 26 months’ jail and ordered to pay $7200, and her husband to eight months’ home detention and pay the same amount in reparation over immigration and exploitation charges.”

    Immigration New Zealand Assistant General Manager Peter Devoy said that the employee worked for the pair from April 2014 to July 2015 and claimed to have consistently worked at least 10 hours per day, six days a week, without any breaks.

    He was paid for at most 40 hours per week and did not receive any payment for the final three and a half months he worked at the restaurant in Birkenhead.

    The victim also had to pay the pair $150 per week to live in a makeshift room in their garage.

    “This employee was living at the defendants’ house and was taken to the restaurant by the owners every morning and then back to their house at night. He was told he would be reported to the police and sent home if he did not perform well in his job,” Devoy said.

    “He could only leave the house for short periods of time and cleaned the defendants’ house on Mondays when the restaurant was closed.”

  • Operation Spectrum, a six-month operation, commencing May 2017, led by Immigration New Zealand, looked for illegal workers, fraud and people smuggling in the construction industry. Over the six months of the operation, 54 people were deported, 85 people refused entry into New Zealand and five prosecutions have been completed and/or are pending against companies where there is a New Zealand based director. (see 54 people deported as part of Immigration New Zealand operation).

Many cases involve migrant workers because visa requirements can make them dependent on their job in New Zealand.  As a result, they become vulnerable to exploitation by unscrupulous employers, who often threaten consequences if they report illegal practices.

Summary

Modern slavery and worker exploitations is rampant in New Zealand.  Our laws are not sufficient and pecuniary consequences are negligible. Leadership starts with us, with New Zealand Business, small, medium, or large. 

Next Up…

In my next article, I will look at what companies can and are doing to prevent modern slavery and exploitation.

I will talk with Brent Wilson, Director of Global Workplace Rights at The Coca-Cola Company, on what The Coca-Cola Company is doing in eliminate workplace exploitation and modern slavery in their supply chain.  Brent’s insight will be particularly valuable as The Coca-Cola Company operates in over 200 counties across five global regions. They undoubtedly face some unique cultural, legislative and corruption challenges.

Sustainable Development Goals gaining momentum

Transparency International New Zealand supports the Sustainable Development Goals

Sustainable Development Goal 16 - Peace Justice and Strong Institutions

David Dunsheath

TINZ Member with delegated authority for SDGs

Transparency Times Newsletter Co-editor

In a video link to the recent Sustainable Development Goals (SDGs) Summit (1), Helen Clark (2) said “Sustainable development is not something somebody else somewhere has to do. We have to do it. We in New Zealand have to make a contribution to having sustainable human development”. The ‘we’ she refers to comprises not only government, business and civil society, but all of us personally.

As noted in our December 2017 newsletter, Transparency International (TI) and Transparency International New Zealand (TINZ) are committed to supporting the SDGs programme designed to end poverty, protect the planet and ensure prosperity for all. TI and TINZ recognise that goal SDG-16 ‘Peace, Justice and Strong Institutions’, focused on good governance to achieve transparent and accountable institutions, plays a critical role towards achievement of all the other SDGs.

Of particular concern is the huge risk of corruption to be attempted by the transformational requirements that the SDGs demand for their effective progress. In its Monitoring Corruption and Anti-Corruption in the SDGs: A Resource Guide, TI identifies four Targets underpinning SDG-16 of special relevance to governance and anti-corruption agenda at global, national and sub-national levels:

  • Target 16.4: significantly reduce illicit financial and arms flows, strengthen the recovery and return of stolen assets and combat all forms of organised crime
  • Target 16.5: substantially reduce corruption and bribery in all their forms
  • Target 16.6: develop effective, accountable and transparent institutions at all levels
  • Target 16.10: ensure public access to information and protect fundamental freedoms in accordance with national legislation and international agreements.

The thought provoking, day-long SDG Summit aimed to inform and excite leadership across sectors and develop cross-sectoral partnerships and collaborations for concrete actions. Time will tell the extent of success. A range of government, business, indigenous, academia, and civil society perspectives were aired by solo presenters and in panel discussions.

A big concern was the need for identification of a government coordinator for New Zealand’s SDGs programme. A well-received video link outlined the coordination role of Hugo von Meijenfeldt of the Dutch Ministry of Foreign Affairs.

A further need identified was a non-partisan, long term cyclic process for expert, independent appraisals and transparent reporting on government-of-the-day’s achievements and appropriate adjustments to enhance these.

Summit attendees were invited to engage in a variety of Action Stations to contribute ideas on topics previously submitted by registrants. Josephine Serrallach and David Dunsheath representing Transparency International New Zealand (TINZ), participated in one that considered transparent reporting on the development and achievement or New Zealand’s SDG targets.

Overall, the summit raised considerations of risks and opportunities; the indigenous perspective; roles of government, academia, business; and the overall un-coordinated, but effective initiatives being taken in the absence of nation-wide coordination.  

(1) Sustainable Development Goals (SDGs) Summit was hosted by Victoria University of Wellington on 23 April.
(2) Helen Clark is former Prime Minster and Administrator of the UN Development Programme (UNDP).

Anti-money Laundering: Next Steps after Phase 2

Phase 2 of the Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) regime compliance begins taking affect from 1 July 2018.

Phase 2 extends the AML/CFT regime to lawyers, conveyancers, accountants, real estate agents, sports and race betting, and certain high value dealers. Sectors are affected in stages, with lawyers and conveyancers required to comply starting from 1 July 2018, followed by accountants in October 2018, with real estate agents and other sectors in 2019.

Phase 2 will help to make New Zealand less attractive to international criminal groups and corrupt officials who seek out weak regimes to circumvent global AML laws. Criminals will find it harder to misuse these sectors without detection. This legislation is a positive step towards preventing corruption internally and making New Zealand less vulnerable to external corruption.

The Financial Intelligence Unit in NZ Police recently highlighted in its National Risk Assessment the risk of these ‘gatekeepers’ to the financial system being misused by criminals. Phase 2 will assist in reducing this risk.

Next Steps for AML

Effective implementation of Phase 2 is critical to ensure that the regulations themselves become effective, and, to ensure a level playing field for affected businesses and professions.

Globally, adequate supervision using a risk-based approach has been demonstrated to be a key element to ensure that businesses implement the AML controls to deter and detect money laundering and other crimes.

In this regard, it is good news that additional resources are being provided to the Department of Internal Affairs (DIA) for supervision of Phase 2.

The DIA’s role is critical to support and monitor compliance through awareness raising, guidance, and surveillance. The DIA has already shown that it is a strong regulator when it needs to be. For example, the recent $5.3 million non-compliance fine to finance company Ping An is the largest fine to date under the AML/CFT regime.

The size of the fine puts Phase 1 and Phase 2 reporting entities on notice that while the DIA will offer a carrot, it also possesses a stick.

Transparency of beneficial ownership remains an issue. To prevent the misuse of New Zealand companies and trusts, we need greater visibility of the owners of entities and assets is required.

Phase 2 will help, but more to do…

The Government continues to make limited progress on its commitment to explore a beneficial ownership register for companies, a commitment made back in May 2016 at the London Anti-Corruption Summit.

New Zealand is falling behind like-minded countries, with the UK and the rest of the European Union already taking steps to implement beneficial ownership registries.

If done well, the benefits of a comprehensive register are clear. It provides a way for police investigations to trace corruption that has previously hidden behind a corporate veil. Financial institutions and others can use the register as a data source in their due diligence. This can reduce the duplication in the current process where information about the same beneficial owner may be collected by several financial organisations.

Administration of the register has its challenges. It is imperative that the data on the register be accurate and up to date for the system to work. This can be difficult as recent examples show.

New Zealand has an opportunity to learn from the efforts of other countries when implementing an effective beneficial ownership register. By moving quickly to set up a register of beneficial ownership, New Zealand could be a world leader in this anti-corruption effort.

Are AML Provisions Effective?

Just over a month before the Phase 2 AML provisions come into law, new studies by Dr Ron Pol have been publicised as concluding that anti-money laundering rules were “almost completely ineffective”.

Pol’s studies are available only behind pay walls. According to promotions of them, Pol found flaws in the effectiveness of anti-money laundering rules, affecting every country he surveyed in 2014. His results have credibility from being published in international peer-reviewed journals. The studies combined a methodology called “money laundering research” with “outcomes effectiveness analysis”.

The research claims to be a methodological breakthrough at the intersection of the policy (money laundering) and policy effectiveness disciplines. It applies an “outcomes effectiveness analysis” to examine the extent to which regulations achieve intended outcomes. This is the test of whether the AML policies are effective.

“If up to 99.9% of illicit funds in some countries stays in criminal hands each year, existing standards and current methods clearly don’t work as well as intended. For crime truly not to pay, beyond rhetoric, a step-change in vision and capability may be required”, says Pol.

This discussion about what “effective” looks like has a valuable contribution to make at a time when international organizations such as FATF, World Bank, IMF and UN along with national governments are working to develop more effective AML/DFT measures. It is important to acknowledge too that processes and policies have improved markedly since 2014. There is a much greater awareness of how vulnerable countries and businesses are to large flows of illicit funds. 

A short RNZ commentary ‘Anti-money laundering rules ineffective – study’ broadcast on 30 May, includes comments from both Pol and TINZ Chair, Suzanne Snively. 

FinTechNZ MoU

MoU signed with FinTechNZ on 9 May 2018

An Affiliation Memorandum was signed on 9 May 2018 between TINZ and the New Zealand Financial Innovation & Technology Association (FinTechNZ). This enables collaboration between these two bodies to allow their members to access and benefit from each other’s activities, events and collective knowledge.  

Pictured (left to right) are FintechNZ General Manager, James Brown; TINZ Patron, Lyn Provost; TINZ Chair, Suzanne Snively; and TINZ Member with Delegated Authority for Affiliations, Luke Qin.

FintechNZ is an industry working group whose key purpose is to actively contribute to the prosperity of New Zealand through financial innovation. It aims to help New Zealand FinTech businesses succeed by providing thought leadership and collaborative voice; creating connections; promoting FinTech to sector members, government, public and the international community; and advancing the trends shaping the FinTech ecosystem. In regard to international growth, it aims to advocate, attract and develop talent for increasing export opportunities.  

Both organisations share common interests in promoting ethics in business and advocating for effective integrity systems to maintain trust and confidence. Both organisations have zero tolerance to violations of integrity and care about good governance, robust codes of conduct and effective systems to prevent corruption. Accordingly, the two parties intend strategic cooperation to expand the area of influence for greater efficiency in the achievement of common goals.   

It is intended that this affiliation relationship can contribute greatly to maintaining high standards of ethics, of being vigilant about enforcement of anti-corruption measures and of being able to demonstrate how training and leadership can make a difference. A key opportunity is the facilitation of connections to communicate and network across all members of both organisations, which will enhance the capacity of both organisations to promote knowledge about ways to prevent corruption and build strong integrity systems.

Clarity on climate change to hasten progress

Credits: LGNZ

Dave Cull
President
Local Government New Zealand

Dave Cull
President
Local Government New Zealand

Transparency International New Zealand’s sponsors, partners and affiliates are encouraged to regularly contribute pertinent articles relevant to our audience. This article is from TINZ’s Partner, Local Government New Zealand (LGNZ).

Prime Minster, Rt Hon Jacinda Ardern, has called climate change “the biggest challenge of our generation”. Recent extreme weather events have certainly highlighted the urgent need for a collaborative approach between central and local government.

Climate change issues consistently came to the fore during discussions with councils, particularly when discussing both infrastructure and funding and risk and resilience, two of Local Government New Zealand’s (LGNZ) five strategic policy priorities.

Why has it taken so long for climate change to be taken seriously?  The delay in action shows there has been a lack of trust and respect for scientific reporting on climate change and a lack of transparency and courage from leaders in addressing it.

By the time the symptoms of an issue are occurring, it’s often too late to fix them, or at best much more difficult.  That’s why LGNZ has been focusing on its climate change project. LGNZ’s objective is to lead the conversation with public and local government on how to best address and mitigate the local impacts of climate change.

This project requires a collaborative approach and strong transparency of data. It aspires for high quality information and broad community awareness to give the full picture of climate change adaptation and mitigation.

LGNZ’s sea level rise survey is an initial focus of the project.  We are identifying the location and value of council owned assets and infrastructure at risk of exposure to various levels of sea level rise. Interim data from approximately half of New Zealand councils shows assets with a replacement value of $4 billion are at risk from a 1.5 metre sea level rise. While these are very early numbers from only some of New Zealand’s councils and at the lower end of sea level rise predictions, they show the potential magnitude of impacts from climate change.

To provide context, local government owns $120 billion in fixed assets including 100 per cent of New Zealand’s drinking water, wastewater, and storm water, and 88 per cent of all roads.

This data will enable an informed conversation with the Government and communities around the impact of sea level rise locally and the most effective ways to deal with this.

LGNZ also has proposed a central risk agency to pool and coordinate local government resources to lower the risk and cost of disaster. A Local Government Risk Agency (LGRA) would establish guidelines and models by which local government could manage risk and share information. It would harmonise practices, improve skills in management and financing, provide quality assurance, and supply expert staff.

A key benefit of an LGRA would be improved national and local visibility of risk.

LGNZ understands that good data leads to better decisions.  LGRA will be at the front line for providing solid data on the critical issue of climate change.   But for it to be effective, we must get on with it.

 

Patron and Director retirements from TINZ leadership

A dinner was held in Auckland following the May Board meeting, to mark the following retirements:  

Sir Don McKinnon who served as the TINZ Patron from 2015, has provided highly valued contributions including:

  • linking TINZ to his extensive Auckland networks
  • providing context on the activities of the Commonwealth Secretariat and Commonwealth leaders, particularly when TINZ attempted to contact TI’s African chapters
  • spokesperson on transparency issues such as quotes to news media and participation in radio interviews
  •  expertise on the Pacific which provided important insights into TINZ’s Pacific strategy.
  • Master of Ceremonies at three AGMs. 

Mark Sainsbury who was a TINZ Director from 2016 also played a pivitol role for TINZ as outlined in the May issue of Transparency Times . 

We look forward to their continued involvement with TINZ activities. 

Pictured are: Lisa Traill (Director), Phoebe Miles (Member with Delegated Authority – Auckland events), Mark Sainsbury (retiring Director), John Hale (Member with Delegated Authority – Civics), Karen Webster (Director), and Sir Don McKinnon (retiring Patron).

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