Transparency Times October 2016

From the Chair

Suzanne Snively

Suzanne Snively
TINZ Chair

24 October 2015

0n 20 September a most surprising thing happened.

I was emailed a Cabinet Paper dated 19 September 2016 titled Response to National Integrity Systems Report on New Zealand by Transparency International. This paper considered each of the 60 or so recommendations from Chapter 6 of Integrity Plus 2013 New Zealand National Integrity System Assessment (2013 NIS) which was published by the New Zealand Chapter of TI in December that year. What a remarkable achievement – there is no other country in the world where the Executive Branch (Cabinet) of an elected Government has considered all the recommendations of a National Integrity System Assessment.

TINZ hopes, too, that our Cabinet has taken the time to delve into the comprehensive 372 page NIS itself. As well as covering the pillars of government – the executive, legislative, judiciary, public sector, electoral commission, law enforcement and anti-corruption agencies, ombudsman and the auditor general – the NIS also examines the integrity systems of the media, political parties, civil society and business.

Two innovations of the 2013 New Zealand NIS are that it weaves in the themes of environmental governance and Te Tiriti-o-Waitangi. These are examined as part of the foundations for the national integrity system. Environmental governance and Te Tiriti are also assessed individually and as key factors shaping the integrity of each of the 12 pillars.

The Cabinet’s NIS response is a deliverable as set out by the first National Action Plan (NAP) of Open Government Partnership (OGP).

So in considering its commitments as set out in its first NAP, the Government can tick off progress to action the NIS through the publication of the 19 September Cabinet Paper.

And indeed, the Government did progress some of the key NIS recommendation. These include signing up for the OGP and the ratification of UNCAC. Further, the 15 Acts resulting from the comprehensive Organised Crime and Anti-corruption legislation could be regarded as a contribution to the recommended development of a National Anti-Corruption Strategy.

In addition, between March 2014 and June 2015, there was direct communication between TINZ and relevant government officials about specific avenues for progressing about a quarter of the NIS recommendations. The challenge is that momentum was lost when it came to actually implementing the specified actions derived from the recommendations.

TINZ’s main concern about the 19 September Cabinet response is that there was no real indication that Cabinet had accepted the core message of the NIS which is: “it is beyond time for serious and urgent action to protect and extend integrity in New  Zealand”. There has been a limited sense of urgency in regards to electoral management, the media or improving procurement capacity, several of the recommendations have been ignored or misunderstood, and the wide public consultation and participation that was called for the OGP has failed to eventuate.

So almost exactly a month on from my first surprise, on 20 October, I had a better surprise when State Sector Minister Paula Bennett published the Governments 2nd National Action Plan. As member of the OGP External Advisory Group, I was aware of the 7 commitments. These were whittled down from an initial 15 or so to those which are achievable, with implementation supported directly by officials leading time work plans with specified milestones and delivery dates.

My surprise this time is the foreword to the NAP written by State Services Commissioner, Peter Hughes. It sets out a clear context that demonstrates strong support for the 7 NAP commitments, acknowledging the leadership of former Ombudsman, Dame Beverley Wakem and the co-creation of cross-government agency officials working with NGOs to develop the commitments. The Commissioner makes a strong promise to New Zealanders that more will be done to engage the public at every place and stage in a discussion about the role of our government and of the public service.

Capping off the day on 20 October, was the announcement of the cross-political-party appointment of Alicia Wright as Electoral Commissioner. Alicia demonstrated her strong integrity in leading the internal research at the Ministry of Defence for its contribution to the Government Defence Anti-corruption Index. NZDF scored an “A” for this index. Even having achieved a good score, Alicia helped the NZDF   to focus on gaining self-knowledge and continuous improvement, identifying areas where it can still do better and specifying processes to do so. This is a real commitment by government to protecting and extending integrity.

Suzanne Snively
Transparency International New Zealand Inc.

Message from the CEO

Janine McGruddy

Janine McGruddy
TINZ Chief Executive Officer

October has been another action filled month for TINZ. I have just returned from a week in Australia as part of the UNESCO Study Tour on Educational Data Transparency. Next month’s newsletter will include an article on that adventure.

Local Government has been a focus for TINZ this month. With the elections now over, we have a bunch of freshly elected Mayors to meet and support on issues of transparency, integrity systems and the benefits these can bring to their roles as community leaders. TINZ's partnership with Local Government New Zealand (LGNZ) is also discussed in this issue. As less than 40 per cent of eligible voters took part in this year’s local government elections, it is surely time we took a closer look at what is happening with democracy in New Zealand.

Interesting theories about low voter turnout for local government elections include

  • New Zealand Initiative research fellow Jason Krupp claims that Government has taken on council business and oversight of local government to such an extent that no one sees the point of voting anymore
  • Blaming unelected officials for dominating local government and putting voters off
  • Poor media coverage, focussed on mayoral candidates only, with limited coverage of the final results.

In 2017, the election year for central government, it may be timely to have the conversation about devolving power from central to local government once local government bodies have ensured that their integrity systems and transparency is world class. New Zealand is an outlier in terms of heavily centralised governance in the OECD.

In partnership with the Office of the Auditor General (OAG), TINZ has been facilitating discussions about topics of transparency, integrity and accountability. The latest discussion about reconciling security and privacy is the subject of a blog post from the OAG's Ann Webster: The trust paradox.

Close to my heart is protecting the ability for professional public servants to be able to “speak truth to power” and provide apolitical, free and frank advice without fear or favour to the government of the day. Under the heading Govt wants 'free and frank advice': PM Mr Key emphasises that Cabinet Ministers may not always like the advice they receive, but they must listen to it carefully, respectfully and professionally. In return the government wants its “free and frank advice” from public servants in written form, and expects officials to be politically aware, but not politically active. This is a very encouraging shift in thinking and in light of that we are re-publishing below an excerpt of the speech that Andrew Kibblewhite, Chief Executive of the Department of the Prime Minister and Cabinet (DPMC) gave to the Institute of Policy Administration New Zealand (IPANZ) in August on “Mastering the art of free and frank advice”. The complete speech is available here.

Andrew cleverly references the “F” words in his speech as going beyond the free, frank and fearless without favour to include fallible, future focussed and full – to which I add fantastic! The speech also notes the increasing tendency for advice to Ministers to be of a verbal nature and not as a part of the written record. Pleasingly Mr. Kibblewhite also suggests that “the written record is (sic) more accurate, more considered, less likely to be misunderstood and ultimately serves ministers better in making their decisions.” And of course from our perspective it is a much more transparent way to conduct government business.

I am personally greatly encouraged to see such excellent leadership on this issue and hope that SSC can ensure that the CE’s of our Public Sector agencies show similar leadership on getting this message firmly into the hearts and minds of our public sector.

Ngâ mihi

Janine McGruddy
TINZ Chief Executive Officer
Transparency International New Zealand Inc.

South Auckland youth discuss Open Government Partnership

by Fuimaono Tuiasau

TINZ Director

South Auckland youth leaders want to be engaged on issues that affect youth voices, youth participation and representation in the region. This was the key message when Open Government Partnership was discussed at two recent gatherings of South Auckland youth leaders. The Southern Youth Collective made up of youth leaders from Papakura, Franklin, Manurewa, Papatoetoe, Otara and Howick were keenly interested to find out how the OGP processes can support their civic engagements and activities.

Fuimaono Tuiasau, Victoria Taupáau, Sheralee Patea, Star Matavau

On Saturday 24 September New Zealand OGP Expert Advisory Panellist Fuimaono Tuiasau asked the group to answer three critical questions about open government and youth.

  • What are the key issues that face youth in South Auckland?
  • Second, what can be done to address these issues?
  • Who can lead this change?

This section of New Zealand faces high levels of deprivation, poor housing, poor health outcomes, regular incidents of serious crime, high levels of community indebtedness, low academic ratings, high rates of unemployment with a rapidly growing population.

Youth leaders heard from Fuimaono Tuiasau about the principles of OGP and its aims toward building transparent and open government. He noted that government needs to be held accountable to it citizens, particularly youth. The grand challenge of the OGP partnership is for active citizen involvement in all aspects, to drive that accountability. Youth around the world are involved in developing OGP national action plans. These forums are a start for inclusion of young Aucklander's in this process.

Efeso Collins, Chair of the Otara Papatoetoe Board, talked about the importance of youth bravery through challenging the status quo and standing up for principles of fairness. Efeso talked about his experiences of being on the receiving end of prejudice and bias, and how he stood up to it, thereby forcing change.

Fuimaono Tuiasau, Thictyree Gasu, Alexandra Gasu, Ammon Pulu, Efeso Collins with Kaperiela, Luke Ripia, Tuitofa Aloua, Ana Viviani, Zachary Wong, Bryce Collins, Star Matavau  24 September at Otara Manukau meeting

Fuimaono Tuiasau, Thictyree Gasu, Alexandra Gasu, Ammon Pulu, Efeso Collins with Kaperiela, Luke Ripia, Tuitofa Aloua, Ana Viviani, Zachary Wong, Bryce Collins, and Star Matavau at Otara Manukau meeting on 24 September.

Many thought opportunities for regional youth engagements, youth representation and leadership, and youth campaigns on crucial issues, would be important to build youth trust towards, and knowledge of, government and society. The ideas will be included in the OGP national discussions toward national action plans. All South Auckland ideas would be included. The youth leaders were keen to be part of the ongoing dialogueue on OGP in New Zealand.

The youth leaders discussed a wide range of topics including the prevalence of youth suicide, its causes and the drastic impact on families and communities, negative stereotyping of youth (especially Maori and Pacific youth), inflexible traditional education and teaching methods of the current educational system. There was robust discussion on climate change and environmental issues, identity issues, youth leadership and representation.

The youth leaders were concerned that civics education was not actively taught or supported to help prepare them for civic responsibilities outside the school environment.

On Friday, 30 September 2016, the collective met again and workshopped the idea of “what the ideal south Auckland could look like in 5 years’ time?” Ideas ranged from actively engaged youth (individuals and groups) in decision making on issues that affected them e.g. health and social issues; teaching and building civics education in schools and in the community that increases youth awareness and participation with other communities and government.

Youth leaders would like to see better education about the functions of government, more opportunities for regional youth engagements, and an increase in youth representation and leadership positions to create trust by government and society by youth.

The youth leaders were keen to be part of the ongoing dialogueue on OGP in New Zealand and for any South Auckland ideas to be included. Their ideas will be considered as part of the consultation for New Zealand’s OGP National Action Plan.

South Auckland Youth Collective leaders with Fuimaono Tuiasau at 30 September meeting

TINZ promoting local government transparency

Local Government New Zealand Logo New Zealand Territorial Authorities

TINZ has been working in partnership with central and local government to define and implement the policies that enable New Zealand to work again towards being the world leader in public sector integrity, corruption prevention, trust and transparency.

TINZ and Local Government New Zealand (LGNZ) plan to adapt tools for local government that will enable it to prevent corruption and strengthen integrity systems. With these in place, cities can harvest the benefits of the resulting stronger New Zealand reputation in terms of greater growth, innovation, better jobs and a larger tax base.

During the TINZ Mayor’s events, it became clear that knowledge, transparency and good governance could be enhanced. Yet we were encouraged at the quickness with which the candidates grasped the benefits of making transparency and accountability a foundation of their leadership.

TINZ is inviting councils to demonstrate the importance they place on matters of integrity by subscribing to our local government programmememe. In return, they will receive findings for research into solutions that work for local governments, providing guidance and information that can be accessed in striving for more trust and better performance.

TINZ plans to adapt training across all levels, sectors and industries. This will strengthen the case for greater devolution, council involvement in a wider range of community development, and regional autonomy of funding.

Kay aspects are:

  • Educate officials, staff and suppliers about the characteristics of bribery and corruption and the benefits of transparency, integrity and accountability
  • Develop future proofed corruption prevention training
  • Improve transparency, accountability and integrity systems
  • Make the case for greater devolution of power back to local communities

A Case for Devolution

A common theme of local councils is their concern about lack of autonomy and interference from central government.

Local Government can promote greater transparency through fairer, more efficient and effective governance. Strengthening the role of democracy at a local level not only strengthens accountability, but makes running for local government more attractive, thus encouraging a wider range of candidates.

When local government earns the trust of their constituents, they can make a strong case for more autonomy and resources. Devolution of power back to local communities equals powerful local communities.

The TINZ Integrity Plus 2013: National Integrity Systems assessment (NIS) emphasised that a key weakness and significant barrier to greater transparency is the interface between central and local government. In particular, there is concern over intervention by central government in the decision-making authority of local government.

An absence of constitutional protection of the powers of local government in New Zealand is also stressed as a critical weakness. While, arguably, local government has a considerable degree of independence, there are no entrenched constitutional provisions to protect that independence.

According to the NIS, local government receives, on average, only 9 per cent of central government operating revenue. The report’s recommendations emphasis the need for a ‘more firmly embedded role for local government’. Greater devolution of power to local government is not of course the only means of improving transparency in government, but it is an option that merits public debate.

The LGNZ publication Mythbusters: examining common assumptions about local government in New Zealand agrees that Central government needs to give councils more autonomy.

Local government expenditures

On any scale of centralisation, New Zealand is an outlier and problematically out of step with international practice.

The more decision-making we place into the hands of communities themselves, and their local governments, the better policy outcomes are likely to be for that community. Social capital is strengthened by providing better opportunities for citizens to contribute to the governing of their towns, cities and districts. Let the discussion begin.

New Zealand’s latest film festival brings fraud to the big screen

Fraud Film Festival

New Zealand’s first International Fraud Film Festival

“Cinema is the most beautiful fraud in the world” Jean-Luc Godard

New Zealand’s latest film festival is designed to bring the issue of fraud, and other forms of financial crimes, alive through the medium of film. It opens on Friday to an invited audience. Saturday is open to the public to join in the debate after each film about how to counter fraud. Tickets are available now at the Fraud Film Festival website.

The inaugural New Zealand International Fraud Film Festival is being held on 18 & 19 November at Auckland’s Q Theatre and is timed to coincide with Fraud Awareness Week. New Zealand International Fraud Film Festival Inc. is an incorporated society dedicated to the organisation of the Fraud Film Festival. The festival is affiliated with the Dutch Fraud Film Festival which first took place in 2014.

Some well-known commentators are joining the live panel discussions about fraud and its prevention, with speakers such as Radio NZ’s Wallace Chapman and finance columnist Diana Clement.

Saturday afternoon’s “The Captain and the Bookmaker” is a documentary on South African cricket captain Hansie Cronje’s on-field fraud prompted by bookmakers, followed by a panel hosted by Hayley Holt.

Steve Newall, Festival Programme Director said “The Fraud Film Festival captures an insight into the motivations and consequences of individuals committing fraud. The festival covers many passions – sport, wine, cinema – and shows how these can be turned against us. I am looking forward to some fascinating conversations inspired by the movie content.”

To demonstrate the far-reaching impacts of fraud and the various guises it comes in, the festival is focussing on a variety of topics on the Saturday. These include dishonesty, tax fraud, investigative journalism and corruption in sports.

The Fraud Film Festival’s programme also includes “Tickled”, an investigation into the bizarre world of competitive tickling, “(Dis)honesty: the truth about lies” and the ultimate irony, “Chancers”, where film making is used to evade tax.

The festival also creates a stage on which to recognise the achievements of a kiwi individual or entity that has distinguished itself in the fight against fraud in New Zealand. Nominations for the Anti-Fraud Award are open now until 24 October. The winner will be presented with the award on the Friday evening of the festival.

For information on how to make a nomination, as well as the full festival programme and ticketing, go to

Get a preview now – Previews of four films can be seen now at

Partners include Deloitte, Meredith Connell, ACC, ASB, Financial Markets Authority, MBIE’s Consumer Protection team, Omega Investigations, Serious Fraud Office, Transparency International New Zealand (TINZ), Dave Clark Design and VISA New Zealand.

Source – Fraud Film Festival.

Anti money laundering news

International AML News – Hundreds of properties could be seized in UK corruption crackdown

In Britain a new criminal finances bill will include an ‘unexplained wealth order’ forcing suspects to disclose source of their assets. This bill is designed to close a loophole which has left the authorities powerless to seize property from overseas criminals unless the individuals are first convicted in their country of origin.

Hundreds of British properties suspected of belonging to corrupt politicians, tax evaders and criminals could be seized by enforcement agencies under tough new laws designed to tackle London’s reputation as a haven for dirty money.

Huge amounts of corrupt wealth is laundered through the capital’s banks. The National Crime Agency believes up to £100billion of tainted cash could be passing through the UK each year. Much of it ends up in real estate, and in other assets such as luxury cars, art and jewellery.

Digital Currency

TI Australia calls for digital and virtual currencies to be included in their AML regulations

Digital Currencies – a letter to the PM TI Australia joins with the Tax Justice Network in calling for the Prime Minister, Malcolm Turnbull, to make the inclusion of digital and virtual currencies under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 a priority.

Mastering the art of free and frank advice

Andrew Kibblewhite

Andrew Kibblewhite
Chief Executive of the Department of the Prime Minister and Cabinet

Below are excerpts from the speech to the Institute of Public Administration New Zealand (IPANZ) by Andrew Kibblewhite, Head of the Policy Profession on 17 August 2016.

“I want to offer a few general thoughts about why free and frank advice from officials is so important. A politician in the UK recently suggested people are tyred of listening to experts. Some commentators looking at events in recent months in the UK and the US have even suggested that we are entering a period of ‘post-fact’ politics.

As someone whose professional identity is grounded in the importance of facts, evidence and expertise, I find these trends worrying. I think deep, expert, apolitical advice matters more than ever for elected decision-makers in an increasingly messy, complex world…

Our responsibilities as advisors are more important than ever in an increasingly complex environment. The characteristics of good advice – and of good advisors – will be valuable now and in the future. My view is that we have great rules and infrastructure in place to make the partnership between ministers and officials work for the betterment of all New Zealanders.

But what counts is being able to put those rules into practice. Senior leaders have to set and reiterate clear expectations about what it means to be a great policy advisor, and to act as exemplars. Events like this one today are chances for you, the audience, to go back to your agencies to see if there are adequate guidelines and programmes in place in your agencies for people to learn, develop and gain experience in the art of providing free and frank advice. The Policy Project frameworks are a great foundation.

I’ll leave you with a final thought. I’ve described offering ministers free and frank advice as an important and challenging part of an advisors’ role. It’s also one of the most satisfying parts. In my experience, strong ministers welcome robust advice that points out the pitfalls as well as the opportunities in any course of action.

Moreover, they go back to officials who offer it, even when the conversations have been difficult. To be sought out for your advice will be one of the most valuable and satisfying experiences you can have in your public service career.”

Read Andrew Kibblewhite’s entyre speech Mastering the art of free and frank advice.

Wellington chocolate factory

by Brendon Wilson

TINZ Director

Writing for Employers and Manufacturers Association

BusinessPlus Magazine

Wellington Chocolate Factory

We often mention the benefits a company can look to if they make ethics and integrity their central policies. Here’s a small company we have seen recently who base themselves ethically to reap these returns….

A small company, The Wellington Chocolate Factory, has decided to place ethical operation and integrity at the centre of its strategy and operation, so that ethical outcomes, even those outside their own company, are their major differentiator to generate success in a highly competitive business sector.

Arriving at their buzzy central city laneway location, the air of friendly excitement and aromatic goodness hits you as you are offered tempting tastes to set up the experience.

Turning the traditional model on its head, The Wellington Chocolate Factory, co-founded by Gabe Davidson and Rochelle Harrison, expect their business to operate best by planning their company’s whole existence on doing ethical good for all in their supply chain, to maximise their shareholders’ value.

The Wellington Chocolate Factory was formed by Gabe and Rochelle in Dec 2013 following extensive experience in Melbourne while roasting coffee and owning cafes. Gabe saw then that a small ethically-focussed craft chocolate business could be satisfying and successful by setting new value benchmarks in a sector often marked by poor practices, including dubious sources and the use of child labour.

Gabe saw no reason why the then widespread boom in speciality coffee sourcing, roasting and cafe culture should not work equally well in chocolate. An industry sector dominated by large multi-nationals, up until recently, with the operating style and pressures expected of these companies. The global multinationals will often attempt to compete with a craft newcomer by adding a ‘premium chocolate product’ range to say ‘me too’. Interestingly Gabe doesn’t compete in these companies’ space. He believes he is creating a totally different culture and operation, and appealing to an entyrely different target market for its own values.

Gabe and business partner Rochelle decided to run their business by personally involving themselves in every step of the supply chain, from growing, picking, roasting, transporting, and then producing their chocolate products in New Zealand. They could personally vouch for the integrity of every stage of their business from the earth right through to the sale to the customer, and make this absolute integrity and personally-assured ethics their differentiator.More than that, they wanted to use their success to improve the lives and economies of people, communities and countries far more widely than just their own company’s success.Thus any formal certification audits to show sources, practices and standards, would always be a straightforward matter within their direct knowledge and documented operation, rather than trying to check, change and re-engineer their business to meet requirements.From this platform they can also build integrity practices and systems on a sound base as they progress, rather than having to retro-fit them.Their integrity and ethical business model embraces innovation and excitement in ways that traditional business methods simply cannot.

This philosophy took the Chocolate Factory through steps which they wanted to establish from the start:

  • They developed and treat staff as friends and collaborators, so openness, trust and commitment grow from communication, training and inclusion. Staff are fully involved in the business and part of the integrity process
  • Staff know their work has a widening impact for good at all stages of the chain, rather than just making or selling
  • ‘Vision’ is less important than clearly-stated ’principle’: ideas, solutions and success will follow
  • Create trust, confidence and assurance in your products and your company through decency and organisational justice
  • One Board member is their Ethics Officer, all staff are encouraged to take issues and concerns to the Ethics Officer at any time, and are guaranteed freedom from any negative reaction or repercussion
  • A 4-year plan targeting the values they decided on, rather than purely dollar results
  • Consumer packaging designed by artists who they bring into their ethical process, creating original artwork to differentiate and let their product tell their story to a growing client base
  • As well as improvement and opportunity for growth, they continually look for ways to audit and prove the integrity of their practices and sources

Gabe found it would be nearly impossible to improve practices by sourcing from the industry’s traditional cacao-sourcing countries which are driven by low-cost large-scale operations. Among other things they were unable to ensure child labour and other negative humanitarian practices were prevented.

Peru, The Dominican Republic and Bougainville offered the opportunity to personally build supply chains which were organically certified and ethical from a humanitarian perspective.

Once focus was put on the sourcing of cacao beans from farmers who could show guaranteed organic sustainable practices, emphasis was placed on ensuring there would be no weak links in the chain. For example, this meant helping farmers to secure their land tenure, financing their specialist cacao bean fermenting and drying equipment. Then securing transport arrangements to bring the beans to New Zealand with certainty, at controllable cost, and once again, through the most ethical means.

By definition, they have chosen to trade in some sensitive difficult parts of the world with serious risks of corruption and human rights violations. The Wellington Chocolate Factory have established integrity principles and won’t compromise them even in the smallest way. This way, the expectation and example is set and there is no chance of even a little slide towards more serious problems of corruption or ethical practice—everybody in the company and in the supply chain knows that any temptation to ‘just do what is expected’ must be declined and managed in a different way.

They are not frightened to do things which seem ‘off-the-page’ if it will have a positive influence. Their aim is improving the sector, even if it also improves opportunity for other companies. They believe that better lives and more ethical opportunity for communities and peoples through the whole sector will create a larger end-market of ethically-aware consumers who will appreciate and come to expect these standards, rewarding all players in the market able to show they are truly ethical.

The Wellington Chocolate Voyage is welcomed to Tinputz, in Bougainville, PNG

The amazing stories these aims have led to are already legendary, bringing fresh exciting opportunities on a wider canvas. For example, re-creating ancient trade routes with small traditional canoe craft across the Pacific, ensuring transportation between otherwise uneconomic and ignored supply locations, has been a once-in-a-lifetime adventure: ‘we sailed 10,000 miles on the Uto Ni Yalo, a traditional Pacific voyaging canoe, bringing cocoa beans from Bougainville back to New Zealand, a venture backed by 440 Kickstarters, so we can make our ‘Bougainville Bar’.

WCF have set themselves high standards to live by: they know they have to continually measure themselves, and all their supply chain and production processes, to ensure standards keep rising, and that they continue overcoming challenges through ethical integrity and innovation.

They have experienced a big growth curve as most new and successful small businesses do. They’re now growing just as fast but with more control, still keeping the excitement, innovation, improving lives, communities and industry through their ethical and integrity-based approach. This is now occurring in a broadened circle of exciting plans and affecting a far wider range of communities and countries in other continents. To support this growth, Gabe and Rochelle have worked closely with Motif Agency’s James Bushell to ensure their management team is well-sorted. Motif specialise in providing advice to ethical SME's. James now chairs the WCF board and has formalised many of the social and environmental goals WCF has set. He has built a framework for the business to provide a smoother risk-free transition from small to medium-sized business, including processes to fit them for further significant growth.

An exciting and fun way to do good and grow a business – the sky is the limit!

A man of integrity and courage

by Josephine Serrallach

TINZ Director

José Carlos Ugaz Sánchez-Moreno, Chair of Transparency International since 2014, is indeed a “man of integrity and courage”.

In an interview given for the International Journal of Transparency and Integrity, José Ugaz mentioned that when he served as Ad-Hoc Attorney of Peru for high profile criminal cases involving the investigation of Fujimori/Montesinos, he endured aggressive media campaigns of character assassination and attempts against his life. But these did not stop or silence him. He considered it his duty, to his country and his people to continue on with the struggle against corruption. He knew the risk to his personal safety and to that of his family, but he persisted in his efforts until he achieved justice. During his mandate, US$205 million was frozen abroad and US$150 million was recovered and returned to his country.

José Ugaz has an impressive and extensive professional curriculum vitae. Studying and working in several countries, including Peru, the Netherlands and Spain, has given him a global perspective and vision providing him with the perfect credentials for leading the international movement of Transparency International (TI).

It comes as no surprise that as Chair of TI, he has developed a strong focus on unmasking “grand corruption” and on the role that civil society should play in its prevention.

People in New Zealand may think that this does not concern us or apply to our country. But as revealed by the Panama Papers and numerous other examples, there is no escape or protection from corruption in a global economy. New Zealand is not immune and prior to the Shewan Inquiry, it was at risk of being perceived as a country shielding grand corruption.

Under current New Zealand law, there is no requirement for foreign trusts and shell companies to register their beneficial ownership in New Zealand. Until the recommendation of the Shewan Inquiry for registering foreign trusts are adopted, New Zealand is at risk for allowing anonymous perpetrators of grand corruption to launder illegally obtained funds or purchase New Zealand property.

As our focus is on prevention, TINZ has become active in advocating for a law change regarding the establishment of a register of beneficiaries (and settlers) for all trusts and all legal entities set up in New Zealand.

José Ugaz insists that “to produce sustainable change it is not enough to punish those responsible. It is necessary to prevent corruption and, for that, deep institutional and cultural reforms are needed.”

We are fortunate to live in a country where corruption is not systemic or “normalised”. There exists an element of complacency about it, however, which sometimes feels like a lack of “will” and a vacuum of leadership to act on prevention. In the words of José Ugaz, a man who showed by example what it takes and what it requires to fight corruption, there is a role for civic society to generate the necessary conditions towards change, for a better world, for a better future.

The perversity of rising wealth inequality in Godzone

by Ferdinand Balfoort

TINZ board member

Transparency Times regular contributor

Part I – Low interest rates, quantitative easing, and the perversity of rising wealth inequality.

Over the past month, TINZ focussed on preparing a professional submission in response to a Ministry of Justice Consultation paper on the Anti-Money Laundering and Countering Financing of Terrorism Act Phase 2 (AML). The object is to expand the New Zealand AML provisions to encompass a broader range of at-risk sectors of industry and require compliance from professional accountants, lawyers, and real estate professionals heretofore not included in AML regulations.

Of particular concern is the real estate sector. It has seen a remarkable rise in investments driving up housing prices to where New Zealand property in now the most unaffordable in the world, according to the IMF. Home purchase is now beyond the reach of the average working Kiwi.

While hard data on the use of corrupt money to purchase New Zealand property is elusive, it is clear that criminal proceeds are being used to invest in New Zealand property:

  • New Zealand police estimate that $1.6 billion of domestic crime proceeds are laundered annually
  • Property was involved in 56% of the cases where the New Zealand police have frozen assets.
  • In a recent court settlement documents allege William Yan concealed a $40 million fortune in New Zealand through complex money laundering transactions, where property and shares in companies were held by trusts and companies in other people's names.
  • In a shocking corruption case involving two senior Sabah Water Department members, the Malaysian Anti-Corruption Commission (MACC) just seized over RM114million worth of assets (NZ$38.4 million), traced RM30million stashed in foreign banks and another RM30million in land titles. Offshore funds and property were located in Singapore, Australia and New Zealand.

The extraordinary flow of funds into property investments is not limited to New Zealand. The United Kingdom, Canada and Australia are among other countries facing similar asset inflation. The younger generations in these and other countries are therefore far more restricted in their ability to get on the property ladder than their parents or grandparents.

Feeding this buying frenzy are historically and artificially low interest rates globally in the wake of the 2008 Global Financial Crisis. Credit is now available in unprecedented levels.

For example, the US Federal Reserve, and more recently the Bank of Japan and the European Central Bank, have implemented quantitative easing for periods of time.

Quantitative easing is unconventional monetary policy in which a central bank purchases government securities or other securities, from the market in order to lower interest rates and increase the money supply. It is a modern day equivalent to unrestrained printing of money.

Neo-Classical economic theory contends that credit made available is distributed to the population at large. The desired result is for easy credit to fuel economic growth driving production and job growth.

Contrary to classic economics, the credit created has not resulted in more consumption of goods and services. It has instead raised the prices of assets, including property and the expected contributions to growth are disappointing. Too much of this free money is being applied to the purchase of real estate driving the alarming wealth inequality we see globally and in New Zealand.

Real estate investments are favourable because:

  • The limited supply of real estate particularly in markets like London, Vancouver and Auckland
  • Security provided by controlling tangible property
  • The majority of credit is lent to low risk asset backed investments, including property, since the expansion of credit is via risk adverse financial institutions
  • Available real property lending allows lenders to avoid higher risk associated with new business or business growth – job creation – initiatives
  • The resulting feedback loop is fuelled by limited availability, asset appreciation and greed
  • The absence of capital gains tax for some property owning categories within New Zealand

While in theory low interest rates make it easier for anyone to purchase property the opposite is true.

Paradoxically, because banks have become more risk averse they prefer lending to borrowers with higher collateral, usually in the form of assets such as property. Property, as long as everyone believes in the market, continues to rise in value. It is only logical with low costs of capital, high expected returns on property investments, and relatively low levels of risk. (Property investments also make it easy under current law to protect investor anonymity, as the recent case in Malaysia confirms.) These are perfectly sound reasons to avoid investing in often messy and challenging start-ups, early stage companies and risky expansions. Those with assets experience asset inflation, while those without stay stranded.

An unfortunate outcome is the rising percentage of renters in New Zealand with no hope of owning their own home. Once known as Godzone where the ‘haves’ and ‘have-nots’ ate at the same table, in New Zealand the current housing crisis has shown that New Zealanders live noticeably different lives. The gap is yawning wider than ever.We will explain the links between Quantitative Easing, corruption and rising property prices in New Zealand in part II of the article.

An alternative lifeboat which Kiwis increasingly need to use. But is it watertight in the long run? – Courtesy New Zealand Herald, August 24, 2016.

About the author: Ferdinand C Balfoort (MCA,CA,CIA) is an international corporate governance expert with academic and professional expertise and interests in cross cultural impacts of corruption, economic history and the Scottish Enlightenment philosophers.

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TINZ engages New Zealand and New Zealanders in a broad range of issues related to building stronger integrity systems to mitigate the impact of bribery and corruption. TINZ Directors, Members with Delegated Authority and staff provide subject matter expertise in the topic areas of interest.