Wealthy investors could shun New Zealand or risk being kidnapped if they had to open up about their business interests here, critics of a Government proposal to show who really owns and controls Kiwi companies are warning.
Commerce Minister Kris Faafoi is consulting on creating a publicly-searchable register of the “beneficial” or true owners of Kiwi businesses after warning in June that New Zealand needed to strengthen its reputation as a place for honest business.
Police estimate $1.35 billion in proceeds from fraud and illegal drugs is laundered through corporate entities in New Zealand, while the “Panama Papers” showed how shell companies and trusts could be used to hide money trails from corruption and tax evasion.
The existing Companies Office register lists the directors and some information on the shareholders of private firms, but owners can hide behind some structures such as “limited partnerships”.
New Zealand’s Venture Capital Association said that officials’ favoured option of a publically-searchable database would “reduce the attraction of New Zealand” as an investment destination.
Auckland law and accounting firm Cone Marshall went further, suggesting the plan could put wealthy investors “at substantial risk of physical or emotional harm”, deter foreign investment, and persuade even Kiwis to “conduct their business elsewhere”.
“Whilst extreme, the risk of kidnappings should not be overlooked,” the company said in a submission to the Ministry of Business, Innovation and Employment (MBIE) that was released under the Official Information Act.
But there was broad acceptance from many other submitters that change was required, while some – including Transparency International – argued the proposals did not go far enough.
Canterbury University professor John Hopkins said in submission on behalf of the lobby group that the “Panama papers” had highlighted how criminals were misusing companies and trusts for money laundering, tax evasion and corruption.
New Zealand companies had been involved in the “largest corruption scandal seen in Kyrgyzstan” and shell companies here had been implicated in the Unaoil corruption scandal, which was exposed by Fairfax Media and the Huffington Post, he said.
Transparency International said the new proposed register should also cover trusts, as New Zealand would otherwise risk falling behind other countries making it “more attractive to international criminals”.
United States-based credit reporting agency Equifax also favoured a publicly-searchable register of companies’ beneficial ownership while warning that could “drive criminal activity towards other vehicles, particularly trusts” unless additional action was taken.
To be truly effective, the public register should contain more information than officials had proposed, including any previous names or aliases of businesses’ owners, their date of birth, and their current and two prior residential addresses, Equifax said.
Law firm Russell McVeagh said New Zealand was at risk of undermining its reputation for “trustworthiness and low rates of corruption” if it did not make a concerted effort to increase transparency.
ANZ Bank said New Zealand was a “desirable location for the laundering of the proceeds of crime” partly because of the ease of conducting business here and perceived low levels of corruption.
The bank nevertheless advised stopping short of a public register, while the Law Society maintained such a register was the most effective option.
The Venture Capital Association appeared to highlight the gulf in attitudes towards privacy and transparency by suggesting venture capital and private equity investors who invested through limited partnerships were currently effectively vetted by their peers.
“Industry participants have a good familiarity with each other and it is extremely unlikely that a substantial new investor could be introduced to the community without that investor having had a significant degree of formal, and informal, due diligence done upon it,” it said.