On the World Bank Ease of Doing Business Survey New Zealand finds itself in the number one position when it comes to company registration – within hours a company can be registered on-line and a tax number issued by IRD. It was that last feature that truly made our Companies Office the fastest register in the west.
The question is now being asked whether we want to hold on to that status in the face of an apparent loophole, (a loophole that knows no geographic boundaries I might add and which does not solely reside in New Zealand), which enables multiple layers of shelf companies to disguise the identity of the individuals who lie behind transactions that would otherwise be the subject of a high level of scrutiny from international intelligence and law enforcement agencies.
There is no question that this requires the attention of the government. In the paper I was indirectly quoted as saying that I thought our current company laws were lax. In fact I said they were relaxed, which in my view is appropriate. My husband had to apply for a new driver licence recently because he had lost his old one and he needed to front with two forms of ID – his passport and an official letter showing his address. We could not possibly want to require that degree of verification of every director of every company in New Zealand. That’s why I said we needed to apply balance in assessing what risks the current system posed and what the cost-benefit analysis would look like if we were thinking of changing it.
I also made the point that this must be an international issue, because New Zealand is not the only developed nation with a self-certification requirement for registering as directors.
Now that the world has responded to the threat of money laundering and the financing of terrorism through imposing reporting requirements on financial institutions, then perhaps it is time that the World Bank turns its attention to the company registration systems that may be the next target to hide such activities.
But there are other reasons why I think our government should place this on its agenda now. Having heard a number of submitters on the Commerce Committee’s Inquiry into Finance Company Failures I am convinced that there are sufficient issues around directors – including ‘celebrity directors’ offering reassurance to unsophisticated investors, directors with a troubled past not known to unsuspecting investors and examples of the use of the corporate veil to disguise related-party transactions – to warrant some strengthening of our laws.
At the same time I want us to hold on to that World Bank ranking – because it is important that we don’t impose unjustifiable compliance costs on those who know that limited liability is a privilege not a right and who use it to advance their interests in an ethical manner, because they make up the vast majority of NZ businesses and are the lifeblood of our nation’s economic interests.
I am definitely for a public register of all the directors, including past disciplinary/criminal problems. As an attorney, if I ever am punished for a disciplinary reason, that stays on my roll of attorneys record (online) for the whole world to see.
http://hats2.courts.state.in.us/rollatty/roa1_inp.jsp
Was trying to see if any mention of discipline appears on the NZ Law Society register of attorneys. Doesn’t seem to. That might be a good reform also.
If it is so fast for corporations to be registered that way, why not require all trusts to report the trustees and beneficiaries as well? That would be pretty groundbreaking.
We have precedents for protecting the public with lists.
To be honest, I wish Indiana’s professional corporation registration were a little easier. Looks like I am going to have to make a special trip back to Indiana this year to get an Indiana notary to witness my forms. Then it goes to the Supreme Court, and then to the Secretary of State.
Nice excuse to visit family while I am there, though, and having the business purpose makes the flight a tax deduction.
I work in jurisdictions of course that you would frown upon, yet in terms of due diligence and KYC ALL are superior to New Zealand.
That is if I receive an enquiry from a local authority or a court order served in the office as registered agent I have to by law turn in the beneficial owner (true end owner/controller of company), passport, address etc…
Failure to do so is an offence and our business goes down the toilet as we have our local license revoked.
All you have to do is license NZ comapny registered agents and beg and borrow to steal legislation from say the Cook Islands where due diligence must be collected by law on the beneficial owner, director and shareholders.
At the moment I don’t think it does. As witnessed in the case of the Korean bound arms airline stopped in Thailand.
Labour of course had 9 years to fix this and did nothing….but I digress.
“We could not possibly want to require that degree of verification of every director of every company in New Zealand.”
Why not?
@DavidW – Because to verify addresses would slow down the process dramatically and add compliance costs to every legitimate business operator setting up a company – it’s strange how people demand higher compliance requirements when something goes wrong.
@Cactus Kate – great post. I think you have come up with a solution that would not add compliance costs to the good businesses while fixing the real problem. It would require changing a registered office for overseas interests to become a registered agent as well. Can’t imagine that would be too difficult.
I was Minister of Commerce for about half the nine years you mentioned – I didn’t fix it, because I didn’t know it was a problem. Now that a problem has been raised – and it is not unique to New Zealand – I don’t want a knee-jerk response that will add unnecessary compliance costs on the good guys, just because the bad guys keep looking for loopholes! You just might have nailed it – well done!
The community benefits from knowing who is doing business in it. Only the bad guys benefit from the community not knowing.
Laws are there to protect the majority from the minority. Of course the laws shouldn’t be overly onerous but some costs of compliance isn’t going to break the bank while it will help stop the criminals.
Lianne
Well of course it adds compliance costs but you need to flush out operators that are less than salubrious in NZ. As I said, in offshore jurisdictions some of the behaviour I have seen in NZ wouldn’t fly.
Know your client – KYC is a full package of knowing the name, passport, address proof and perhaps even as far as a reference letter from bank/lawyer etc…of the director, shareholder and true beneficial owner. While laborious and costly to a firm (specific staff are usually required) it is common in pretty much EVERY offshore jurisdiction that you have to collect this information and retain it for purposes of handing to authorities under valid request.
For a consulting fee I can write a full paper on it for you if you wish. You have my email contact.
CK – I am afraid as an opposition MP I can’t afford your consulting fee. We have just passed KYC laws in New Zealand for financial institutions – but we don’t have it for company registration. In fact this issue has led me to look at what various consultants offer in terms of the NZ based registered office requirements and a quick internet shows that they accept no liability whatsoever. As I said before I think you have nailed it and I will be recommending that approach to the government. Thanks again.
Lianne – no you can’t afford it. Because you are paying it all to your Union mates to drink coffee and organise protests.
The new KYC laws dovetail into trust companies but only in my view when the companies are run by regulated people – ie. lawyers and accountants.
The issue is that every man and his dog can currently act as a registered office.
Big kiss to FIGJAM for me when you pass over the recommendation.
Sorry Lianne I have not had time to read it all … my apologies.
One point early in your post you stated that the passport and letter confirming place of residence was too strict. I must disagree. Having written off many thousands of dollars of bad debts in the last two years to people that just do not live where they say they live on the company documents I suggest we need to be more strict I.e. if you move house the company register must be changed immediately. By that I mean if you wish to use a company as a trading entity you have to provide valid address information.
NZ is lousy with no hoper developers that basically have endeavoured to create wealth at the expense of hard working New Zealanders that have extended credit to them on the strength of what turned out to be fabricated security. Enough is enough surely?, No matter which side of the political spectrum you come from.