New Zealand: a Great Place to do Business?and Scams ? naked ...

By Richard Smith

The little story NC carried a couple of months ago about New Zealand scam companies has come out from behind the paywall, courtesy of the NZ Herald (hat tip: John G.), and with the help of some nice follow up from Niko Kloeten of New Zealand?s National Business Review. We hinted at the time that the problem?s large and nasty, and the NZ Government admits this in a cabinet paper:

A New Zealand registered company with its effective base in Panama recently committed a significant tax fraud in the United Kingdom. This sort of fraud affecting our OECD partners impacts negatively on New Zealand?s international reputation.

IRD is concerned that New Zealand will receive a poor report in an OECD forum later this year because it is unable to provide information which many other countries would be able to supply about such companies.

There seem to be rather a lot of banks, for instance (one ?offshore financial institution? for every 5,000 New Zealanders):

Power also says that the Reserve Bank believes about 1,000 shell companies incorporated in New Zealand over the past three years have been used to carry out banking activities free of regulatory oversight and ?many? seem to be undertaking fraudulent activities.

The Reserve Bank has received frequent complaints and enquiries about ?offshore financial institutions? incorporated in New Zealand but with no other connection to the country.

?It estimates that there are at least 1,000 such companies on the register, of which a number are suspected of carrying out fraudulent activities.?

Naturally, there?s now a bit of ministerial headscratching about possible solutions. This seems to be the nub of it:

Power puts forward four major changes. These are; Requiring companies to appoint at least one director or an agent who is ordinarily resident in New Zealand; Requiring directors to supply date and place of birth information; Requiring all companies to apply for an IRD number as part of their registration application process; and Bolstering the ability of Registrar of Companies Neville Harris to investigate, respond to or remedy issues arising in regard to ?the bona fides? of directors and shareholders and any integrity or compliance issues relating to company registration.

So, will that work? It?s a mixed bag.

Requiring a resident director: a prior NC post pointed to existing dubious New Zealand finance companies that have local directors. The post also sketched out how easily they can be recruited by faceless overseas types. As far as I can see this requirement just makes it compulsory for dubious overseas types to do something they were doing already.

Requiring directors to supply date and place of birth information: would be fine, if there was a way of checking that it?s not made up! For foreign directors, that?s quite an overhead, at least, and most likely, impossible. Readers may remember an NC post that mentioned the will-of-the-wisp Rod Alvar, a company director in NZ and Panama and Sweden, each time with different addresses. Making up a date and place of birth for the likes of our Rod is just a few extra keystrokes. This requirement won?t make much difference for overseas directors.

Requiring an IRD number from companies: the IRD number is a unique number issued by NZ?s Inland Revenue. The company application form for an IRD forces disclosure of shareholders. This could be a really good idea (and trust the IR to come up with an idea that has some teeth). But there?s still a ?but? ? are the shareholders individual people, or nominees? Nominees could still be pretty much anyone anywhere.

Another worry with this measure must be that it might be too fierce to make it into the final legislation. Disclosure of shareholders certainly doesn?t sit well with John Key?s vision of NZ as a prosperous tax haven. Those tax-avoiding types strongly resemble gangsters, moneylaunderers and fraudsters in at least one respect: they love their anonymity. Lastly, if this disclosure requirement is in place, the info has to flow from the IRD to the Companies Register. That might take a spot of budget.

So out of three measures we appear to have one with a half-chance of having an effect.

That just leaves the Company Registrar. Let us hope that he gets some useful new powers (and some assistants), because it looks like it will be more whack-a-mole for the Registrar!

Source: http://www.nakedcapitalism.com/2011/09/new-zealand-a-great-place-to-do-business-and-scams.html

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