Venture capitalists fret over transparency plan
Wealthy investors could risk being kidnapped if they were made 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 per year, while the ‘‘Panama Papers’’ showed how shell companies and trusts could be used to hide money trails from corruption and tax evasion.
The Companies Office register lists the directors and some information about the shareholders of private firms, but owners can hide behind some structures such as ‘‘limited partnerships’’.
The New Zealand Private Equity and Venture Capital Association said officials’ favoured option of a publicly 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 even persuade Kiwis to ‘‘conduct their business elsewhere’’.
‘‘Whilst extreme, the risk of kidnappings should not be overlooked,’’ the firm said in a submission to the Ministry of Business, Innovation and Employment 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.
University of Canterbury 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 firms 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 HuffPost, 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, but warned 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 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 the 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.