Foreign trust industry in decline
New Zealand’s foreign trust industry has stalled ahead of new regulations that are being introduced as a result of the Panama Papers revelations.
The Inland Revenue Department said the number of foreign trusts registered in New Zealand had fallen by 48 over the last nine months to total 11,597.
The drop, though small, is the first in 10 years and follows a massive boom, which saw the number of foreign trusts rise exponentially from 2350 in 2006 to a peak of 11,645 in April.
Law firms and accountants were believed to be earning about $40 million a year setting up and maintaining foreign trusts prior to the downturn.
Experts assume most trusts are above board. But the reputation of the industry has been tarnished by scandals that culminated last year in the hack of Panamanian law firm Mossack Fonseca and by concerns that a proportion of foreign trusts might be being used by foreigners to dodge tax in their home countries and to hide the proceeds of graft and other criminal activities.
New rules proposed as a result of the Shewan Inquiry are due to take effect this year and will require foreign trusts to file annual accounts with Inland Revenue and to disclose who has contributed and received money.
The law changes will make it easier for Inland Revenue to provide more information to domestic and foreign law enforcement agencies that are investigating tax dodges and money laundering.
However, the Government resisted calls from some transparency advocates for an open register of foreign trusts which would also have made it easier for the public and the media to investigate trusts’ activities.
Inquiry head John Shewan said last year that the previous rules controlling foreign trusts were not ‘‘fit for purpose’’ in preserving New Zealand’s reputation as a country that battled moneylaundering and aggressive tax practices.
Inland Revenue said 1158 new foreign trusts were registered in the year to December 31, down from a record of 1427 in 2015.
The overall reduction in the number of trusts could be explained by some being wound up for ‘‘various reasons’’, and Inland Revenue spokesman said.
Financial commentator Ron Pol said it wouldn’t necessarily make sense for foreigners who had used trusts for illegal purposes to deregister them.
They could instead leave them as empty shells, transfer their assets away and ‘‘airbrush the money-trails’’.