Police, SFO, Customs Service, MPI among those concerned beneficial ownership register is missing from government's Companies Act modernisation plans

Commerce and Consumer Affairs Minister Andrew Bayly's moves to modernise the 1993 Companies Act don't include plans to implement a central beneficial ownership register for companies and limited partnerships.

In a cabinet paper Bayly says the key policy objectives of a long touted but vexed beneficial ownership register are to fight crime such as money laundering, tax evasion and terrorism financing, and help meet New Zealand's international obligations overseen by the Financial Action Task Force (FATF). The FATF, of which NZ's a member, is an inter-governmental body that sets standards and is considered the global money laundering and terrorist financing watchdog.

Bayly says the register would add a small compliance burden to companies, and thus doesn't fit well with the package of measures to modernise the Companies Act. Furthermore he says its complexity would delay the finalisation and introduction of the other reforms.

Instead Bayly plans to work with ministerial colleagues with justice responsibilities to decide the best way forward for work towards a beneficial ownership register. Paul Goldsmith is Justice Minister, with David Seymour and Nicole McKee associate ministers.

"Ministry of Justice, New Zealand Police, Serious Fraud Office, New Zealand Customs Service, Ministry for Primary Industries, and the Public Service Commission expressed concerns about not including proposals for a beneficial ownership register as part of this package of reforms," Bayly's cabinet paper acknowledges.

"They consider a delay in implementation has implications for law enforcement in combatting corruption, money laundering, terrorist financing, fisheries and trade-related crimes, and tax evasion and for better tracking beneficiaries of the proceeds of crime."

"They also highlighted the risk it creates in respect of the upcoming Financial Action Task Force mutual evaluation [of NZ] in 2029 as the lack of a beneficial ownership register was identified as an area of deficiency for New Zealand [in the 2021 evaluation]," says Bayly.

Not collected

Information about the beneficial ownership of NZ companies isn't currently collected by the Ministry of Business, Innovation & Employment's Companies Office, although Companies Registrar Sanjai Raj can request it for law enforcement purposes. The Government has described beneficial owners as "the natural persons who ultimately own or, directly or indirectly, exercise effective control over a corporate entity."

Whilst NZ's cheap and simple company registration system is great for legitimate businesspeople, it has been exploited for nefarious purposes with ethically challenged and/or crooked entities dragging NZ's reputation through the mud in almost all corners of the world. Interest.co.nz has reported on many examples of this over the years.

Criminals can and do obscure the true ownership of a corporate entity using nominee directors and shareholders, a web of shell companies, intermediaries and complex business structures based in multiple jurisdictions. Such ownership structures can be used to enable investment scams, money laundering, terrorism financing, drugs or arms trafficking, tax evasion and to hide assets. 

Slow burner

Improving the transparency of the beneficial owners of NZ companies has been talked about in government circles since at least 2016. It emerged in 2017 that MBIE was considering the creation of a public central register of company beneficial ownership information following a commitment made at a London Anti-Corruption Summit in May 2016, which was attended by then-Police Minister Judith Collins.

In March 2022 Labour's then-Commerce and Consumer Affairs Minister David Clark said the Government would introduce a bill to Parliament changing the rules around beneficial owners of NZ companies and limited partnerships, but not trusts, in an attempt to make it easier to tell who the ultimate owner or controller is, and thus reduce misuse of these entities.

The bill didn't, however, see the light of day ahead of the 2023 election and Bayly told interest.co.nz in March improving disclosure on the beneficial owners of NZ companies and limited partnerships wasn't currently under active consideration.

Clark's 2022 announcement followed the FATF stepping up its expectations around beneficial ownership for member countries such as NZ. 

There's more on Bayly's Companies Act plans here.  

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