By Alex Tarrant
The government is committed to maintaining the ease at which people can set up a company in New Zealand, Commerce Minister Craig Foss says.
But it was also tightening criteria to send a warning to anyone setting out to abuse the registration process, such as overseas entities taking advantage of the system to run "questionable operations."
'Contentious' new rules requiring companies registered here to have a local agent were likely to be the subject of Select Committee discussions on a Bill tightening company regulations, Foss told media on Tuesday afternoon.
The Companies and Limited Partnerships Amendment Bill received its first reading in Parliament on Tuesday evening. It will be sent to the Commerce Select Committee for review in coming months.
The reading of the Bill follows revelations that foreign fraudsters used New Zealand-registered shell companies to launder money and trade weapons, causing New Zealand to be removed from a European Union whitelist providing guidance for EU banks and financial institutions about countries with EU equivalent money laundering and anti terrorist financing laws.
New Zealand's company registration system is rated the easiest in the world to set up a company, even if it is registered remotely and barely monitored by New Zealand authorities.
Part of tidy up
Foss, who took over responsibility for the Bill introduced last year by former Commerce Minister Simon Power, told media in Parliament Buildings on Tuesday afternoon the Bill was part of a tidy up of New Zealand's company law in tandem with anti money laundering legislation through the Justice portfolio.
Select Committee discussion was likely to focus on new requirements for company directors, Foss said. Whether any changes would be made was up to the Select Committee.
The Bill will introduce requirements for New Zealand-registered companies to have a registered director or agent living in New Zealand. That person would be legally responsible for an entity's administrative affairs and would have responsibility, along with other relevant people, if that entity failed to comply with its reporting and record-keeping obligations.
The Bill will also give the Companies Registrar enhanced investigative and removal powers, along with the power to warn the public about suspect entities via a note in the companies register. Read more in the Bill's explanatory note here.
“There might be some changes at Select Committee. There’s a fair bit of opinion around some of the broader details of the Bill," Foss said.
“There has been discussion around criteria for directors. That’s the big one," he said.
“That’s been the point of contention [in the media].”
Meanwhile, Foss said he had not received any more recent reports of New Zealand shell companies being used to carry out fraudulent activities overseas other than those in the media.
Most of the companies concerned in those reports had been struck off “quite some time ago,” he said.
“About 2,500 companies have actually been struck off since 2010, and there’s a risk profiling unit at the registrar now," Foss said.
“So things are in place, but this Bill, if passed pretty much as intended, should tighten up the rules and regulations and compliance for New Zealand-registered companies," he said.
New Zealand is ranked by the World Bank and International Finance Corporation as the easiest of 183 countries in which to start a business. Commerce Minister Craig Foss told interest.co.nz in April that, other than the changes currently mooted, the government's programme would not seek to make it harder to register a company in New Zealand.
Last year, Simon Power said the Reserve Bank believed about 1,000 shell companies incorporated in New Zealand over three years had been used to carry out banking activities free of regulatory oversight and "many" seemed to be undertaking fraudulent activities.
Power said 143 New Zealand-registered companies were implicated, over a four year period, in criminal activities overseas including smuggling, money laundering and tax fraud, with the New Zealand Police and the Customs Service receiving 134 enquiries about them.
One of the latest cases is that of First Capital Savings & Loan Ltd, which was accused of running a US$25 million Ponzi scheme in the United States. Its American CEO is now facing 15 years' jail time after pleading guilty to wire fraud and money laundering charges brought by the Acting US Attorney for the Northern District of Illinois.
See more in Gareth Vaughan's article, A New Zealand company's US Ponzi scheme features the 'USA Tomorrow' newspaper, presidential hopeful Ron Paul, Panama, three Peruvians and a Dutch bank account.
Prime Minister John Key yesterday told media trade-offs had been made by allowing New Zealand to be the easiest place in the world to set up a company. He said the changes being made were to preserve the country's reputation.
Free of red tape
After the Bill's first reading had been passed in Parliament on Tuesday night, Foss said the government was "committed to maintaining the ease at which people can set-up a company, while also sending a warning to anyone who sets out to abuse the registration process."
“New Zealand has one of the most red-tape free company registration systems in the world. However, we are aware that certain overseas-based companies take advantage our system to run questionable operations," Foss said.
“This Bill aims to strike a balance between deterring activities that threaten the integrity of our company registration system, and maintaining our reputation as one of the best places in the world to do business," he said.
“Tightening company registration requirements will further build on the government’s work in the areas of anti-money laundering and anti-terrorist funding."
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