The entities peddling unregulated NZ offshore finance companies to the world tout their benefits and recommend their favourite banks

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By Gareth Vaughan

Always wanted to have your very own "bank" but not sure how to get one?

Well, one could be yours, so long as you don't actually call it a bank, for around NZ$23,000 within about three weeks. That's if you use the services of Atrium Incorporation Services LLC, apparently based in the renowned tax haven and US state, Delaware.

But Atrium certainly doesn't have the market cornered.

Interest.co.nz has come across a range of organisations in cyberspace that are ready, willing and able, to set up New Zealand registered companies  - for a fee - to serve overseas masters as finance companies and financial services providers.

These entities, which may be the tip of a large iceberg, include Atrium, Zealand Financial Group LP, Freedom Offshore, OffshoreBankers, Offshore Legal Associates, Sovereign Management & Legal Ltd, and Slogold Group. Their existence highlights some of what the government is up against as it tries to crack down on abuse of New Zealand's "red tape free" company registration system and the subsequent damage this is doing to the country's reputation.

Among other things these entities tout NZ as a "premier jurisdiction" for the establishment of a new bank (even though you won't actually be able to call it a bank). They also point to NZ's uniqueness given an international banking entity can be established without capital requirements, qualification requirements or excessive supervisory requirements. They argue NZ offshore finance services companies are "much superior" to both Panamanian financial services companies and Swedish credit unions, and offer the option of registering as a NZ financial service provider (FSP) or simply acquiring an existing one "off the shelf."

Plenty of customers

There have certainly been plenty of takers. Then-Commerce Minister Simon Power said last year the Reserve Bank believed about 1,000 shell companies incorporated in NZ over three years had been used to carry out banking activities free of regulatory oversight and "many" seemed to be undertaking fraudulent activities. Furthermore, Power said 143 NZ registered companies were implicated, over a four year period, in criminal activities overseas such as smuggling, money laundering and tax fraud with NZ Police and the Customs Service receiving 134 enquiries about them.

Following Power's revelations a Reserve Bank spokeswoman told interest.co.nz the central bank had prevented "many" frauds occurring overseas through the financial activities of NZ registered companies and, with Companies Office assistance, had got a "significant" number of companies expunged from the Companies Register.

Against this backdrop, the American owner of a now struck off NZ registered firm, First Capital Savings & Loan Limited, last month pleaded guilty to using the company to run a US$25 million Ponzi scheme from Panama.

Among the more bizarre NZ registered financial entities still up and running is the General Equity Building Society. With Australian and Hong Kong links, it has claimed part ownership of potentially lucrative algae to hydrocarbon intellectual property, and to hold almost US$5.5 billion of equity through unnamed mines, gold, silver and granite ore.

Solution to the US Patriot Act? Why, New Zealand of course

Atrium says NZ is a "premier jurisdiction" for the establishment of a new bank. Atrium says due to changes in most jurisdictions bank licenses are very difficult to obtain. And even if you manage to get one, problems arise due to regulations such as the US Patriot Act, which sets out that any licensed bank must have an actual physical presence in the country of licensing, with full time staff and day to day management.

The solution, says Atrium, is to register a NZ licensed company as a Financial Service Provider (FSP).

"One refreshing exception is New Zealand, a highly respected jurisdiction with a modern legal framework and rated the most business friendly nation in the world by the World Bank in 2005," says Atrium.

"Banking services can be offered in and from New Zealand by different types of entities, including but not limited to Registered Banks, Finance Companies, Credit Unions and Building Societies. We focus on the New Zealand Finance Company (Financial Services Provider) which is not subject to supervision by the Reserve Bank of New Zealand and yet entitled to offer banking services to its individual and corporate customers worldwide."

"New Zealand is a premier jurisdiction for the establishment of a new bank."

On its website the Reserve Bank warns caution should be exercised by anyone considering doing any form of business with entities promoting themselves as "New Zealand offshore finance companies", or using similar descriptions, and that offer financial services either on-line or from locations outside of New Zealand.

"No such category of entity is recognised under New Zealand law. The entities involved are usually just registered in New Zealand as companies or limited partnerships, and they have no special status. These entities are not licensed or supervised as financial service providers by any New Zealand authority. They are required to register a New Zealand address, but this is usually that of a compliance agent, with the entities having no real physical presence in New Zealand. These entities are often directed or owned by persons who are not resident in New Zealand. Details about the directors and ownership of these entities can be obtained by searching the on-line database of the New Zealand Companies Office."

NZ unique as 'an international banking entity can be established without capital requirements'

Atrium goes on to say that although there are several laws regulating financial services businesses, NZ is "unique in the sense that an international banking entity can be established without capital requirements, qualification requirements or excessive supervisory requirements."

Furthermore, it points out that if banking services aren't offered to the public within NZ, the requirements of prospectus, supervisory trustee and investment statements as set out in Part II of Securities Act 1978, don't apply. Atrium adds that FSP's offering services to nonresidents operate outside the Non-Bank Deposit Taker regulations. (Pictured right Panama City, a key setting for NZ offshore finance companies. More detail on this below).

"There are very few limitations on who can own a New Zealand Finance Company, below are requirements: (a) No Capital Reserve Requirements - Most banks will have to have 1 to 30 million dollars in reserves prior to being issued a license. The NZFC does not require this. (b) Director and Shareholders - Any residency is accepted and individuals can be of any nationality. Foreign corporations can also be a shareholder in your NZFC. (c) Minimum Shareholders - At least one shareholder is required."

Atrium's complete FSP incorporation package, including certified company documents, company seal, registered office and resident agent, address for service and address for communication, physical business address, all relevant government filings, and registration as FSP, annual maintenance fees, filing annual returns and corporate tax forms with NZ Registrar and Inland Revenue, second set of statutory documents for bank account opening purposes, introduction to Debit/Credit Card issuer, introduction to a banking software provider, and DHL delivery of documents, can be yours for less than €15,000 (about NZ$23,000),  apparently within three weeks.

'Readymade finance companies' & the banks Atrium recommends

Atrium also offers "New Zealand Readymade Finance Companies duly registered and licensed available for immediate delivery." 

On top of this Atrium can incorporate NZ foreign trusts with the formation of a trust including the preparation and execution of a standard Trust Deed costing €2,400. There are other fees, including annual service fees, and Atrium also offers a "full serviced" virtual office in NZ. This includes an exclusive Auckland telephone number for €750 a year, and a €300 fee to cover call diverting costs to your number outside NZ.

"Callers will dial - and pay for - a local Auckland number and you can answer the incoming call anywhere in the world," says Atrium.

Atrium's website gives details for its registered office in Wilmington, Delaware, London and Madrid, plus NZ "offices". The local address is at office 2942 24B Moorefield Road, Johnsonville, Wellington. According to Finda, this is merely a virtual office and PO Boxes. When interest.co.nz called, the listed NZ phone number rang and rang, eventually giving a short message in Spanish and hanging up.

Meanwhile, Atrium also lists banks it recommends to potential clients including ANZ, "Kiwi, New Zealand,", the National Bank, Rabobank New Zealand, and Westpac New Zealand.

A man from Panama

Another promoting the wonders of the NZ offshore finance company is Zealand Financial Group LP, which was registered on the New Zealand financial services providers register but has now been deregistered. Its website attempts to block access from within NZ. Calls to what's described as the company's Auckland office, apparently a serviced office located on level 31 of Auckland's Vero Centre, were answered by a woman with an American sounding accent (who had to put our calls on hold to answer other calls) who said the firm also has an office in Panama (the website also cites an office in the British Virgin Islands) and can establish offshore NZ finance companies.

Asked whether a meeting could be set up with someone in NZ about establishing a finance company, we were told a man named Magnusson from Panama should be able to visit. Magnusson - Carl Michael Magnusson - may not, however, be able to visit New Zealand anytime soon as promised. He has been arrested in Panama on money laundering charges. See full story here.

Zealand says it offers "a complete range of services for the formation and registration of a legally compliant FSP in NZ, with such firms able to engage in banking activities such as taking deposits, and keeping, investing and managing money, securities and investment portfolios on behalf of third parties.

Zealand, which uses a kiwi in its website logo and says its parent is an entity called Overseas Clearing Corporation, boasts that it can offer new company formations with the name of your choice as well as entities “off the shelf” for immediate delivery.

"We have Companies which have already been registered as members of a Dispute Resolution Scheme (DRS) and thus authorized to offer services to retail customers as well as Companies registered as FSPs but not members of a DRS. The latter should be used for offering services to Corporate clients, qualified/sophisticated investors, related Companies etc."

NZ office needed to meet 'ever increasing demand'

A press release on Overseas Clearing Corporation's website dating from October 27, 2010 entitled 'OCC Panama opens New Zealand Subsidiary Office' says Zealand Financial Group will serve clients in 30 countries from its new Auckland office, being opened to help meet "the ever increasing demand" for NZ-based financial services company registrations and related support services.

“Our New Zealand office will not only improve our efficiency when registering Financial Service Providers in New Zealand on behalf of our international clients, but it will also allow us to offer Company Management services and a wider range of administrative support services from within New Zealand”  the press release quotes Magnusson, CEO of Overseas Clearing Corporation, as saying.

The website lists Overseas Clearing Corporation's bankers as HSBC, which has recently set aside US$700 million to cover fines and other costs after a US Senate report criticised it for letting clients shift funds from dangerous and secretive countries, and its auditor as Nexia International.

Meanwhile, another entity offering to establish NZ offshore finance companies calls itself Freedom Offshore, saying of NZ offshore finance companies; "Form alternative banks at a discount price!"Freedom Offshore doesn't offer any specific pricing details. It suggests to clients they won't be scrutinized by the NZ government so long as they don't admit any New Zealanders as clients of offshore financial services companies and don't have a NZ bank account for "alternative" banking channels.

NZ offshore finance company, with 'all the powers of an offshore bank,' is 'better than the Panama financial services company or the Swedish credit union'

Freedom Offshore says it can provide "the knowledge and tools to legally avoid all taxes" because everything financial will be done outside of NZ and through alternative banking.

"And like most countries, NZ does not levy taxes on worldwide income. So we assure that the buyers of our New Zealand Offshore Finance Company get the most monetary freedom possible," says Freedom Offshore.

"You may want to use a Foundation or a Panama Transaction Processing Company to operate the non-New Zealand offshore accounts. These do the banking functions under license from the Panama government and on behalf of the New Zealand offshore financial services company (NZOFSC)."

"If you have come across other structures such as the Panama financial services company or the Swedish credit union, you need to realize that the New Zealand offshore finance services company is much superior to both the Panamanian FSC and superior to the Swedish CU. While the Panamanian FSC is usable for exchangers and for those creating an ecurrency, it does not have anywhere near the power of the NZOFSC because the NZOFSC has all the powers of an offshore bank, whereas the PFSC is a lot more limited."

"With the NZOFSC you can take deposits from the public and make loans, just like a bank does. While the Swedish Credit Union also allows this it is limited to only 1000 customers. But the New Zealand Offshore Financial Services company is unlimited in the amount of customers it can have. But if you want the PFSC or the SCU we can help you obtain one of those structures also very inexpensively. Again, if you are looking for one for your own alternative banking needs that is already set up, we can point you to the very best one," says Freedom Offshore.

Yet another entity, calling itself OffshoreBankers, says it has been designed as an "independent resource for you, the international offshore banker, so that we can share information within the industry about all things related to offshore banking." Its website provides information about NZ FSPs saying they can be used to offer financial services to clients of any nationality and resident anywhere in the world and points to Zealand Financial's website for how one can be used.

And another, Slogold Group, whose website lists US, UK and Panama phone numbers, touts NZ offshore finance companies alongside offshore Belize brokerage, forex and lending companies, and offshore Mauitius brokerage and forex.

NZ regulations mostly have 'little or no impact'

A further website, in the name of Offshore Legal Associates and featuring a Panama Law email address, includes detailed information about the merits of NZ FSPs, but carries the heading; "This is old and out of date information kept here only for archive purposes."

Yet another entity, Sovereign Management & Legal Ltd, says it provides legal and other services through its Panama lawyer associates and outlets in other jurisdictions like Belize and Hong Kong. Sovereign also touts the benefits of the NZ offshore finance company saying they can operate in a similar way to a fully licensed bank, even though the word “bank” can't be used in the name.

"Words like 'Savings and Loan', 'Depository' and even 'Bancorp' are all permissible," says Sovereign.

Only banks registered with the Reserve Bank are allowed to call themselves NZ banks. And even though numerous entities that have been registered with the Companies Office, now run by the new Ministry of Business, Innovation and Employment, have used "Bancorp" in their trading names, they're not allowed to under the Reserve Bank of New Zealand Act. The Reserve Bank issued a warning on the use of the "Bancorp" name earlier this year outing 13 entities doing this.

However, Sovereign says even though offshore finance companies' activities are regulated by several acts, users of them shouldn't be worried.

"The requirements are not onerous and in most cases have little or no impact and in fact should provide potential clients of a properly run OFC with a high degree of comfort, while at the same time the OFC being able to provide a high degree of confidentiality due the fact that the Reserve Bank does not act in any overseeing capacity."

The government's counter moves

To counter the abuse of NZ's simple and cheap company registration system, the government has introduced the Companies and Limited Partnerships Amendment Bill to Parliament. The Bill will require NZ companies to either have a NZ resident director or a resident agent and, the Government says, provide for "improved ability" to de-register companies and limited partnerships for overseas criminality.

Commerce Minister Craig Foss (pictured right) says the Bill aims to crack down on overseas-based people and entities abusing "one of the most red-tape free company registration systems in the world", without actually making it harder to register a company in NZ. This is because the government is committed to "maintaining the ease at which people can set-up a company." See more from Foss in Alex Tarrant's story here.

The World Bank and International Finance Corporation have ranked NZ the easiest of 183 countries in which to start a business. Other overseas controlled entities to trade off the back of NZ's good reputation - such as City Savings Bank - have highlighted Transparency International's Corruption Perceptions Index ranking NZ as least corrupt country in the world.

The Companies Office itself points out: "Starting a company online (incorporating) is as simple as reserving your company name (NZ$10.22), completing the incorporation application (NZ$153.33) and returning your signed consent forms."

Other steps the government's taking to try and improve the regulation of NZ trust and company services providers include the Anti-Money Laundering and Countering Financing of Terrorism Act, which is aimed at improving the collection of information on beneficial interests to assist with the investigation and prosecution of serious crimes, and is due for full implementation next June. In the meantime NZ has been dumped from a European Union white list providing guidance for EU banks and financial institutions about countries with EU equivalent money laundering and anti terrorist financing laws.

Michalis Rokas, the Charge d'Affaires for the EU delegation in Wellington, recently told Associated Press that there are "significant gaps in New Zealand legislation, especially concerning the registration and supervision of companies."

A broader government "programme of work", aimed at cracking down on the misuse of NZ’s companies register, includes the development of a risk assessment framework to identify risks on the Companies Register, enhanced monitoring of company registrations, and improvements to information sharing between the Companies Office and Inland Revenue Department to identify and risk assess inactive companies.

Time will tell whether the government succeeds or the offshore finance company peddlers find ways around and through the new regulations.