Nine years after the Law Commission rejected the idea, the Ministry of Justice recommends reconsidering a beneficial ownership register for trusts

The possibility of introducing a register of beneficial ownership for trusts should be reexamined because the landscape has shifted significantly since the Law Commission rejected the idea in 2013, the Ministry of Justice says.

The Ministry of Justice makes this suggesting in its report on the review of the Anti-Money Laundering and Countering Financing of Terrorism Act (AML/CFT Act) tabled in Parliament by Justice Minister Kiri Allan on Monday.

The Ministry notes a beneficial ownership register for trusts was considered and rejected by the Law Commission in 2013 during a review of the Law of Trusts.

In March Commerce and Consumer Affairs Minister David Clark said the Government planned to introduce a bill to Parliament later in 2022 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 Law Commission’s primary concern was that a register of trusts would significantly alter the nature of trusts by giving them a publicly registered status. This would be a departure from the current treatment of trusts as essentially private arrangements between citizens. The Law Commission also queried whether the 'problems' with trusts were truly problems or whether the privacy and confidentiality of a trust are fundamental for how a trust operates. The Law Commission also noted that the costs of registration would be significant and would ultimately not be the best approach to improving accountability of trustees to beneficiaries," the Ministry says.

"While the Law Commission’s reasoning and concerns are understandable, the landscape has significantly shifted since 2013 which justifies this topic being examined again."

The Ministry specifically points to the Panama, Paradise, and Pandora Papers stories published by the International Consortium of Investigative Journalists in 2016, 2017, and 2021 with trusts registered in or associated with New Zealand that were involved in illicit financial activity featuring.

It goes on to say that following the Shewan Report in 2016 in the wake of the Panama Papers, Inland Revenue developed and implemented a register of foreign trusts resulting in a 75% decline in the number of New Zealand foreign trusts to 3,000 in 2020 from 12,000. Additionally Inland Revenue has increased its collection of tax information from the trusts that generate a taxable income, and now requires trustees to disclose significantly more detail about the parties to the trust on an annual basis.

Meanwhile last year the Financial Action Task Force (FATF), a Paris-based inter-governmental body that sets international standards and is considered the global money laundering and terrorist financing watchdog,  found NZ to be only moderately effective at ensuring the transparency of legal persons and legal arrangements, recommending proactive steps to improve the transparency of express trusts, including considering a register of trusts.

FATF noted how common trusts are in NZ with up to 500,000 in existence, being used for a range of purposes including as holding vehicles for assets such as the family home. 

The Ministry notes implementing a register for trusts would likely involve amendments being made to the Trusts Act 2019 rather than amendments to the AML/CFT Act.

In the report the Ministry says beneficial ownership registers offer significant potential benefit to businesses to assist in meeting AML/CFT obligations.

"These could significantly increase the efficiency of customer due diligence processes, providing reliable and independent information that can be leveraged by reporting entities and reduce duplication," the report says.

"For trusts and legal arrangements, a register would also improve the ability for agencies to understand and assess the risks of trusts, compliment recent policy changes made by Inland Revenue and align with the Ministry of Business, Innovation & Employment’s [MBIE's] ongoing work regarding companies and limited partnerships. We consider that a register is not incompatible with the private and confidential nature of trusts. A register would not need to make public all the information about the trust or may not need to be publicly accessible at all, to achieve the identified benefits."

The report also proposes creating a new offence for "knowingly or recklessly structuring a legal person or legal arrangement to avoid or obstruct inquiries into the beneficial ownership of the legal person or arrangement."

It also says the definition of beneficial owner in the AML/CFT Act should be reviewed and amended, plus coordinated with MBIE and aligned with the definition to be used for the beneficial ownership register for legal persons. The report recommends reviewing the potential use of the beneficial ownership register to meet AML/CFT requirements. 

Allan is expected to announce further details about public consultation on the report's recommendations by mid-2023.

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