Bryce Edwards: Political Roundup – Bouquets and brickbats for the Government’s move against corruption

Bryce Edwards: Political Roundup – Bouquets and brickbats for the Government’s move against corruption

The Government has announced that it will legislate to force greater transparency around the ownership and control of private companies in New Zealand. This is a positive move that will help the fight against domestic corruption, money laundering, tax evasion, and the general use of New Zealand as a haven to hide the money of foreign oligarchs.

Commerce Minister David Clark announced yesterday that Cabinet has agreed to introduce legislation to establish a public register of the “beneficial ownership of companies”. This will require the accurate listing of who really owns and controls businesses here. And it will involve some strong compliance measures.

This is a real blow to wealthy vested interests attempting to keep any riches and ill-gotten gains secret from the public. Corporate New Zealand is being made to tidy up its act.

The fact that the current system has existed for so long should be a huge concern for those New Zealanders wanting to create a fairer society that is less influenced by the pernicious impact of oligarchs and the corrupt. For although New Zealand is often seen as the least corrupt and most transparent country in the world – and we regularly top the annual Transparency International Corruption Perception Index to reinforce this – current laws make it very easy for wealth and its owners to hide here.

The existing companies register simply isn’t much use, something the recent passage of the Russia Sanctions Act 2022 exposed to public view. In reality neither the government nor the public can easily locate the companies in which the oligarchs hide their riches here.

Some call this “legitimised secrecy”. According to the NGO Tax Justice Aotearoa, a “convoluted structure of companies and trusts” are established “so that minimal tax is paid and no-one knows who owns what or where.” Corruption and money laundering are naturally allowed to flourish in such secrecy.

Those against greater transparency cite the need for New Zealand to retain its world-leading “ease of doing business” here. They say compliance costs will also be too great on the corporates. The Government says it has come up with a scheme that balances the privacy and costs of business versus the right of the public to know and be protected from corruption. The complaints of vested business interests about this new law should give some certainty to the public that the right thing is being done. NZ Venture Capital Association protesting the new law is probably something the Labour Government will celebrate.

Reform has been a long time coming

The Government will introduce legislation later this year, but it’s already been a very long time coming. New Zealand has been signed up to the inter-governmental global money laundering alliance, the Financial Action Task Force, for decades, and increasing pressure has been applied on this country by that body for nearly a decade. Judith Collins first made some noises about implementing such a law in 2016 when she was Minister of Commerce. Then, with the change of government, Kris Faafoi got the ball rolling, but it seemed to get lost in consultation for years.

This week the Financial Action Task Force put public pressure back on countries like New Zealand, which may have led to the announcement yesterday. Oddly, David Clark says that Cabinet actually made the decision back in December but has kept it secret until now.

Loopholes in the new rules

Along with a bouquet, the Labour Government also needs to take a brickbat for giving an exemption to trusts. Although this long-contentious sector was recommended to be included, the Government suggests it would be too much hard work to extend the rules to trusts.

The International Financial Action Task Force will be disappointed, as they strongly advocated for trusts to be included. Similarly, Tax Justice Aotearoa (TJA) and Transparency International will have their excitement about the new initiative heavily tempered. One TJA spokesperson, Louise Delaney, commented that “trusts are cleverer than companies at hiding assets.”

Today’s editorial in Stuff newspapers also condemns this omission, pointing out that the Ministry of Business, Innovation and Employment “didn’t recommend that move, acknowledging that privacy and confidentiality have historically been recognised as an essential virtue of trusts. Many a rogue would concur.”

So why were trusts left out of the new legislation? Obviously, law firms have lobbied hard for the exemption. The compliance costs for them would be considerable, concerns about privacy for trust owners have been highlighted, and threats of lengthy legal challenges would have made the Government think twice about venturing into a fight with the legal firms.

However, there is some impact on trusts. David Clark has explained that the proposed changes would still capture cases where shares in companies are owned by trusts.

There is good cause to be sceptical about how much change this really represents, given the track record of previous efforts. The Herald’s Matt Nippert – a long-time investigator into this area – says: “Herald reporting last October on the Pandora Papers showed, despite past reforms, New Zealand trust and company structures were still being misused by wildly controversial figures – including Russian billionaires convicted of fraud, and a Moldovan oligarch facing sanctions in the United States.”

The public will soon get a chance to have its say on the proposed legislation. As often with such complex legislation there might well be fishhooks and unintended consequences from this type of regulation.

The consultation period will be a time for those interested in tax fairness, corruption, and transparency to support the reforms, but also to push the Government to strengthen them. Hopefully, there will be a particularly strong focus on the elephant in the room – the exemption being given to the hundreds of thousands of trusts. If such secretive vehicles are allowed to continue to be shielded from the sunlight of public inquiry, then confidence in the new system will be more than just a little dented.

Further reading on ending corporate secrecy

Matt Nippert (Herald): Corporate secrecy to end as government commits to public beneficial ownership register
Matt Nippert (Herald): Public ownership register ‘errs on side of transparency’ – Minister(paywalled)
RNZ: Legislation to force company owners to be publicly identified
John Anthony (Stuff): New legislation proposed to tackle criminal use of NZ companies
Gareth Vaughan (Interest): Govt eyes bill to tackle misuse of NZ companies by shedding more light on the controlling owners
Brent Melville (BusinessDesk): Govt moves to identify ‘who owns what’ (paywalled)
Bernard Hickey: Knowing your beneficial owner (paywalled)


Other items of interest and importance today

Victor Billot (Newsroom): Protest, 2022: a great variety of morbid symptoms
As the fallout from the Parliamentary Grounds protest rolls on, a “lifelong socialist” recounts his years of robust protest involvement, and gives a very thoughtful discussion on how we have ended up in such a politically unhealthy environment. He comments: “The self-defined left have dissolved into competing tribes of lunatics shouting at each other on Twitter, irrelevant to the majority.”

Alexander Gillespie and Claire Breen (The Conversation): The parliament occupation is over – now New Zealand needs new laws to protect the ‘epicentre of its democracy’
University of Waikato legal scholars look at the infamous Parliamentary Grounds occupation and discuss “How the government and parliament responds to what happened is important for both the future of legitimate protests and for the security of parliament itself.”

Martyn Bradbury (Daily Blog): Labour can not dodge an independent inquiry into how Mallard incited Parliament Lawn protest
Leftwing blogger Martyn Bradbury explains why the Labour Party want to block any proper investigation into the protest.

Bridie Witton (Stuff): Winding back restrictions too soon could cause second Omicron wave – epidemiologist
Experts warn the PM against liberalising Covid rules too much, too early.

Matthew Hooton (Patreon): Thought experiment on how not to be a d*ck at 11am(paywalled)
The Prime Minister’s “Beyond Omicron” speech is this morning, and Matthew Hooton ponders what the reaction to today’s Covid announcements would be if Christopher Luxon was revealing identical decisions. He suggests that partisan tribalists would be wise to think about how they would react if National was implementing the exact same liberalisation of Covid rules that Ardern is going to do.

Bridie Witton (Stuff): Mental health: New report shows significant challenges but not a mental health ‘crisis’, director general of health says
A new official report has been released with is scathing about the achievements of the Government’s mental health reforms. But the Director General of Health Ashley Bloomfield says there isn’t a mental health crisis.

Peter Dunne: $1.9 billion spend on mental health produces no results
Former Minister responsible for mental health Peter Dunne argues that for better “care in the community” delivery, the Government needs to move away from using “centralised agency like the Ministry of Health, or even district health boards”.

Ireland Hendry-Tennent (Newshub): Christopher Luxon defends National’s policies aimed at reducing rents despite not being able to say what impact they would have
The new National leader has done a good job of critiquing government policies that impact on the cost of living and the housing crisis. But can his party do any better?

Miriam Bell (Stuff): ‘I’m not paying that’: ANZ economists expect 10% house price drop
A leading bank previously forecast house prices to drop 7%, but they now say it will be an even greater drop.

Jenée Tibshraeny (Interest): Treasury puts $5 billion price tag on Reserve Bank’s QE programme
When the Reserve Bank first started printing more money during the Covid crisis, it Treasury expected it to be cost-neutral. Now they say it “estimates the net direct fiscal cost will come in at $5.1 billion.”

Thomas Manch (Stuff): Ministry of Defence ‘defers’ purchase of Southern Ocean patrol vessel due to Covid-19 pressures
The Government is reviewing its expensive military spending plans, which means the purchase of a new Navy ship, expected to cost between $300 million and $600m is now on hold.

Ian Llewellyn (BusinessDesk): Councillors’ conflicts face sunlight soon (paywalled)
A select committee has reported back on a proposed law bringing in a pecuniary interests register for local government politicians, and so it now looks like it will be brought into law next year, and will apply to those elected at the upcoming elections.

Steven Cowan: Māori unimpressed with the performance of their Māori politicians
A recent poll shows that Māori voters are losing faith in the Labour Party.