Mouths dropped open across New Zealand when Minister Bayly announced in August that ongoing work to develop a register of beneficial ownership (BO register) of companies and limited partnerships would be put on hold. There was no clear intent at the time to restart that work, although recent government comments offer a glimmer of hope.
Why are people so shocked?
Simply put, opaque financial systems enable corrupt use of those financial systems. New Zealand’s financial systems are being exploited by criminals here and overseas. A BO register would vastly improve detection of misuse of our financial systems. So criminals here and overseas have most to gain from delay.
In a 2019 National Risk Assessment, Police estimated that $1.35 billion from the proceeds of fraud and illegal drugs is laundered through legitimate New Zealand business entities each year. The true and current amount is likely to be much higher. This sum does not include transnational laundering of overseas proceeds and laundering the proceeds of domestic tax offending.
The International Monetary Fund (IMF) estimates that approximately 2% - 5 % of global GDP (approximately USD 2 trillion) is proceeds of crime. So, where is it coming from, how is it being laundered, and does it matter?
The diagram tries to simplify the issue. New Zealand financial systems are being used by homegrown and external criminal networks to place cash, layer and disguise funds and then to integrate the illicit funds into the ‘legal’ financial system.
The system is facilitated by professional experts who often hold the key to a door in the financial system.
Beneficial Ownership refers to the individuals who ultimately own or control a company, even if their names do not appear on official documents.
The facilitators look for places where those who have ultimate control over the money can hide their identity from public scrutiny, through the use of shell companies, trusts, and multiple accounts often across jurisdictions or through purchasing of assets (real estate, high end goods).
Having a register, especially one that is publicly available, reduces the ability of wrongdoers to hide behind these arrangements.
A recent BusinessDesk article by Jem Traylen offered insight into the concerns expressed by the NZ Police and other agencies on the decision not to include a BO Register in Commerce Act reforms.
Concerns included fears that the changes proposed by government Ministers to progress one initiative whilst putting the register on hold might “give rise to even less beneficial ownership transparency than there is at present” and might negatively impact on the work done by agencies such as Customs and Police to do their work. The Police expressed “strong concerns”, as it considered the register to be a “critical piece of work” for tracking the beneficiaries of the proceeds of crime.
The value of having more transparency is also an important contributor to public trust and to democracy.
In late breaking news, Minister Bayly responded to a question I asked at the IIANZ Conference on 5th November 2024 about the government’s intention for a beneficial ownership register. He said that we could expect an announcement from Hon Nicole McKee, Minister of Justice with clearer direction on the Beneficial Ownership register, that the matter is ‘in hand’. This is hopeful, but the devil will be in the detail and in the delay.
