The decision of the Government to put a hold on progressing a Register of Beneficial Ownership for Companies and Limited Partnerships is alarming
It flies in the face of obligations New Zealand has made under the Financial Action Task Force (FATF) and other international conventions such as the OECD Convention against Foreign Bribery, United Nations Convention against Corruption and United Nations Convention against Transnational Organised Crime.
A register of beneficial ownership was a recommendation in the statutory review of our Money Laundering legislation (report July 2022) and a commitment under the National Action Plan 4 for the Open Government Partnership.
The decision to put a hold on the commitment became publicly known through the publication of Cabinet paper submitted by Hon Andrew Bayly and approved by Cabinet on modernising the Companies Act. In that paper Minister Bayly’s rationale for putting the Beneficial Ownership Register on hold is:
"While I propose that unique identifiers for directors be progressed as part of this package of reforms, I do not propose to progress the beneficial ownership register in the package. The key policy objectives of the beneficial ownership register are to fight crime (e.g. money laundering, tax evasion and terrorism financing) and help meet our international obligations under the Financial Action Task Force. The register would also add a compliance burden to companies (albeit a small one). As such, it does not fit well with the overall scheme of the package. In addition, its complexity would delay the finalisation and introduction of the other reforms. I will work with my Ministerial colleagues in the Justice sector to determine the best way forward for this work."
Notably the Cabinet paper makes no reference to inclusion of Trusts in a public register. This was also a recommendation made by FATF in its 2021 assessment about how well New Zealand’s financial regulatory systems manage to counter money laundering and the hiding of illicit funds.
Government agencies expressed concern about the proposal in their advice on the Cabinet paper.
Whilst agencies are generally supportive of the introduction of a unique identifier, the Ministry of Justice, New Zealand Police, Serious Fraud Office, New Zealand Customs Service, Ministry for Primary Industries, and the Public Service Commission expressed concerns about not including proposals for a beneficial ownership register as part of this package of reforms.
They consider a delay in implementation has implications for law enforcement in combating corruption, money laundering, terrorist financing, fisheries and trade-related crimes, and tax evasion and for better tracking beneficiaries of the proceeds of crime. They also highlighted the risk it creates in respect of the upcoming Financial Action Task Force Mutual Evaluation in 2029 as the lack of a beneficial ownership register was identified as an area of deficiency for New Zealand.
The government’s focus on easing business compliance in New Zealand should not be at the expense of addressing integrity gaps. Government is ignoring the broader benefits of increasing transparency in business and trust ownership - fewer means for people to avoid tax, and fewer vehicles for wrongdoers to hide funds from crime or to manipulate legal structures to shift their ill-gotten funds into public financial systems.
New Zealand is a member of the Financial Action Task Force (FATF), the global money laundering and terrorism financing watchdog. The inter-governmental body has produced a set of binding standards that countries are expected to apply when establishing their AML/CFT regimes, known as the FATF Recommendations.
New Zealand underwent a comprehensive assessment between 2020-21 by the FATF, known as a Mutual Evaluation. This assessed the extent of compliance with the Recommendations as well as the extent to which the regime is effective. The FATF found that New Zealand’s efforts to combat money laundering and terrorist financing are delivering good results, but that
“substantial gaps remain in relation to ensuring the availability of adequate, accurate and current beneficial ownership information, and in relation to nominee directors and shareholders.”
A priority action for New Zealand from the FATF 2021 review was for New Zealand to “Improve the availability of accurate and up-to-date beneficial ownership information on legal persons, particularly limited liability companies and partnerships, and domestic trusts, and take steps to mitigate the ML/TF risks of nominee shareholders and directors”.
The regulatory and operational work on a Register of Beneficial Ownership for Companies and Limited Partnerships was well underway. We urge relevant Ministers to review their decision.
