Beneficial ownership register back in play for corporate entities

International body the Financial Action Task Force now requires all members - including New Zealand - to unmask corporate owners by establishing registers of beneficial ownership. Photo / 123RF

After a nearly decade-long delay, a beneficial ownership register that would pull back the corporate veil on who is really behind corporate entities in New Zealand, is back in play as multilateral bodies look to better-target sanctions and tighten anti-money laundering regulations.

The Financial Action Taskforce (FATF), a multilateral body tackling international financial crime, this week moved to "explicitly require" members to establish centrally held registers of beneficial ownership - effectively requiring companies and corporate service providers to both determine and report to government who they are truly working for.

New Zealand has been a member of FATF since 1991. This recommendation does not cover trusts, a long-contentious sector in New Zealand, with work at a FATF level on improving transparency in these entities still ongoing.

Adam Hunt, a board member of civil society lobby Transparency New Zealand, welcomed the development and said implementing such a register would be as significant a reform for the corporate sector as the requirements from 2015 for New Zealand companies to have a locally resident director, or post-Shewan Report demands for entities to register with Inland Revenue.

Transparency New Zealand board member Adam Hunt welcomed the requirement by FATF members - including New Zealand - to develop a beneficial ownership register. Photo / NZME

The move is also likely to reignite privacy and compliance costs debates that have dogged decades-long moves to tighten regulatory and reporting requirements in a bid to clamp down on money laundering.

Such a register could also assist government and civil society in grappling with the currently-pressing issue of sanctions.

A Weekend Herald investigation into possible sanctions targets over Russia's invasion of Ukraine analysed local company and property registers searching for links to more than 1200 individuals sanctioned over the long-running conflict by Australia's autonomous sanctions regime.

Zero current links were found - a few individuals connected with the Russian military were found to have long-lapsed New Zealand shell companies - but the lack of a beneficial ownership register limited this search as it was unable to look behind trust or nominee holding vehicles.

Auckland barrister Gary Hughes, chair of the International Bar Association's anti-money laundering and sanctions committee, said FATF recommendations - including the beneficial ownership register - were important for the local and global response to Russia's actions in Ukraine.

"It [FATF] is the closest thing we have to an international body that can lead and guide countries towards applying financial sanctions and beneficial ownership rules in a principled way," he said.

The re-emergence of a beneficial ownership register should be of no surprise to the corporate sector, with the idea having been fitfully worked on by government over most of the past decade.

It was first formally floated by then-Police Minister Judith Collins at a London anti-corruption conference in May 2016.

"The world has changed. And it has particularly changed around big money, around terrorism, around drug dealing, around major corruption, and it's the sort of area we always need to be looking at changing, and I think it [a beneficial ownership register] is something we should be looking at," Collins said at the time.

But it wasn't until more than two years - and a change of government - later that fresh Commerce Minister Kris Faafoi kicked policy work into gear by circulating a proposal and asking for public and industry feedback.

"We need to know who owns or effectively controls corporate entities. This is crucial to detecting and countering criminal activity. Ownership information is also important for other businesses, and can help assess the risk of doing business with it," Faafoi said at the time.

The 2018 MBIE discussion document said the failure to implement such a register risked the country falling behind international best practise, and "New Zealand may become a more attractive jurisdiction for money laundering and other criminal activity that makes use of complex corporate structures".

But after the close of the consultation period in late 2018, with trust and company service providers largely opposed and law firms lukewarm to MBIE's preference to establish such a register and make it public, the proposal appears to have gone nowhere.

A spokesperson for MBIE said work was still ongoing and "an update from the Minister of Commerce and Consumer Affairs is expected in due course."

Request for comment this week to minister David Clark about the new FATF recommendations, and if he had made any progress on the register, went unanswered.

Commerce Minister David Clark inherited the beneficial ownership register proposal from previous minister Kris Faafoi, but this week did not respond to questions about its progress. Photo / NZME

A FATF mutual evaluation of New Zealand's policies last year - a process whereby members audit each other on best-practise - noted the lack of a beneficial ownership register was a "substantive gap" in local regulations, and while work on it had started "no decision has yet been made on whether reforms would be pursued".

Barrister Hughes said money laundering and corporate transparency reforms in New Zealand had tended to be fitful and driven largely in response to international embarrassments over lax regulations, like the Panama Papers mega leak.

Hughes said these shocks had kept coming: "But the data hacks and scandals keep piling up: since then, we've had the Paradise Papers, Luxembourg Leaks, Pandora Papers, Luanda Leaks, Suisse Secrets..."

Weekend 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.

Transparency New Zealand's Hunt said a beneficial ownership register would likely have an immediate impact on the misuse of local corporate structures: "The parallel I would draw is when foreign trusts had to register for tax purposes. You saw what happened then: Thousands of them vanished overnight. We need to be really clear that the sort of people abusing their anonymity hate having to register with any sort of regulatory agency."

Any register is likely to run into resistance from industry groups, with MBIE's 2018 consultation soliciting concerns from trust operators and law firms of compliance costs, and also kidnapping risks to wealthy clients were their identification as a beneficial owner made public.