Call for wider inquiry after revelations foreign trust specialist made approach over possible tax crackdown.

Revelations John Key's personal lawyer lobbied a minister about a potential crackdown on the lucrative foreign trust industry has sparked calls from the Labour Party for an inquiry into the sector to be widened.

Ken Whitney, the executive director of boutique trust specialist Antipodes, wrote to then-Minister for Revenue Todd McClay on December 3, 2014, over concerns Inland Revenue were sizing up the sector.

"We are concerned that there appears to be a sudden change of view by the IRD in respect of their previous support for the industry. I have spoken to the Prime Minister about this and he advised that the Government has no plans to change the status of the foreign trust regime," Mr Whitney wrote in an email.

"The PM asked me to contact you to arrange a meeting at your convenience with a small group of industry leaders who are keen to engage to explain how the regime works and the benefits to NZ of an industry which has been painstakingly built up over the last 25 years or so."


Labour Party finance spokesman Grant Robertson said Mr Whitney's appearance leading the lobbying efforts for offshore finance specialists showed the appointment of tax expert John Shewan review of the sector was "wholly inadequate".

"It needs to be led by a judge, above and beyond this industry, for the sake of New Zealand's reputation and the fairness of our tax system. We need an independent inquiry," he said.

New Zealand's trust regime recently made international headlines with the leak of the Panama Papers revealing the abuse of trust structures internationally by those seeking to launder money or avoid tax.

Mr Key subsequently downplayed his links to Mr Whitney's firm saying he only held short-term deposits with Antipodes.

The email from Mr Whitney - and reports from Inland Revenue officials from the time arguing the review should be kept on the table as quirks of our foreign trust regime raised reputation risks which "can only get worse" - were obtained by the Green Party under the Official Information Act.

"The fact remains, IRD wanted to clean up the foreign trusts industry until the Prime Minister's lawyer claimed John Key had promised him nothing was going to change," Green Party co-leader James Shaw said. He also wants a wider inquiry into the foreign trust industry in New Zealand.

Mr Robertson said the email explained the Government's sluggish response to the issue.

"This looks an issue where officials knew there was a problem and had these concerns dismissed ... ," he said.


Mr McClay last night said: "The assertion that I was influenced by Ken Whitney's relationship to the Prime Minister is insulting."

Ken Whitney. Photo / Supplied
Ken Whitney. Photo / Supplied

He added the mooted review of the foreign trusts was eventually dropped for reasons of capacity. "Inland Revenue was, at the time, in the midst of an intensive work programme and some months later decided the issue could not be accommodated that year," he said.

The day following the email a meeting was arranged between Mr Whitney, five other representatives of the low-profile trust industry and Mr McClay to take place at Antipodes' high-rise offices on Shortland St.

Officials at the time noted Mr McClay "expressed some concerns" that the future of the foreign trust regime was threatened.

One industry figure wrote afterwards to say the "foreign trust industry were very pleased with their meeting with the minister".

The moves by Mr Whitney, who has long been Key's personal lawyer, sparked concerns from Green Party co-leader James Shaw that preferential access was threatening the integrity of political systems.

New Zealand's foreign trust laws will be reviewed by an independent expert after a back-down by Prime Minister John Key amidst continuing fallout from the "Panama papers".

"Ordinary people, those who care about child poverty or about the environment and want the Government to change its policies, do not get this kind of access or this kind of immediate response to their concerns," Mr Shaw said.

Mr Whitney denied any conflict of interest between his role working for John Key and lobbying the Government, or any preferential treatment from ministers.

"As you can imagine, naturally, I do speak to the PM from time to time on personal business. So I just used the opportunity to bring it up, to inquire - and who we should we talk to. And his response was 'Minister McClay'," he told the Herald.

Mr Key said there was nothing unusual or inappropriate about Mr Whitney raising the issue with him or referring to the discussion with the Prime Minister in his letter to Mr McClay.

Todd McClay. Photo / Supplied
Todd McClay. Photo / Supplied

"No, because that happens all the time. There's nothing unusual about it. People ask me about particular issues. I don't live in a vacuum. I do what is absolutely the correct thing to do, which is send them off to the minister.

"There's nothing I wouldn't have done on a million of other occasions which was to direct them to the minister and let the ministers get on to do their work."

Mr Key said his talk with Mr Whitney followed a story which said Inland Revenue was changing its approach to foreign trusts - a report Key said was inaccurate.

"There was a story in the Herald, he asked me about it, I said to go and see the minister. After that I never had any involvement. I didn't even know what he'd done. I just knew there weren't any changes as far as I knew."

The Prime Minister's Office stressed he was not involved in any subsequent discussion about reviewing the foreign trust industry.

Five months after Mr Whitney sent his email, Mr McClay formally put the review on ice and wrote to the trust industry advising that: "Owing to wider government priorities, we will not be considering regulatory reform of your industry at this stage ... I trust that this provides you and your industry with the certainty needed to continue to do business in New Zealand."

Government policy on the matter stayed frozen until earlier this month when the Panama Papers thrust the secretive industry into the spotlight.

What is the fuss with trusts?

What exactly are foreign trusts?

They're legal constructs that allow assets to be held tax-free, as long as the income earned by them is from outside New Zealand. Our trusts differ from those in most countries in that we tax on the basis of where the settler (trust owner) resides, not the trustee. An Inland Revenue report on the matter said our quirky system "creates an arbitrage opportunity".

What does that mean?

Clever foreigners can structure their affairs, stashing income in New Zealand-based foreign trusts, that aren't subject to tax anywhere.

This must make us popular internationally?

Certainly for trust-users, less so for governments chasing tax revenue. That same IRD report said our setup "has attracted criticism internationally - along the lines we are a tax haven".

Are we a tax haven?

Depends who you ask. John Key says no. So does his lawyer, boutique trust operator Ken Whitney who lobbied to keep the trusts free from tax. But that IRD report says even if we aren't a tax haven, the perception we are is "damaging to New Zealand's 'clean' international reputation". And, investigators probing the Panama Papers say yes, we are indeed a tax haven.

What are the Panama Papers again?

A leak of more than 11 million documents from Panamanian law firm Mossack Fonseca, who had as clients those same clever foreigners motivated by a desire to minimise tax.

How many foreign trusts are there in NZ?

Certainly thousands. The IRD report said many were explicitly designed with the purpose of avoiding disclosure. Sources who have inspected the Panama Papers say the veil of secrecy will be torn from hundreds of New Zealand entities on May 10 when a searchable database of them goes online.