Registering a company in New Zealand is a simple on-line, one-step process taking about two minutes to complete.  Little wonder then that New Zealand routinely takes out first place in the World Bank survey for ease of starting up a new business.

But recent media reports indicate that New Zealand is also a popular location for shell companies, suggesting that we do not yet have the regulatory balance right between efficiency and integrity.  So far this year, there have been reports of:
  • a New Zealand company registered to a vacant driveway in Auckland being party (along with companies incorporated in the UK and Belize) to a US$1.2 billion money laundering scandal in central Asia
  • a New Zealand shell company linked to an alleged fraud involving more than US$150 million in the Ukraine and Latvia, and
  • New Zealand (and Russia) being blacklisted off an EU banking and corporate “white list” because of weak money laundering controls.
All of which is embarrassing and threatens to undermine New Zealand’s reputation as a trusted and solid place to do business.  Given these risks, and New Zealand’s reliance on foreign capital, it is perhaps surprising that the government did not move faster to fill the perceived holes in our regulatory framework.
 
But change is on the way.
 
The Anti-Money Laundering and Countering Financing of Terrorism Act (AMLCFT Act) was passed in 2009 and the supporting Codes of Practice and regulations are now being put in place for a “go live” date of 30 June 2013.  This will bring New Zealand into greater alignment with international standards, including the critically important Financial Action Task Force (FATF) 40+9 Recommendations.
 
Also in the pipeline are new requirements to tighten the rules around company registration.  The Companies and Limited Partnerships Amendment Bill was introduced to Parliament in October 2011 and is expected to have its first reading on 24 July 2012.
Among its provisions are:
  • a requirement that all New Zealand incorporated companies either:
    • have a director resident in New Zealand or in an approved jurisdiction, or
    • appoint a “resident agent” who will be responsible for ensuring that the company fulfils its administrative requirements and will be liable for any breaches in record-keeping or filing requirements
  • increased powers for the Registrar of Companies to investigate and deal with non-compliance under the Companies Act, including a power to “flag” companies which are under investigation, and
  • the ability to deregister companies for failing to provide accurate information or for persistent failure to comply with their legal obligations.
Australian-owned companies will be exempted from the legislation.
 
Similar changes will be made to the Limited Partnerships Act so that people cannot escape the new requirements by registering a limited partnership instead. 
 
But, although the Bill is an improvement on the status quo, it needs to go further if it is to bring New Zealand into line with international norms.  It does not, for example, require directors to provide even basic information such as date of birth and occupation – a lack which, unless remedied, would restrict the Registrar’s ability to run identity and competence checks.
 
These details are required under the Financial Service Providers (Registration and Dispute Resolution) Act 2008 and under the Limited Partnerships Act 2008, suggesting that their omission from the Bill is a drafting oversight which will be corrected at the select committee stages.
 
In which case, the changes introduced through the Bill, together with the new anti-money laundering regime coming into force next year, should enhance New Zealand’s credentials as a nation with appropriate controls over the misuse of corporate forms for wrongful activities.
 
This article was first published by ALB Online in July 2012.