Legislation to tighten company registration requirements to prevent shell companies being set up for criminal purposes in New Zealand will be introduced to the House next month.
The Cabinet Paper outlining the proposed changes was released on 19 September 2011. This Brief Counsel summarises the new regime.
New Zealand’s company registration processes are deliberately low cost and easy to use as part of a desire by successive governments to make New Zealand an attractive destination for foreign investment. But the Government has become concerned at recent evidence that the system is being abused, with potential risk to New Zealand’s international reputation.
The most high profile example is SP Trading Ltd, where a NZ incorporated company controlled from overseas, was involved in chartering a plane used for weapons trafficking in defiance of UN sanctions. But the Cabinet Paper reports that the Reserve Bank also has concerns with respect to around 1000 overseas financial institutions which have been incorporated in New Zealand in the last three years, at least some of which are being used as shell companies to carry on banking activities outside the necessary regulatory controls.
The proposals will require amendment to the Companies Act and fall into four broad groups.
Require companies to have a director or “local agent” who is resident in New Zealand. The requirement to have at least one director resident in the country is reasonably common internationally. A limited exemption is proposed for companies with directors in an approved foreign jurisdiction (e.g. Australia).
The local agent, in lieu of a local director, would be required to accept the service of legal proceedings and to ensure that the company met its disclosure and records maintenance obligations under the Companies Act. As this concept is new to New Zealand law, consideration will be needed to ensure that the obligations on the agent are administrative in nature and not so onerous as to constitute de facto directors’ duties.
Require directors to supply date and place of birth information. This information would not be available for public searching but could be used by the Registrar.
Require all companies to apply for an IRD number as part of the application process. About 80% of companies already do this and a further significant percentage gain an IRD number soon after incorporation.
Enhance the Registrar’s ability to investigate issues arising in regard to registration applications. New powers would include the power to:
- require someone to confirm or correct information on the Companies Register
- “flag” a record on the Companies Office website as being under inquiry regarding the integrity of the information or potential non-compliance with the Act
- remove a company from the Register, or a disqualified or prohibited person who acts as a director in contravention of such disqualification or prohibition, and
- impose banning orders on directors and local agents for persistent non-compliance with the filing and reporting obligations of the Companies and Financial Reporting Acts or for providing inaccurate information to the Registrar.
These provisions would apply also to limited partnerships.
The Government is also considering further measures beyond this initial reform package. These include:
- regulation or prohibition of nominee directors
- recording the beneficial ownership of companies
- moves around open-ended powers of attorney
- identification or verification of the identity of directors and shareholders, for example by way of a unique identifier such as a passport number
- dealing with the issues of shell financial institutions, and
- regulation of company formation agents by including them as reporting entities under the Anti-Money Laundering and Countering Financing of Terrorism Act 2009.