Shell companies protect anonymity

Why is New Zealand's company registration system is under the spotlight? One reason is shell companies, which can be used to true activities and identities of the people behind them.

Shell companies are essentially "ready to go" companies with no assets that accountants, lawyers and trust companies have on hand for clients who do not want to wait out the red tape associated with setting up a company.

Legitimate reasons for using a shell company can include name protection, a company setting up several companies to have them on hand, or a prospective buyer not wanting a seller to know their identity.

Les Foy, a principal with WHK Wellington chartered accountancy, said shell companies were common.

A buyer might use one rather than risking a transaction being delayed.

"If people want to use it illegally, then they will, but 99.9 per cent of cases in New Zealand you'd expect people to carry on in a legitimate manner."

Illegal activities could be carried out through any company, but the purpose of a shell company was to mask the true activity and identity of the people behind it.

Mr Foy said they usually used legitimate addresses such as a lawyer's office or a bank to establish a facade of respectability, and had directors and shareholders that were far removed from the activity they were trying to hide.

"In other words it's not a clean audit trial. If you tried to research who owned the company, you might find another 100 companies – it'd be difficult to track."

A few shell companies were listed entities which had had their assets stripped, enabling a buyer to list on the stock exchange without having to go through a string of procedures.

Sometimes called "back-door" listings or reverse takeovers, they had gained a shady image because of a handful of bad companies, but Mr Foy said they were still bound by security regulations.

- © Fairfax NZ News