Shell firms' clients 'high criminal risk'

A top-level financial security task force investigating online company registration says some clients of those creating shell companies "represent a high risk of criminality".

With the risk of money laundering and terrorist financing high, urgent action was needed to protect New Zealand's reputation, it said.

The Justice, Internal Affairs, Reserve Bank, Securities Commission and police study pointed to an incident in December when a company in Queen St, Auckland, SP Trading, was used to charter a Soviet-era cargo jet in a United Nations sanction-busting operation to fly 35 tonnes of arms from North Korea to Iran. It was seized in Bangkok.

Yesterday Commerce Minister Simon Power said he would amend the Companies Act to tighten online registration. Although New Zealand's company registration was highly respected, "there have been increasing threats to our international reputation posed by overseas interests that use New Zealand-registered companies to undertake criminal activity".

In January Fairfax Media revealed that SP Trading, registered to 369 Queen St, was part of a network of nearly 2500 companies created by the Vanuatu-based GT Group, headed by accountant Geoffrey Taylor.

Its director, Lu Zhang, claimed to be living in the office but it is understood it is alleged that she could not be found until last month, when she was prosecuted. She has now been replaced by a man living in Vanuatu.

GT-linked companies also used Stella Port-Louis, a 31-year-old from the Seychelles, who is listed as sole director of at least 300 New Zealand shell companies.

Neither Mr Power nor the task force cites operators by name, instead referring to them as "trust and company service providers" (TCSPs), who operate the registered company without disclosing who really owns and benefits from them.

The study says the risk of money laundering and terrorist financing "associated with company and trust formation is high". It points to media reports of New Zealand companies implicated in attempts to bribe foreign officials or transport munitions.

TCSPs are not covered by last year's Anti-Money Laundering and Countering Financing of Terrorism Act, exposing regulatory gaps, the study says.

They should now be regulated because of the "ongoing reputational exposure with shell companies" and "evidence that some clients of TCSPs represent a high risk of criminality".

Mr Power said the main change would be that companies would have to have either one New Zealand-resident director or a local agent.

The Registrar of Companies would have expanded powers to deal with issues concerning the bona fides of directors and shareholders of companies.

There would also be greater powers to take action where doubt existed about the accuracy of information about a company.

Companies could be publicly "flagged" at the Companies Office as being under investigation.

Alex Tan, director of forensic services for PricewaterhouseCoopers, welcomed Mr Power's statement and said it was clear that the North Korea incident had exposed dangers. "It is now recognised that these shell company operations are a risk and they will need to be regulated."

Last week Lu Zhang, a 28-year-old cook, appeared in Auckland District Court charged with 75 counts of making false statements in company registration forms.

She told Fairfax she had been "shocked" when she learned police were investigating her for ties with arms trading.

- © Fairfax NZ News