Parliament acts on Wild West of business
A long-awaited crackdown on shell companies has finally come into force, with Parliament voting to amend the Companies Act.
The Companies Amendment Act (No 4) requires all New Zealand-registered companies to have a local director, and all directors to file identifying information to the registrar of companies, including the company's ultimate owner, and their date and place of birth.
Parallel legislation, the Limited Partnerships Amendment (No 2) Act 2014, requires limited partnerships to have practically identical residency requirements.
Commerce Minister Craig Foss said protecting New Zealand's reputation was essential to the growth of the economy. "New Zealand now has a robust regime that will limit the opportunity for dodgy individuals to use shell companies to exploit our good name."
The new law's genesis came from revelations in early 2010 that a New Zealand-registered company, SP Trading, had leased a plane loaded with 35 tonnes of guns and explosives that was intercepted in Bangkok trying to smuggle the arms from North Korea to Iran.
Since the SP Trading story broke, generating considerable international media attention, media have discovered widespread use of New Zealand shell companies for illegal activities including the laundering of drug-sale proceeds and the looting of Eastern European state coffers.
The vast majority of these shells have used New Zealand companies directed by foreign nominees, often residing in jurisdictions such as Cyprus and Panama, making enforcement by local authorities impossible.
A report prepared for Foss in August 2012 said New Zealand shell companies allowed money laundering totalling $1.5 billion a year, and warned the country was becoming a "domicile of choice" for those seeking to engage in illegal activities.
At the time the report was made public, Foss said: "I've made it a mission to understand more about it and understand why some legislation has not progressed as quickly as we would have liked."
The legislation was introduced to the House in October 2011 by the Commerce Minister at the time, Simon Power, but has languished for nearly three years.
Companies will have until December 21 to meet the new requirements. Failure to do so could see the companies struck from the register.
The new acts will:
Require all New Zealand-registered companies and limited partnerships to have a director or general partner who lives in New Zealand or is a director of a company in a prescribed enforcement country.
Give new powers to the Registrar of Companies to better investigate companies and limited partnerships.
Introduce offences for serious misconduct by directors that results in serious losses to the company or its creditors.
Align the company reconstruction provisions in the Companies Act with the Takeovers Code.