Shell company loop-hole closed

02:21, Dec 13 2012

New Zealand-registered companies will be required to have directors within reach of local authorities as part of a bid to crack down on rogue shell company operators.

The commerce select committee released its report this week in to the Companies and Limited Partnerships Bill, recommending tougher measures than those originally proposed by the Government.

Investigations by Fairfax Media and other media organisations have uncovered the use of New Zealand companies in laundering hundreds of millions of dollars, arms-trading and the looting of government treasuries in Eastern Europe.

In many cases the New Zealand shells used in the dubious transactions had single nominee directors based abroad - often Panama, Vanuatu or Cyprus - putting them beyond the reach of local authorities.

Commerce Minister Craig Foss welcomed the select committee report.

"Our company incorporation processes are some of the best in the world, and important in growing New Zealand's economy. However, there are those that would exploit this for questionable purposes.


"This Bill, together with the changes recommended by the select committee, will strengthen our company registration regime and enable stronger enforcement action against those that misuse it, while maintaining our reputation as one of the easiest places in the world to do business," Foss said.

The initial draft of the Bill prepared by the government was subject to criticism by officials with a report released to Fairfax Media under the Official Information Act saying the changes did not go far enough to prevent New Zealand shell companies being used for illicit purposes.

"There is a risk that the media and submitters will say the bill in its current form does not address the deficiencies identified. This is true, as the bill was only intended to undertake some interim measures while further work continued," a report prepared by the Ministry of Business, Innovation and Employment (Mobie) said.

The draft legislation proposed locally registered companies be required to have a "resident agent" responsible for administration.

Police expressed a "strong preference" the resident agent proposal be dropped in order to allow accountability by New Zealand companies to local authorities, the Mobie report said.

The select committee canned the resident agent proposal, and instead suggested all local companies have a director resident in New Zealand, or a country which has reciprocal arrangements for criminal corporate enforcement such as Australia.

Companies formed in New Zealand will also be required to inform the Registrar of their ultimate controller.

The Bill, introduced last year by outgoing Justice Minister Simon Power, has been slowly winding its way through Parliament for more than a year.

It will return to the House for its second reading next year.