In the midst of the Panama Papers leak, reports have emerged of Mossack Fonseca discussing New Zealand’s “weak” approach to due diligence.
The leak contains papers from 2012 when the firm’s New Zealand staff recounted advice received from a Nexus Trust executive: “NZ has very weak laws in regard to due diligence; they only require a utility bill and passport. Trust companies are not required to hold a licence.”
With these claims now making the rounds in the media, NZ Lawyer
talked to Vicki Ammundsen, Partner at Vicki Ammundsen Trust Law, about her views on this claim and the effect the Panama Papers leak has had within New Zealand.
She began by discounting the relevance of that particular comment by Mossack Fonseca.
“The statement referred to was made in 2012, pre-dating the AML/CFT regime which came into effect on 30 June 2013,” she said. “It also pre-dated the 2014 and subsequent amendments to the Companies Act 1993, which now require a New Zealand resident or the director of an Australian company to act as director of a New Zealand company.”
These amendments also gave company registrars additional powers to identify controllers of companies and to seek out further information if required, she added.
Furthermore, the Omnibus Bill amended 10 different Acts in 2015 including stronger disclosure requirements, increased information sharing with overseas counterparts, and greater penalties for non-compliance, Ammundsen said.
One issue that the Panama Papers leak has exposed is a lack of understanding by the public about the New Zealand trust regime and trusts in general, she added.
Through a settlor regime adopted in 1987, New Zealand was able to implement the current trust regime which taxes trusts by reference to an economic link to New Zealand, she explained. This includes punitive laws where local tax has been avoided.
“Foreign trust advisers may well have taken advantage of the differences in New Zealand trust taxation to create mechanisms to avoid taxes in New Zealand on income that is not economically connected with New Zealand.”
However, since there is no economic link to New Zealand with these types of foreign trusts, the local tax base hasn’t lost anything, she said.
“That said, it is important here to distinguish between the use of these foreign trust vehicles to avoid taxes in other jurisdictions as opposed to hiding ill-gotten funds.”
The public has often conflated these two very different things, she said. As well as overlooking the distinctive legal and ethical issues between the two, people may also wrongly assume that at least one of these may have occurred when in fact neither may have been the case.
“As to whether any additional due diligence might be warranted – this will be addressed in a review of the rules regarding foreign trusts that was announced by the government yesterday (11 April 2016),” Ammundsen said.
The review, which will be conducted by tax expert John Shewan, will assess whether existing foreign trust rules regarding recordkeeping, enforcement and the exchange of information will require any practical improvements, she added.