Adam Hunt: You can't sanction what you don't know about

Adam Hunt, a board member of Transparency New Zealand, calls for a register of beneficial ownership to better-target sanctions in response to Russia's invasion of Ukraine. Photo / Nick Reed

OPINION

It is heartbreaking that it has taken a war, but finally around the world countries are uniting to target Russian leadership and its cronies with extensive sanctions. We need to ensure this is more than just symbolic. As I write, thousands of organisations will be feverishly updating systems with the names of the people being sanctioned, placing them on watchlists so that they can check that current and prospective customers can be legally engaged.

The targets of these sanctions have become very good at hiding, finding a willing army of morally bankrupt professionals to conceal their assets, as we discover whenever a whistleblower reveals their inner workings. The industry refers to the true controller of an asset (whether it be real estate or even good old-fashioned cash) as the "beneficial owner", a misleading term because the test is that of control, not ownership, such as when it is registered in the name of someone's child.

We know why people hide their wealth – many fear it will be taken from them through tax - but some are even more concerned that their crimes will be revealed, and that could deprive them not only of money, but of their power to enjoy it.

Fighting this ever-changing landscape of legal smoke and mirrors is a constant battle to uncover truth, and a good starting point is a register of beneficial ownership. Just as it is quite useful to be able to find who really owns a car or house, having a reliable database of other assets (like companies and trusts) and their true controller would save an enormous amount of effort for sanctions and anti-money-laundering activity.

But the rich and powerful like secrecy, and so these registers are rare. Where they do exist (such as our New Zealand Companies Register) there is little policing or verification. The resistance is strong. The concealment industry is rich and trots out the tired excuse that is always a sign they are nervous; "there's no point, it's too easy to avoid". This is partly true, but that's a bit like saying there's no point in locking our cars as vehicle security can be defeated. When something is morally wrong it should be fought, not just ignored because it is difficult.

It is right to have an aversion to regulation and seek ways the market can be forced to self-police. But when we are dealing with global forces of corruption self-regulation isn't enough. Over recent years the topic has been avoided by Government and the Law Commission. The latter dodged the issue with a recommendation for more work. Meanwhile, MBIE left trusts out of scope for its review of beneficial ownership registers, then closed its consultation in 2018. We have heard little since, waiting to see if anti-money-laundering rules will fill the gap.

But those rules inflict a burden on everyone, and what is forgotten is that these registers would make life easier for the majority. For example, if NZ were to introduce a voluntary register of trusts it is possible those who choose to use it could be subject to reduced checks. Or perhaps we could learn from our bank withholding tax regime: failure to register incurs a higher default tax rate.

We have an opportunity to help drive international and local change. By supporting global efforts to introduce register rules, we will also influence policy in New Zealand. This week the Financial Action Task Force is meeting to decide whether to recommend that countries implement registers of beneficial ownership, and Transparency International are urging support. To counter the voice of the rich and powerful we need to make some noise.

• Adam Hunt is a member of the board of Transparency New Zealand and previously established the strategic intelligence functions of Inland Revenue and the Financial Markets Authority.