Law change clamping down on shell companies

The Government has not been idle in addressing the problem; it moved - albeit very slowly - to introduce legislation. Photo / Greg Bowker

Overseas entities with mischief on their minds will have to think twice about using NZ-registered companies.

New laws cracking down on shell companies appear to be having an early effect, with police seeing a drop off in requests for information about New Zealand-registered firms allegedly committing crimes overseas.

Any change would be an ebb in what was a rising tide of requests from overseas law enforcement agencies regarding locally registered companies.

The police's financial intelligence unit, in the year to June 2014, received requests for information about 39 New Zealand-registered companies which had allegedly committed crimes in other countries.

That was the most since at least 2010, according to figures provided by the FIU.

The unit's outgoing manager, Pat O'Sullivan, told the Herald on his last day in the job that these requests exclusively involved locally registered shell companies, which had directors based overseas.

"We've never had, in my time here, an instance where any of these companies have had any sort of onshore presence in New Zealand," O'Sullivan said.

"What normally happens is a company, most commonly in Europe, will get pinged for anything from drug-dealing to fraud on EU subsidies," he said.

"We'll get an inquiry from somewhere over there saying 'we're investigating this company, it's registered in New Zealand can you tell us who owns it' ... the directors are invariably patsies in places like Panama. Of course, they're beyond our jurisdiction as well and mostly beyond the jurisdiction of the inquiring country as well. Those structures are set up deliberately in that way to remove the actual owners or operators of the company from being legally associated with [it]."

Shell companies are typically assetless firms that can provide a legitimate-looking front to an illegal operation, particularly because of New Zealand's good reputation and perceived lack of corruption. The ease with which these shells could be set up here means the country has been linked to money laundering and arms trafficking.

The Government has not been idle in addressing the problem; it moved - albeit very slowly - to introduce legislation.

After a long wait, amendments were passed last year that will require all New Zealand-registered companies and limited partnerships to have a director or general partner who lives in New Zealand or in a "prescribed enforcement country" such as Australia.

These requirements are likely to help curb the use of shell companies but do not take effect for new companies until halfway through this year.

Existing companies have a further six months to meet the regulations and won't have to comply until this December.

Because of this, it is possible the rising trend of overseas correspondence to the FIU about shell companies will continue this year.

While this could happen, O'Sullivan said he would be surprised if it does.

"I would tend to think company formation agents in New Zealand are aware this [the law change] is happening and perhaps even conveying that to prospective clients."