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A public register of beneficial owners for NZ?

Monday 2 July 2018



*This article has been republished from  DLA Piper. More information about the authors or their other publications can be found here.
 

by Geoff Ward-Marshall, Rachel Taylor, Martin Wiseman
 
 
The Ministry for Business, Innovation and Employment (MBIE) is seeking written submissions on options to increase the transparency of the beneficial ownership of New Zealand companies and limited partnerships. The discussion document, setting out MBIE’s preferred option of a central public register of beneficial owners, can be found here. 

At the same time, MBIE is seeking submissions on a separate proposal to cease publication of the residential addresses of directors of New Zealand companies and, instead, to allocate each director with a ‘Director Identification Number’. This discussion document can be found here. 

In recent years, there have been a number of international initiatives to improve access to beneficial ownership information, in both onshore and offshore jurisdictions, including the EU’s Fourth Money Laundering Directive, recommendations and guidance published by FATF and principles agreed amongst the G20. In line with these developing international standards in transparency and law enforcement, New Zealand committed at a large anti-corruption summit held in London in 2016 to "exploring the establishment of a public central register of company beneficial ownership information”. 

The discussion document defines a ‘beneficial owner’ of a corporate entity as being any individual who ultimately controls or exercises control over the corporate entity. This is distinct from the ‘legal owners’, which may be another entity (e.g. a company) or an intermediary (e.g. a nominee shareholder). Internationally, there is concern about corporate entities being involved in money laundering and other criminal activity. Easy access to beneficial ownership information can assist law enforcement agencies to identify the individuals who may be responsible for that criminal activity or who may have information relevant to an investigation. While there are existing tools available to facilitate access to beneficial ownership information, such as the requirement for reporting entities to conduct customer due diligence under the Anti-Money Laundering and Countering the Financing of Terrorism Act 2009 (AML/CFT), MBIE’s view is that these have shortcomings: information can be unreliable and difficult or impossible to access and some existing tools risk tipping off criminals. 

MBIE has set out the following three options for increasing the transparency of information about the beneficial owners of New Zealand companies and limited partnerships: 


Option 1: Corporate entities to hold up-to-date information about their beneficial owners
 
This would require each corporate entity to keep and maintain its own records of its beneficial owners. These records would only be made available by the entity on request by the Registrar of Companies. 

MBIE’s preliminary assessment is that Option 1 will have little deterrence effect on criminal activity and limited impact on supporting the effective and efficient operation of the AML/CFT system.
 
Option 2: Beneficial ownership information is included on the central registers with restricted access
 
In addition to each corporate entity being required to keep and maintain its own records of beneficial owners, Option 2 would require this information to be included on the companies and limited partnerships registers. This information would not be publicly available and only law enforcement agencies would have access to it. 

MBIE’s preliminary assessment is that Option 2 should have some deterrence effect on criminal activity as law enforcement agencies would be able to access beneficial ownership information without tipping off criminals. As with Option 1, MBIE sees Option 2 as having limited impact on the effective and efficient operation of the AML/CFT system.

Option 3: Beneficial ownership information is included on the central registers with public access
 
This is identical to Option 2 save that beneficial ownership information would be publicly available on the companies and limited partnerships registers.
 
MBIE’s preliminary assessment is that Option 3 may have a greater deterrence impact as a result of beneficial ownership information being open to public scrutiny by non-governmental organisations and journalists. MBIE also sees Option 3 as being more likely to support the operation of the AML/CFT system by making it easier to identify beneficial owners. However, reporting entities would still need to take steps to verify the information.
 
Any of these three options is likely to be viewed as being compliant with current international standards. 

MBIE briefly touches on the privacy impacts of the three options without going into any great detail. Options 1 and 2 do not lead to beneficial ownership information being generally available to the public whereas Option 3 will result in individual’s personal information being publicly available; including the fact of the individual’s beneficial ownership of a corporate entity. Importantly, the discussion document states that there is a public interest in knowing who controls a corporate entity and that this could be seen as outweighing individuals’ privacy. 

Based on the work it has carried out so far, MBIE’s preference is Option 3 on the basis that it will be a more effective deterrent and that public access will assist with the integrity of the information. MBIE considers that this option would have an appropriate balance between privacy and transparency. 

One of the questions asked by MBIE in the discussion document is whether any corporate entities should be excluded from the requirement to disclose beneficial ownership information. Publicly listed companies are mentioned in the document as being commonly excluded in comparable jurisdictions. In our view, entities that should be excluded include not only those listed on recognised stock exchanges but also entities registered under the Financial Markets Conduct Act 2013 as managed investment schemes and entities licensed by the FMA or the RBNZ under New Zealand’s regulatory laws. There should also be a 25% threshold for inclusion of beneficial owners in any register. 

The discussion document includes an overview of the approaches taken in certain other countries to beneficial ownership information. We’ve summarised these (and a few others) in the following table:
 
Jurisdiction Central or Company Held Register? Public or Restricted Access?
European Union Central Restricted (but to be public in all Member States by the end of 2019)
Hong Kong Company Held Restricted
United Kingdom Central Public
Singapore Company Held Restricted
Republic of Ireland Company Held (but soon to be Central) Restricted (but to be public by end of 2019)
Crown Dependencies (Jersey, Guernsey and Isle of Man) Central Restricted
United States None (but Bills introduced in 2017 for a Central register) None (but Bills introduced in 2017 for Restricted access)
Australia Consultation held in 2017 Consultation held in 2017
 
New Zealand operates in a competitive environment when it comes to attracting international business to our shores. As MBIE points out, damage to New Zealand’s reputation resulting from criminal activity conducted through New Zealand entities could make it harder for New Zealand firms to do business overseas or reduce overseas investment in our economy. In our view, the erosion of confidentiality and privacy in commercial arrangements that would result from a publicly accessible central register of beneficial owners could have a similar chilling effect, particularly in the spheres of venture capital and private equity. 

Submissions on both discussion documents are due by Friday, 3 August 2018. 

Please contact us if you would like to discuss these proposals or would like help with making your submissions.
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