Beneficial Ownership Transparency of Companies and Limited Partnerships (NZ0028)

Objective

Increase the transparency of the beneficial ownership of New Zealand companies and limited partnerships by introducing legislation to make beneficial owners’ identifying information available on a public register.

Ambition

To establish a register of beneficial ownership of companies and limited partnerships to help people find accurate, up-to-date information about who they are doing business with. The register will hold biographical, contact, and corporate information about the beneficial owners of New Zealand companies and limited partnerships. Companies and limited partnerships will be required to inform the registrar who their beneficial owners are. Beneficial owners will be required to provide their information to the registrar. Beneficial owners will need to prove their identity when providing this information and will be issued with a unique identifier. Subject to safeguards, enforcement agencies will be able to access all register information while the general public will have access to high-level information (name, date of becoming a beneficial owner, and grounds for qualifying as a beneficial owner).

Status Quo

Companies and limited partnerships are two of the most common ‘for profit’ entities in New Zealand. These entities are only required to disclose information to the Companies Office about individuals who directly own, and who directly run, the entities. There is no legal obligation to disclose the individuals who ultimately own or control companies and limited partnerships (the ‘beneficial owners’). The current level of disclosure makes it difficult to determine, for instance, who is benefiting when public funds go to private entities, whether entities are paying the correct amount of tax, or if they may be involved in money- laundering or other forms of corruption.

Te Tiriti o Waitangi

Increase the transparency of the beneficial ownership of New Zealand companies and limited may benefit Māori as both citizens and iwi, to the extent that the current lack of transparency around beneficial ownership of companies and limited partnerships can have an impact on Māori as citizens and iwi due to systemic inequality and disadvantage.

OGP Values: Transparency, Integrity, and Accountability

Milestones

These planned milestones are indicative only as they are contingent on the Parliamentary process and passage of legislation.

Verifiable and measurable milestones to fulfil the commitment | Start date - End date

Prepare instructions to draft legislation to increase transparency of beneficial ownership of companies and limited partnerships | September 2022 - February 2023

Draft new legislation to require beneficial ownership information of companies and limited partnerships to be made available | January 2023 - December 2023

Introduce the legislation to the House | January 2023 - December 2023

Design policy and guidance documentation to support the introduction of the register | March 2023 - December 2023

Develop publicity and information to support the enactment of the new legislation | June 2023 - December 2024

Action Plan Review

Commitment 5. Increase Transparency of Beneficial Ownership of Companies and Limited Partnerships

● Verifiable: Yes

● Does it have an open government lens? Yes

● Potential for results: Substantial

Commitment 5: Increase Transparency of Beneficial Ownership of Companies and Limited Partnerships

For a complete description of the commitment, see Commitment 5 in New Zealand’s 2022–2024 Action Plan: https://www.opengovpartnership.org/documents/new-zealand-action-plan-2022-2024-december/.

Context and objectives:

This commitment proposed by the Ministry of Business, Innovation & Employment (MBIE), aims to have Parliament pass legislation to make the beneficial ownership information [20] for companies and limited partnerships available through a public register. [21] MBIE carried out preparatory work and public consultation in 2018. [22] Draft legislation was proposed in 2021 and consulted on in 2022. [23] Under the Companies Act 1993 and the Limited Partnerships Act 2008, companies and limited partnerships must provide information to the Registrar of Companies on who runs and owns them. However, disclosure of beneficial ownership information has not previously been a legal obligation. As New Zealand is a member of the Financial Action Task Force (FATF), [24] this commitment would address FATF Recommendation 24. That recommendation requires countries to “ensure that there is adequate, accurate and timely information on the beneficial ownership and control of legal persons that can be obtained or accessed in a timely fashion by competent authorities.” This commitment also aligns with the 2020–2025 Transnational Organised Crime strategy. [25]

Potential for results: Substantial

Under the proposal agreed to by Cabinet, [26] legislation would require beneficial owners’ information to be recorded with the Registrar of Companies and published on a public register. This register would increase the availability and transparency of public information about the directors and beneficial owners of companies and limited partnerships operating in New Zealand. Opening access to this information would enable civil society and law enforcement agencies to follow the money in financial investigations.

This commitment’s intended legislation would require companies and limited partnerships to identify beneficial owners and provide the Registrar of Companies with their information. Shareholders or limited partners would be required to inform their company or limited partnership on whether they are a beneficial owner, and beneficial owners would be mandated to provide required information. An individual would be considered a beneficial owner if they directly or indirectly hold a minimum percentage ownership interest or voting rights in a company or limited partnership; have the right to appoint or remove a majority of the board of directors; or have the right to exercise, or actually exercise, significant influence or control over a company or limited partnership. The proposed legislation provides 12 months for compliance by existing entities and lists fines for failure to disclose required beneficial ownership information. [27]

Some of this beneficial ownership information would be made publicly available on a register, including full legal name, date of and basis for becoming a beneficial owner or date of appointment, address for service, and chains of beneficial ownership. A unique identifier number would be assigned to all beneficial owners, directors, and general partners of limited partnerships. Other details, such as date of birth, email address, and corporate information of other entities where the person is a beneficial owner, would be on a non-public register. Home addresses would not be publicly listed. [28]

By introducing public access to beneficial ownership information, this commitment could contribute to curbing money laundering in New Zealand. At present, without access to beneficial ownership information, government and civil society monitors cannot establish a complete picture of a company’s ownership structure. The Financial Intelligence Unit of the New Zealand Police reports that national vulnerabilities related to money laundering are compounded by difficulties in identifying the beneficial owners of New Zealand companies, charities, and trusts. [29] According to the Ministry of Justice, although New Zealand is not a major international centre for financial crimes, about $1.35 billion proceeds of fraud and illegal drugs are laundered through New Zealand businesses each year. [30] Beneficial owners and shell companies play a role. A 2014–2015 analysis of 57 cases with recovery of high value proceeds from crime found that for approximately one-third of assets recovered, shell companies played a role in the case. [31] The Cabinet paper authorising this work explains that beneficial owners use their anonymity to launder illegally gained funds through their New Zealand entities. This distorts business decisions, heightens risk of business failures, and allows for drug trafficking, smuggling, and other criminal activity. [32] The FATF 2021 mutual evaluation report designated beneficial ownership transparency as a top priority for strengthening New Zealand’s anti-money laundering regulatory framework, particularly for limited liability companies and partnerships, and domestic trusts. [33] The former Minister of Commerce and Consumer Affairs adds that the planned transparency measures would address key vulnerabilities exposed by the Pandora and Panama Papers. [34] According to Transparency International NZ (TINZ), a public register will make a substantial contribution to greater transparency of beneficial ownership. [35] This is because it would enable scrutiny by media and researchers, a mechanism which has revealed substantial money laundering and tax avoidance in the past. [36]

Opportunities, challenges, and recommendations during implementation

As New Zealand’s government has agreed to legislate for disclosure of beneficial ownership information, the next step is introduction of the proposed legislation to Parliament as a bill, which is planned for 2023. [37] The bill will then be subject to scrutiny by a parliamentary select committee, which would typically include further opportunities for community input before completing its enactment in law. MBIE anticipates that the 12 months the commitment allocates for passage of the legislation will be sufficient. [38] It notes, however, that an election is scheduled for October 2023, and the legislative work programme could be affected by time constraints prior to the election and competing government priorities. A parallel and related policy on creating a register of individuals who are directors of companies and limited partnerships is also being considered and could further amplify the value of the planned beneficial ownership register. New Zealand can draw on the experiences of OGP counterparts in Denmark [39] and the Slovak Republic, [40] which developed public registries with strong verification systems, ensuring data is accurate and usable. For effective implementation of this commitment, IRM recommends the following:

● Include launch of the beneficial ownership register in the commitment’s implementation plan, addressing funding, housing of the register, and technical work. Plan for a verification system associated with the register to ensure the reliability of beneficial ownership information disclosed.

● Ensure the interoperability of beneficial ownership information disclosed. Applying common standards such as the Beneficial Ownership Data Standard [41] and linking ownership information with other policy areas will help to track money and assets across sectors and jurisdictions.

● Systematically include participation by CSOs in implementation of the commitment, including consultations on the draft bill, design of the beneficial ownership register, and monitoring and accountability. Take steps to encourage utilisation of the beneficial ownership database information by CSOs and the public. In order to realise the full transparency and accountability benefits of the register, accompany the register with regular reports on beneficial ownership information and feedback channels to allow CSOs and individuals ease of scrutiny and to draw the attention of government to issues of concern.