If you ever wondered what kind of response to a financial transparency law might indicate a corrupted financial secrecy industry, look no further. We reported recently on what’s been happening to trusts in New Zealand in our Offshore Wrapper (our weekly take on tax justice news – for which you can sign up here, don’t miss out). First, here’s what our very own George Turner reported on about a month ago, followed by interesting updates:
Recent figures released by the New Zealand government show users and abusers of trusts abandoning the country after it implemented transparency laws to regulate the trust industry.
New Zealand trusts have built up a particularly good reputation amongst offshore service providers for their ability to hide assets. They’ve been called the “Fort Knox of asset protection”.
But in response to the Panama Papers the New Zealand government changed the law to compel all New Zealand foreign trusts to register (a foreign trust being a New Zealand trust where the money comes from a resident outside New Zealand), and provide details of who benefits from the trust, and who controls it.
Given that there are of course many entirely legitimate reasons why someone would want to hold an offshore, tax-free trust, we would expect operators and beneficiaries of trusts to welcome such transparency!
Well, it seems not. Recent data revealed in response to parliamentary questions from New Zealand’s Green Party shows that weeks ahead of the deadline to register trusts, most trusts have failed to register and many have abandoned New Zealand. In total, out of more than 11,500 foreign trusts in New Zealand, fewer than 70 had signed up to the new register three weeks before the deadline for doing so.
This of course strongly suggests that many of the people using New Zealand trusts were doing so to hide their money. From whom? We don’t know, and perhaps we never will…
At the time of publishing that Offshore Wrapper, the sorts of figures being reported were looking bad. Since then it’s being reported that following the new disclosure deadline “fewer than 3000 foreign trusts met a deadline last week for them to provide more information about their structures and activities” and the number of foreign trusts registered in New Zealand has plummeted. So, could it be that between two thirds and three quarters of trusts were settled there only for the anonymity?
Now if this doesn’t prove that New Zealand is a tax haven getting fat from selling secrecy services, then what does? Not only that, but New Zealand has been promoted particularly because it doesn’t look like a tax haven.
One spokesperson is quoted here as saying it’s not possible to know for sure why trusts have decided to leave the country but “our view is the most likely reason is because the people engaged in setting up foreign trusts are by definition wanting to hide their assets from their own jurisdictions and don’t want there to be any sunlight on their activities.”
Indeed. And New Zealand tax and law enforcement authorities probably won’t be feeling that surprised about all this. When Australia complained about opacity back in 2006 and New Zealand began to require special disclosure procedures where the settlor was Australian, new trust registrations declined and as of 2016, there are no trusts with Australian settlors. (See point 4.23 and the footnote 19 in page 15 here)
It’s worth pointing out that New Zealand could have chosen at that point to start requiring disclosure from all trusts, regardless of whether the settlor was Australian or from elsewhere in the world. But, they chose not to. Until the Panama Papers forced them into today’s situation…
This same sort of ‘self-exclusion’ of sketchy trusts and entities happens pretty quickly when jurisdictions start requiring registration with authorities, and that’s not even bringing public registration into the equation! Imagine how much more of this ‘self-exclusion’ might take place if this information started to be publicly accessible! And so, it begs the question, what are countries waiting for? They could push illegitimate trusts out and keep only the legitimate ones right now…
For further reading here’s a blog on the case for registering trusts and how to going about doing it.