The problem with shell companies


A shell company is a business with no active business activities or assets. It is not necessarily an illegal enterprise as often they are the foundation for a potential start up company. In saying that shell companies are not always genuine businesses and often – intentionally or not – they are the front for illegal business such as money laundering, bribery, scams and so forth. Numerous examples are known to exist in New Zealand, but one of the more spectacular cases is one that has just been outed.

This is not the first time that New Zealand has faced embarrassment in dealing with shell companies. In 2012 an investigation by the B.B.C., Guardian and International Consortium of Investigative Journalists uncovered evidence that New Zealand shell companies had been the front for the illicit business activities by the Russian Mafia, drug barons in Mexico among others. The same investigation found that New Zealand had been struck off the list of favoured countries by European banks because of money laundering activities by New Zealand registered companies based in Latvia.

Problems with shell companies in New Zealand have been known about at least since 2011, when the then Minister for Commerce, Simon Upton called out SP Trading following an investigation that found it had chartered a plane for an illegal North Korean armaments transfer. Months before that 2012 investigation came to the surface, New Zealand Government officials had claimed to be cracking down on shell companies. The then Minister for Commerce, Craig Foss, said that New Zealand was preparing legislation to be put through Parliament to address the problem. Two years later, an intellectual property firm called Baldwins noted the law change requires companies to have a director living in New Zealand; and introduced offences for very serious acts.

I think New Zealanders would be unimpressed – to put it mildly – if they knew that Iranian and North Korean arms shipments were being handled by agents with a shell company for a face registered in New Zealand. Given that nearly four years after the Government first acknowledged a problem existed, we now have shell companies linked to a damaging oil company bribery scandal, I wonder if the legislative changes a) went far enough and b) are being properly enforced.

I do not want by any means to discourage people from starting legitimate businesses in New Zealand. The ease with which people can do business in New Zealand is well admired around the world, and justly so. Although the law change was definitely a step forward, it is obvious that it needs calibrating or changes made if there can be a link  between a New Zealand shell company and Unanoil. New Zealand’s image as a transparent and non-corrupt country also comes into question if such activities are allowed to continue unchallenged. That is not okay.

 

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