The government is likely to adopt "the majority" of the recommendations made by John Shewan, to tighten up New Zealand's foreign trust regime.
The inquiry into New Zealand's foreign trusts regime has found the current rules are inadequate, and are not robust enough to protect this country's international reputation.
The review by John Shewan was ordered in response to questions raised about New Zealand's role in helping wealthy foreigners hide their money offshore, after the release of the leaked Panama Papers.
John Shewan, who led the inquiry. Photo: SUPPLIED
"I'd describe the rules at the moment as being light-handed" - John Shewan
Mr Shewan has recommended a significant increase in information to be disclosed when a foreign trust is set up, annual reporting and increased enforcement.
Prime Minister John Key said the government acknowledged improvements could be made.
He described the current disclosure requirements as "light-handed" and said tougher disclosure rules would act as a deterrent for anyone looking to use New Zealand trusts for illicit purposes.
Labour's finance spokesperson Grant Robertson said the recommendations have forced the hand of a government reluctant to confront the issue.
"The prime minister from day one sought to protect the foreign trust industry rather than protect New Zealand's reputation."
Mr Shewan said while there was no direct evidence in the Panama Papers material that had been made public that illicit funds were being hidden in New Zealand foreign trusts, or of tax abuse, he considered it "reasonable to conclude that there are foreign trusts being used in this way".
Panama Papers NZ - read our full coverage
He said the current legislation, regulations and practice governing foreign trust disclosures presented "both the potential and the environment for this to occur".
And he said while the publicity around the Panama Papers had the potential to cause reputational damage to New Zealand, any adverse impact could be avoided if disclosure rules were tightened.
Mr Shewan said foreign trusts, like domestic trusts, were a "legitimate vehicle" used primarily to manage family wealth, and they were supported by a "significant" industry in New Zealand.
His recommendations include:
- When foreign trusts are set up or registered it should be through an expanded version of the current disclosure form IR 607, to include name, email address, foreign residential address, country of tax residence and tax identification of all of the people connected to the trust.
- That a register of foreign trusts be established, that only regulatory agencies can search.
- That the person establishing the trust, the settlor(s), and trustees have been advised of various legal obligations around anti-money laundering, record keeping requirements and information exchange, and sign a written declaration accordingly.
- That this registration apply to all trusts established after a new law is introduced, and that existing trusts have until June 2017 to come under the new regime.
He expected the number of foreign trusts could fall if his recommendations were put in place.
"If you increase the disclosure rules as we're proposing, then it's likely that those who are relying on non-disclosure are unlikely to want to stay here. I think we'll see a drop in the number of trusts registered here and we'll probably see less coming in than currently the case," he said.
Mr Shewan said New Zealand was not a tax haven.
"The OECD criteria make it very clear, if you apply those, we are not a tax haven, but as I say in the report, that in itself is no basis for saying 'well everything is fine' so I just think the whole debate about tax haven was frankly a waste of time," he said.
Mr Shewan has also recommended changes to the existing Anti-Money Laundering legislation.
Lawyers and accountants are currently exempt, but will be covered when Part Two of the legislation takes effect next year.
Mr Shewan said Parliament should move immediately to ensure lawyers and accountants are covered now.
He has also recommended greater obligations on those involved in trusts to find out and disclose the source of funds, and that greater due diligence is carried out on those wanting to establish trusts in New Zealand.
Govt likely to adopt "majority" of recommendations
Prime Minister John Key said at one level Mr Shewan supports what the government has been saying about New Zealand not being a tax haven, but the government acknowledges improvements could be made.
"What he is saying though is that the level that information is held, in his view is now the right place; he's not so much dramatically suggesting the amount of information is changed, but he is saying for instance it should be held at the IRD level in a searchable register with more automatic exchange of information."
Mr Key said the government would have to take a much closer look at that recommendation to ensure lawyers and accountants were covered now.
"The very early advice we've had on moving faster on Part Two is that it's likely to be complex, probably quite bureaucratic, have a high degree of compliance cost involved.
"So we're obviously going to move on it, because we've made the commitment to do so, but it actually spans quite a lot of areas so we're now working our way through it, it'll probably at a slightly slower rate than he would say."