Gordon Campbell on living in denial about the Panama Papers

April 5th, 2016

So now we know why New Zealand won all those awards for being the ‘easiest place to do business.’ Evidently, foreign firms that register in New Zealand can operate with impunity when it comes to complying with (a) our money-laundering and terrorism financing laws and (b) our international obligations on such activities. Pity the investors offshore. It would be entirely reasonable of them to assume that a firm that’s registered in New Zealand would be subject to some regulatory oversight (before and after) by the New Zealand authorities – especially when we know from their brochures that some of these shonky firms are actively using their New Zealand connection to convey a sense that First World standards will govern their activities.

No such luck, and no such standards. Now we’re learning – via the Panama Papers – that shady Maltese and Panamanian operators were using shell companies in New Zealand as a key part of their global tax manoeuvres. At a time when politicians claim that there’s only limited tax revenue in the kitty to spend on social services the Panama Papers also reveal that this one firm in Panama had business links to 140 politicians and 72 current or former heads of state as it pursued its ingenious methods of tax avoidance. The foxes not only run this henhouse. In many cases, they built it themselves.

At his post-Cabinet press conference yesterday, Prime Minister John Key ran through the gamut of his Five Basic Crisis Management ploys. In no particular order…

(a) There’s no problem here, move on. The OECD gave us a clean bill of health back in 2013, Key claimed. End of story. In fact, the IRD warned government in 2013 of the reputational risk to New Zealand from a disclosure regime around foreign trusts that compared poorly to those being operated by other similarly developed countries.

(b) Muddy the pool with irrelevancies. “In other words,” Key said yesterday, “it’s all about making sure New Zealanders pay their fair share of tax”. No, it isn’t. It’s about foreigners abusing our reputation, and it’s about us not living up to our international obligations. The G7 for instance, has set up a Financial Action Task Force (FATF) that sets international standards on money laundering and fighting terrorism financing. We are almost certainly in breach of these standards. Unfortunately, New Zealand is not due to be formally monitored by the FATF until late 2019.

(c) Blame Labour. The same system, Key said, has been in place since 1988. Obviously though, the world has moved on since 1988 when it comes to cracking down on money laundering and terrorism financing.

(d) It is a very complex issue. Yeah, right.

(e) Don’t ask him, he hasn’t been briefed on this…. And so on.

In fact, this same problem has existed for almost a decade, and we put out the welcome mat for it ourselves. With almost comical naivete, Treasury’s then-Secretary John Whitehead gave a speech in 2005 that celebrated the turning of New Zealand into a shonky tax haven as being a triumph of Kiwi ‘can do” ingenuity:

Using greater managerial freedom to apply new technology judiciously combined with clear performance expectations, [the Companies Office] was able to reduce the cost of registering a company from $200 in 1995 to $70 in 1999. Its average turnover time for registering a company fell from two weeks to just thirty minutes. The benefits are still evident now – New Zealand has been identified as one of the easiest countries in the world to start up a new business from a compliance point of view.

You bet. In a twinkling, New Zealand became a seed-bed of criminality. As I wrote in 2012:

……Only four years later, criminals from places like Panama were beating a path to New Zealand to make use of that very same “efficiency” to set up bogus shelf companies, and commit fraud, money laundering and tax evasion.

As the then-Commerce Minister Simon Power conceded at the time:

… Simon Power acknowledged New Zealand’s reputation as a good place to do business had been harmed by overseas individuals using New Zealand registered companies “to commit or facilitate crime such as money laundering, tax evasion and fraud, in overseas jurisdictions”.Mr Power also said a lack of enforcement of current company law meant New Zealand authorities had been unable to help international agencies in trying to combat international fraud. He said the misuse of company structures by “a small number” of overseas individuals and New Zealand-based agents “threatens our international reputation as a good place to do business”.

Not such a small number, in fact. In 2012, a Cabinet Paper noted that some 77 trust and company service providers were being monitored by the Companies Office, as they actively worked with companies that were locally registered in New Zealand, but operating offshore. (Does that sound to you like this country is operating as a tax haven? Yeah,it does to me too.) And here we are four years later, and the same story is repeating itself. Oh, MBIE did recently put out a discussion paper listing six ways that we could possibly improve the quality and operations of our Financial Service Providers Register (FSPR). Two of those options entail reducing the public disclosure of information.

If there was a will to do so, a couple of simple steps could transform this dodgy situation. As a useful start, we could require that any firm registered in this country as a financial services provider must comply with our money-laundering and terrorism financing laws, even if all of its clients live overseas. As Interest.co.nz journalist Gareth Vaughn has suggested in several excellent articles on this issue available here and also here we could also require that these NZ registered entities must New Zealand banks. This, as Vaughn says, would have the advantage of putting local banks on notice regarding compliance, since they would be being overseen by the Reserve Bank. Obviously, fresh resources would have to go into these monitoring activities. A readiness to see that there’s a problem – and a will to fight it – would also help.

Why don’t we treat this issue with more urgency? The main reason is that IRD and those running the Financial Service Providers Register can see that their efforts wouldn’t actually result in any more tax revenue flowing back to this country. That’s why the necessary work has fallen down the priority list. Moreover, once a company gets registered here, they derive a commercial gain from it – they can then tout the quality New Zealand brand to the rich and the gullible overseas – and so the chances are, they will fight in court any move to kick them off the FSPR.

For their part, IRD and the rest of the compliance system can see little point in taking them on. Far easier, and much more lucrative to screw down students over paying back their student debt. They’re sitting ducks. Why fight on this financial services integrity front, when you won’t get any money back even if you win? The only damage that’s being done is to New Zealand’s international reputation, and that’s up to the politicians to defend. Not IRD’s job, apparently. Unfortunately, as John Key has shown in the last 24 hours, the government isn’t interested, either. It sees more political gain in denying that a problem even exists. Move on.

The War on Drugs, Further Disappointment…

Sometimes, bureaucrats can speak with a simple clarity that’s almost poetry. Here, for instance, is the opening paragraph of the US Department of Defence audit of the modification of a drug-fighting reconnaissance plane that was supposed to allow the US to detect and destroy opium fields in Afghanistan. It just didn’t quite turn out that way:

In fiscal year 2008 the Drug Enforcement Administration (DEA) expended nearly $8.6 million to purchase an ATR 42-500 aircraft (ATR 500) to support its counter-narcotics efforts in Afghanistan. The Department of Defense (DOD) agreed to modify the DEA’s ATR 500 with surveillance equipment and other capabilities to conduct such operations in the combat environment of Afghanistan in what became known as the Global Discovery program. In addition, through five Memoranda of Understanding (MOU) with the DOD, between fiscal years 2012 and 2015, the DEA received $29,080,137 from the DOD to support both the DEA’s counter-narcotics aviation operations in Afghanistan and the Global Discovery program. As of February 2015, the DEA had expended $10.1 million of this funding for the Global Discovery aircraft. The DOD has also expended an additional $67.9 million in DOD appropriated funds to modify the DEA’s ATR 500 and to construct a hangar at the

Kabul International Airport in Afghanistan for the aircraft. Even though collectively the DEA and DOD have spent more than $86 million on the Global Discovery program, we found that, over 7 years after the aircraft was purchased for the program, the aircraft remains inoperable, resting on jacks, and has never actually flown in Afghanistan.

Wow. So that’s $US86 million and seven years work on fitting out a reconnaissance plane that – literally – never got off the ground.

Moses Sumney, Genius in Waiting

Moses Sumney comes to the stage armed with little more than a guitar, a pedal array, and his amazing voice. Sumney was born in California. At ten, his family moved to Accra, Ghana but reportedly, this wasn’t a happy experience for him – and in his late teens, Sumney returned to the US to study creative writing at UCLA. His early music was produced by Chris Taylor of the experimental band Grizzly Bear, and was released on their label, Terrible Records.

Since then, Sumney has opened for Sufjan Stevens, hung out with Solange Knowles and showed up on the Skrillex remix of the Hundred Waters track “ Show Me Love” alongside Chance The Rapper. Meaning : at 25, he’s become very well connected, and the buzz around him is only just beginning. “ Worth It” is a

stunning track, and “Replaceable “ even manages to make a brief diversion into scat singing seem listenable. Its worth watching him use his body to create the rhythm loop on the final track, “Everlasting Sigh. ” The lyrics to that one fuse together his blackness (“the bed of coal”) with the white gospel tradition of “Leaning On The Everlasting Arms” to create something entirely original :

Sighing on the embers of a fire,

That must be allowed to die

The bed of coal, it must run cold in time

But your body heat, it brings life

Crying in a river running dry

Made your eyes a clouded sky

But if you’re a god

Made from a god, made from a god

Let your whispered word be divine

If vultures can be soul birds, let it die

Leaning on the everlasting sigh…

Footnote : Because “Leaning On The Everlasting Arms” has had such an enduring presence in popular culture, I once wrote an entire column about the background to this hymn. Subsequently, it popped up again, as the theme song of the Coen brothers remake of True Grit.

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