The Mossack Fosenca scandal led to law changes in New Zealand as well as creative protests around the world, such as this one in Berlin.

The number of foreign trusts registered in New Zealand has plummeted by about three-quarters since a clampdown was ordered in the wake of the Panama Papers scandal.

Inland Revenue said fewer than 3000 foreign trusts met a deadline last week for them to provide more information about their structures and activities.

There were 11,645 registered in April last year, in the immediate aftermath of the hacking of Panamanian law firm Mossack Fonseca.

MAARTEN HOLL/FAIRFAX NZ The Government's response to the inquiry headed by John Shewan stopped short of meeting a call by trade unions that would have helped journalists investigate the activities of foreign trusts.

About 3000 trusts had told Inland Revenue they didn't want to be part of the new registration regime, a spokesman said, and the tax department hadn't heard from the balance of about 5000 trusts, meaning they also could no longer legally operate in New Zealand.



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The drop in the number of foreign trusts is expected to confirm some critics' suspicions that many of the trusts were used for illegitimate purposes such as tax evasion and money laundering.

Another possibility is some of the deregistered trusts were inactive, or that their foreign trustees may have decided to kill them off because of the extra paperwork and costs imposed by the rule changes that sprung out of last year's Shewan inquiry.



Either way, the reduction slashes a nice earner for lawyers and accountants, who were believed to make about $40 million in fees a year from the cottage industry of setting up and administering foreign trusts.

Revenue Minister Judith Collins said the drop in trust numbers was not surprising and it shouldn't be assumed that was because many had been handling the proceeds of illegitimate activities.

"There is a much heavier compliance burden under the new regime with more disclosure required than ever before."

Many of the 5000 or so trusts that were "unaccounted for" could have wound up or moved overseas without notifying Inland Revenue, she said, adding New Zealand now had a "world class regime".

Labour revenue spokesman Michael Wood said he was not surprised by the drop.

It was not possible to know for sure why trusts had decided to quit the country, he agreed.

"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," he said.

The Panama Papers scandal shone a light on the wide range of financial vehicles – including New Zealand foreign trusts – that were being used by Mossack Fonseca's wealthy clients to secretly shift their wealth around the world.

Law changes that followed the subsequent Shewan Inquiry ordered by former prime minister John Key mean the owners of foreign trusts now have to tell Inland Revenue who is putting in money and taking it out.

They also need to file annual financial statements with the tax department.

A one-off charge of $270 has been imposed by Inland Revenue when setting up a foreign trust, with a $50 annual fee to cover the costs of the tighter monitoring regime.

Other changes make it more likely that suspect transactions would be reported by Inland Revenue to overseas authorities – assuming Inland Revenue had a tax treaty with the country concerned.

However, the Government did not adopt a recommendation from the New Zealand Council of Trade Unions that the register of foreign trusts should be searchable by the public, including journalists, in a similar way to the Companies Office register.

Wood said Labour was in favour of a searchable public register.

"There are still a lot of trusts. We do it in other areas, and we don't see the justification for not having it here," he said.

The Government had taken too long to amend the foreign trust regime, he said.

"Even then it was only after significant political and media pressure."