AUCKLAND • The appearance of New Zealand trusts in a legal case allegedly involving the 1Malaysia Development Berhad (1MDB) affair threatens to re-ignite controversy over the country's trusts controlled by foreigners, the New Zealand Herald newspaper said yesterday.

New Zealand trusts were thrust into the international limelight with the release last April of the Panama Papers, a large-scale leak of previously secret company and trust data maintained by Panamanian law firm Mossack Fonseca.

The Panama Papers showed that the New Zealand trusts were being used by foreigners to hide wealth.

A subsequent New Zealand government inquiry proposed tighter regulation and more transparency in the foreign trust industry in the country, but concluded that there was "no direct evidence of illicit funds being hidden in New Zealand foreign trusts".

The Labour and Green parties both said the 1MDB-linked developments, disclosing control of NZ$230 million (S$235 million) in alleged crime proceeds linked to foreign trusts - to be contested in an Auckland courtroom - could mean conclusions about New Zealand trusts might need to be revised.

Labour leader Andrew Little said the appearance of New Zealand in the 1MDB affair risked hurting the country's international reputation.

"We have got to be moving swiftly on this," he told the newspaper.

In a statement, New Zealand's Revenue Minister Judith Collins stood by the previous government report, saying: "The inquiry also considered it reasonable to conclude that there are cases where foreign trusts are being (abused)... Taking this into account, the inquiry made recommendations to substantially increase the disclosure rules."

She said the government had adopted all recommendations made by the inquiry.