Spotlight on NZ as hot spot for ultra-rich to park wealth

Mr Low is suspected by US officials of diverting money from 1Malaysia Development Berhad. His family members are beneficiaries of New Zealand trusts holding US$265 million (S$375 million) in assets.
Mr Low is suspected by US officials of diverting money from 1Malaysia Development Berhad. His family members are beneficiaries of New Zealand trusts holding US$265 million (S$375 million) in assets.PHOTO: SOUTH CHINA MORNING POST

Its trusts allow foreigners to hold assets with little disclosure, but this is about to change

SYDNEY • A flamboyant Malaysian financier linked to an international money-laundering probe has laid bare New Zealand's surprising appeal as a destination for the ultra- rich to park their wealth.

Family members of Mr Low Taek Jho, who is suspected by US officials of diverting money from 1Malaysia Development Berhad (1MDB), are beneficiaries of New Zealand trusts holding US$265 million (S$375 million) in assets.

These include a Bombardier jet, a luxury Beverly Hills hotel and a penthouse in the Time Warner Centre in Manhattan, according to court documents.

The family is fighting the US Justice Department's bid to seize the assets. Mr Low, better known as Jho Low, has said he provided consulting services to 1MDB that did not break any laws.

The case has shone a spotlight on the multibillion-dollar trust industry in New Zealand that allows foreigners to hold assets with minimal disclosure.

While Prime Minister Bill English's government has committed to tightening rules around trusts and legislation, the opposition Labour Party wants it to do more to safeguard the image of a nation that tops global transparency rankings.

Labour is calling for a public register of assets and their beneficiaries, which could lead to an exodus from the industry as the mega-wealthy seek to protect their privacy.

"The government's ongoing complacency risks seeing our reputation damaged," Mr Grant Robertson, Labour's finance spokesman, said by e-mail.

Such a register would "give the public increased confidence that New Zealand is protecting its reputation and joining other countries in cracking down" on the trust system.

The complex corner of New Zealand's tax system came under scrutiny last year following the "Panama Papers" leak, with local media reporting more than 60,000 references to the nation in the documents from law firm Mossack Fonseca.

A government-commissioned inquiry, held in the wake of the Panama Papers leak, concluded last year that there was "a reasonable likelihood" the trust system "is facilitating the hiding of funds or evasion of tax in some instances".

Finance Minister Steven Joyce said it was important to tighten the rules. "New Zealand is seen as a fair dealer and responsible player on the world stage," he said in an interview last week. "You have to make changes to meet the market as things change."

Last August, the government introduced legislation to tighten the system, including requiring trusts to publish annual financial statements and creating a register for police and regulators.

The Bill passed through a parliamentary committee before Christmas, and is now awaiting a second reading in Parliament. It proposed a June 30 deadline for trusts to file an initial registration.

There were 11,597 such trusts in operation at the end of last year, according to the Inland Revenue.

While there is no data on how much wealth they hold, Professor Michael Littlewood, a law don and tax expert at Auckland University, estimates it is potentially "at least tens of billions of dollars and perhaps hundreds of billions".

"The fact that New Zealand could be used as a tax haven was well known among tax professionals," he said via e-mail. "Until recently, it attracted very little public interest."

New Zealand is one of more than 100 countries implementing a Common Reporting Standard (CRS) devised by the Organisation for Economic Cooperation and Development.

The new code aims to ensure automatic information sharing between the tax authorities globally.

While the new trust register is not covered by CRS protocols, Mr English's government has made clear, in notes accompanying its legislation, that it intends to share details with other jurisdictions "as a matter of course".

The combination of the new local and global rules will make it "very much harder" for foreigners to use New Zealand trusts to avoid or evade tax, according to Prof Littlewood. "I think it's likely that, faced with beefed-up disclosure requirements, most of these trusts will leave New Zealand or be wound up," he said.

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A version of this article appeared in the print edition of The Straits Times on February 10, 2017, with the headline 'Spotlight on NZ as hot spot for ultra-rich to park wealth'. Print Edition | Subscribe