New rules that will increase corporate transparency and reveal their beneficial owners will help identify foreign buyers using companies to circumvent the ban on foreign homebuyers, said Trade Minister David Clark.

A university law expert, however, warns that trusts remain a blind spot for regulators and says the government should also work to make them more transparent to prevent violators from changing their strategy.

The ban on foreign house buyers was imposed by the Labor government in 2018, but due to the continued opacity of trusts and companies, the Overseas Investment Office (OIO) is relying on the honesty of the lawyers who create such entities and those who facilitate the transactions to detect the rule. circuit breakers.

Rebecca McAtamney, head of regulatory practice at Land Information New Zealand (LINZ), said the OIO was aware that some overseas investors were trying to use trusts and corporations to conceal their ownership.

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Clark said he was told BCIn welcomes the increased transparency new measures will bring, which should help deter those seeking to conceal beneficial ownership.

“They also note that the changes could lead to more prosecutions, as it will make it easier to detect foreign ownership,” he said.

The aim of the new rules was to protect New Zealanders against money laundering, tax evasion and terrorist financing.

University of Auckland law professor Mark Henaghan said it was strange that the government did not tackle the opacity of companies and trusts in new legislation, which would prevent violators from change strategy.

“If there are legal devices to be used to circumvent these [bans], and we’re going to remove one – which is the use of a corporation – but we’re not going to remove another one, which may be the use of a trust, that’s a legal loophole. That’s how I see it,” Henaghan said.

Trusts are increasingly being used to hold property in New Zealand, with property data company Valocity reporting a 48% increase in the use of trusts to own homes since 2015.

Henaghan said overseas buyers can also send money to relatives in New Zealand to set up a trust, which would make it harder to identify an overseas buyer.

“The other way is people can send money here to set up a trust, now how are you going to trace that?” he said.

“Particularly in Chinese culture, people lend money all the time to do things for them – it’s quite common.”

Clark said that while trusts weren’t strictly covered by the new rules, if a company had a trust in its beneficial ownership structure, the registry would likely collect information about the trust as well.

He said the overseas investment regime depends on the professionalism of a chain of participants, from estate agents to estate agents and lawyers.

“In addition, the Overseas Investment Office conducts spot checks and monitoring activities, and uses and shares intelligence to oversee legal requirements,” Clark said.

Recent example of a company being used to circumvent the rules

A recent lawsuit against a Korean who illegally bought a $3 million property in Helensville, 40 kilometers west of Auckland, reveals how companies could be used to dodge a ban on buying a foreign home .

In this case, Won Joo Hur, a Korean citizen, bought the property without the required consent from the Overseas Investment Office using a company owned by his lawyer’s wife.

He was fined $100,000, while his lawyer, Jaeho Choi, was ordered to pay $30,000 by the Auckland High Court and suspended from practicing for five and a half months.

In this case, McAtamney said the matter came to the attention of regulators in September 2016 when she received an email from Choi asking about Hur’s options.

Asked if the OIO would have acknowledged the breach without the lawyer coming forward, McAtamney said: “We cannot say for sure, so it would be inappropriate to speculate.”

law professor at the University of Auckland, says if a market is to be regulated, the legal devices that allow people to dodge regulators must be addressed.” style=”width:100%;display:inline-block”/>

There was no court-ordered disposal of the property, as Hur’s wife had become ordinarily resident in New Zealand since the purchase of the property and was therefore entitled to make the purchase. She purchased the property in her name following a public auction.

Overseas Investment Act focused on beneficial owners

McAtamney said

the Overseas Investment Act focused on who was the beneficial owner of a property, not who was registered as the owner, and the use of trusts and the appointment of New Zealanders as trustees to avoid the need for consent were illegal.

She said it was difficult to know when a foreign investor had set up a trust to acquire property because trusts were not registered and property records did not list the beneficial owners on the title.

“However, the OIO has broad information-gathering powers, and we will use them if we suspect a breach of law has occurred,” she said.

In January last year, reforms to trust law created new reporting obligations for trustees and stricter rules on how trusts should be set up.

A government spokeswoman said the Law Commission was considering creating a register of trusts in its review of the Trusts Act, but did not recommend one because the large number of trusts meant the work to create it would be considerable.