Publication of details of beneficial ownership / corporate-role holder identifier

Late last month Commerce Minister David Clark announced Government plans for a new beneficial ownership register for limited partnerships and companies.  This announcement was coupled with an announcement about a Cabinet decision to create a unique identifier for directors of companies, general partners of limited partnerships, and beneficial owners of these entities.

The background to these latest announcements is, again, FATF evaluations of New Zealand’s AML/CFT regime and concerns that that New Zealand lacked transparency of beneficial ownership information – and that this was a key deficiency in New Zealand’s AML/CFT.

The key proposed changes include:

• requiring companies and limited partnerships to provide to the Companies Office with information about their beneficial owners; and
• establishing a unique identifier for individuals who hold the positions of beneficial owners, directors, and general partners of these entities.

The proposals will apply to all registered companies and limited partnerships – but not listed issuers (which are already subject to stringent public disclosure requirements).

Details of beneficial ownership

Key to data capture and disclosure regime is a definition of ‘beneficial owner’, with a focus on persons who have “significant control” over a company or limited partnership.  That is, seeking to capture individuals who:

• hold, directly or indirectly, a minimum percentage ownership interest in a company or limited partnership (which is to be prescribed by regulations);
• hold, directly or indirectly, a minimum percentage of the voting rights in a company or limited partnership (which is to be prescribed by regulations);
• have the right, directly or indirectly, to appoint or remove a majority of the board of directors of a company or general partners of a limited partnership;
• have the right to exercise, or actually exercise, significant influence or control over a company or limited partnership; and/or
• have the right to exercise, or actually exercise, significant influence or control over the activities of a trust or other organisation which is not a legal entity, but would itself satisfy any of the above conditions if it were an individual.

Some of the details about beneficial owners, directors and general partners is proposed to be made publicly available – on the companies and limited partnerships register.  This includes full name, date of and basis for becoming a beneficial owner or date of appointment, address for service, and chains of beneficial ownership.

Other, more sensitive details, such as the date of birth and email address will remain private (on a non-public corporate role-holder register).  However, government agencies (such as the FMA, SFO and OIO) and AML reporting entities may be able to access some details under certain conditions.

For limited partners, this will be a major departure from the current regime, which enables their details to remain private.  There will be increased (and ongoing) compliance burden for both the relevant entities and the beneficial owners.

Even for companies, where ultimate holding company details are currently required to be disclosed, the public identification of beneficial owners (including minority shareholders) will be a significant additional step.

The disclosure obligation will fall on the company or limited partnership itself.  Shareholders and limited partners will have obligations to take reasonable steps to ascertain whether they are or have become a beneficial owner and to inform their company or limited partnership if they are.  And, individuals who are aware or should reasonably be aware, that they are or have become beneficial owners are obliged to provide the necessary information to the company or limited partnership.

It seems that the Minister departed from officials’ recommendations that beneficial owner information be held on a private internal database within the Companies Office, and decided that having some information publicly accessible would be a better balance between the broader public interest in light of international trends and supporting law enforcement, versus privacy concerns.

Quite how the distinction between beneficial (requiring disclosure) and non-beneficial is to be made by the company or limited partnership will need to be clarified by the draft legislation.

The Cabinet decisions also include scope for beneficial owners to have the ability to request that public information about them be suppressed on the relevant registers if they have safety or welfare concerns.

Unique identifiers

The proposals also include introducing a unique Corporate Role-holder Identifier (CRI) for individuals who are or become beneficial owners, directors or general partners of a company or limited partnership.  The CRI will mean that an individual can be linked to all of the director, general partner, and beneficial owner roles they hold.

It will be similar to the NZBN issued to New Zealand entities.

Being able to identify if someone in respect of more than one entity can make it easier for businesses, creditors and consumers to undertake due diligence, and for enforcement agencies to detect potential unlawful activities.

Address for service

The details of the proposals include enabling directors and shareholders of companies, and limited partners of limited partnerships, being able to request that their residential addresses be supressed from public view if they provide an address for service (as an alternative).  This will bring these positions in line with beneficial owners.  But the proposals also include enabling creditors, insolvency practitioners, shareholders and other parties to have the right to request access to the residential address where they have been unable to reach the person using their address for service (i.e. about a matter related to a statutory role or duties).

Transition and penalties

A transitional period of 6-18 months (with longer periods where the entity is large or has offshore directors or beneficial owners) in which existing companies, limited partnerships and individuals associated with these entities (as beneficial owners or directors/limited partners) can meet their new obligations.

Proposed penalties for non-compliance can apply to both the entity and the individuals, and include, fines, criminal penalties (in some cases), and the ability of the Registrar to remove the entity from the register.

Thoughts

For detailed reasons, it is a coincidence that these proposals emerge hard on the heels of the Russia Sanctions Act.

Instead, this is just another (compliance) step as New Zealand plays its part in AML/CFT measures.  The step-change is not the collection of data, but its public display (such as that for limited partners – which, to date, has not been publicly available).  And depending on the thresholds adopted in the proposed legislation, small investors may escape the compliance net – which is likely to focus on significant/cornerstone investors.

Whether this makes New Zealand a less attractive “home” for some international investors remains to be seen.  Ultimately, the proposals are little more than an international alignment. 

And the proposals for dealing with the privacy of individual information (e.g. director residential addresses etc.) should be welcomed – for those involve with our nearly 700,000 companies and just over 3,000 limited partnerships.  It seems quite odd, many years after such concerns were first raised with MBIE, that director residential addresses are a mouse click away – when such personal data is protected in a variety of other contexts. 

One obvious issue is the lack of alignment between the definitions of “beneficial owner” under the AML/CFT regime – and that for the Companies Act and the Limited Partnerships Act.  As well as creating a compliance headache – as well as raising questions about whether such a lack of alignment will raise questions about the efficacy of public disclosure. 

Timeline

A Bill is expected to be made available for public consultation mid-year, for prioritisation and the Parliamentary process in late 2022.