Curran Clare: Companies and Limited Partnerships Amendment Bill — Second ReadingText is incorporated into the Bound VolumeCurran Clare: Companies and Limited Partnerships Amendment Bill — Second Reading[Sitting date: 02 July 2013. Volume:691;Page:11441. Text is incorporated into the Bound Volume.]CLARE CURRAN (Labour—Dunedin South):In the second reading of this bill the Companies and Limited Partnerships Amendment Bill I would like to just start off by saying that on 27 June 2012—so that is 27 June last year—an article appeared on interest.co.nz that said that “New Zealand’s removal from the White List means EU financial institutions and banks could undertake additional measures to ensure customers (including companies) from New Zealand are who they say they are”. New Zealand got dumped from that list a year ago and that dumping came amidst growing publicity around New Zealand - registered companies being linked to crime overseas. There was a report by the Organized Crime and Corruption Reporting Project on how Tormex Systems Ltd which is a New Zealand - registered company allegedly laundered $680 million through a Latvian bank account. But this was just one of many examples of the entities that were exploiting New Zealand’s simple company registration regime. I could go on to list more but I will not.The issue was that the question of whether there was a case for criminalising directors’ statutory duties first arose in the Ministry of Economic Development—as it was known then—2010 securities law review discussion paper and it was later approved by Cabinet in 2011 as part of its policy decisions on securities law reforms. There were two Cabinet papers as I understand it that related to this from 2011. It is now 2013. It took 18 months for a piece of legislation that was identified as being so important that had New Zealand struck off a white list to appear in the House for the first time—for the first time. I think its first reading was on 24 July last year and then it has taken another year for it to get to the second reading—another whole year.When you think about the fact that we were struck off this list and it was seen as part of our international reputation as being a good place to do business as being an easy place to do business but also as being a sound place to do business you would think that that would be a piece of legislation that this Government would treat as being important and urgent. Instead we have many other pieces of legislation that suit the Government’s agenda that get rushed though this House under urgency including something as important as this bill which had broad support in the Commerce Committee. There were serious discussions amongst all of the members involved but ultimately good work was done to produce a piece of legislation that is sound. No doubt it is not perfect but it is sound. Good work was done in order to do that but it has taken another year to get to this point.I want to talk about a couple of points in this legislation that particularly stood out for me sitting on the Commerce Committee and I would also like to take the opportunity to thank the officials for the work they have done and the good sound way in which the analysis was provided to the committee. This bill seeks to do a number ofthings but I will talk about a couple of them. One is the introduction of the criminal sanctions which is to be done in two ways really. Some of the existing conduct by directors that is not currently subject to criminal sanctions but is sufficiently blameworthy to warrant criminal punishment is seen as being one of the areas that needed attention. We also considered the new provisions in the bill that would allow in certain circumstances certain contact that was already subject to criminal sanctions to be prosecuted more directly. So there were new criminal sanctions and there were existing criminal sanctions that would perhaps have stronger criminal sanctions attached to them.The committee did take care though to ensure that directors and advisers in companies would not be inadvertently criminalised through this legislation and there was a lot of discussion on this issue. We went backwards and forwards on that. It is important to note in this House that this side of the House does not want to produce legislation before this House that creates a chilling effect on innovation and on companies being able to do what they do best. But what we do need to do is provide the sanctions that prevent and punish the behaviours that we do not want to produce and the behaviours for which New Zealand found itself struck off that white list in the European Union and for which we should feel ashamed in particular that we did not actually act faster on this piece of legislation.Just on that point it is a criminal offence for directors who commit a serious breach of their duty to act in good faith and in the best interests of the company and to not carry on their business in a way that risks serious loss to the company’s creditors. Directors who commit those offences will now be liable as I am sure you have heard today for a term of imprisonment of up to 5 years or a fine of up to $200000. We listened carefully to the submissions on this. We heard that there were a number of submitters who were reluctant to increase those penalties and who expressed concern about that but ultimately I think the committee came down on the right side on this issue. We had to show that we took this issue seriously and that there would be serious penalties for directors who were not acting in good faith.Linked absolutely with this is the requirement for directors to ensure that there is a director of the company—which I know other speakers have spoken about—who lives in New Zealand. We thought absolutely that we had to address this issue because of the shelf companies that were being established in New Zealand where there was no person associated with them and they were effectively being used as money-laundering organisations. We have to have legislation in place that addresses that issue. We also had to ensure that there could be balance achieved by requiring a company to have either a director who lived in New Zealand or a director who is a director of a company with which New Zealand has reciprocal arrangements for the enforcement of low-level criminal fines. Again there was a lot of discussion on that point as well. The purpose of requiring a director who lives in New Zealand was to ensure that there was going to be an identifiable person somebody who actually existed not somebody who potentially existed or where there was just an address with no actual company behind it—an identifiable individual with a substantive connection with the company who could be questioned about the activities at that company and who could in certain circumstances be held to account.That was the important test that we in the select committee agreed upon. There was a lot of discussion and we also noted that again there were a lot of submissions that raised concerns about that particular point. But in the end the committee came down on the side of the advice that we were given which was that we disagreed that a resident director would not be effective in preventing the misuse of New Zealand’s company registration system. Of the companies that were identified as being involved in money-laundering fraud and tax evasion in overseas jurisdictions the vast majority do not or did not have a New Zealand - resident director. I think that is the important point here and that is the point in one of the key parts of this legislation. It is to ensure that if there is a company operating in this country there has to be somebody a person who is associated with it. The information that we received was that this was not going to create an enormous financial burden for companies because less than 1 percent of New Zealand - registered companies do not have a director who lives in either New Zealand or Australia. So we support this bill and look forward to further discussion in the Committee stage.Debate interrupted.