Key John: Fair Trading Amendment Bill (No 3) — Second Reading 
Key John: Fair Trading Amendment Bill (No 3) — Second Reading 
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JOHN KEY (NZ National—Helensville) 
: 
 National supports this legislation. As other speakers before me have outlined in large part the bill looks to include the acts of pyramid schemes within the legislation and to apply increased penalties to those acts. 
I want to talk for a moment about pyramid schemes in New Zealand. Pyramid schemes arise in a lot of different forms. One of the forms in which one often sees a pyramid scheme operating is a chain letter. Chain letters are a common form of a pyramid scheme. Often they start in a very innocent form. I fondly remember in my time at school when chain letters went around. I imagine that in my case they were probably love letters but that in the case of many other people they were other letters. There were numerous young ladies—[ 
Interruption 
] In fact an infinite supply of young ladies did write back to me and talk to me about the physical attributes I had—my good looks—and my charm. That was certainly my first introduction to such letters and I would hate to think that the Fair Trading Amendment Bill (No 3) was looking to close down that kind of activity because I found it quite enjoyable. 
But on a more serious note chain letters are an example of pyramid schemes. One of the reasons that we must pass this bill and close down pyramid schemes is the fact that they are doomed to fail. As someone who has been involved in the financial markets for all of my life I have always looked to supply financial instruments and investments for people that are fair and that give them a great opportunity to prosper in their retirement in the years when they most need that income. One of the major issues with pyramid schemes is that they are simply doomed to fail. They must fail because they do not rely on the sale of a good or service; they rely on more members joining up. Fundamentally there is a finite number of people in New Zealand. We saw in the last census that there were 3.95 million New Zealanders—about 40000 Kiwis short of being over the 4 million mark. Therefore eventually irrespective of how big or broad the pyramid scheme is or whether it takes the form of a chain letter or whether it is sold by an agent or a scheme fundamentally it must collapse. An investment scheme that is doomed to failure is an investment scheme that simply must be stopped. National strongly stands for the Fair Trading Amendment Bill (No 3) to protect New Zealanders who are asked to invest in schemes that are doomed to fail. 
I draw the attention of the House to the fines in this legislation. The original law applies a maximum fine of $30000 for an individual and $100000 for a company. The bill proposes to increase that to $60000 for an individual $200000 for a company but $200000 for a pyramid-selling scheme. One of the very important reasons that National and other members of the House fully support this bill is that when a fine is under the amount proposed in this legislation—under that $200000 limit—pyramid-selling schemes may be undertaken by members of the community who know that they will eventually be closed down and fined that eventually it is a zero-sum game that there are not an infinite number of members. Fundamentally they will become involved in these things knowing that they may well pay a fine but the fine is not large enough to deter them because they will make money even once they have paid the fine. 
Last week I had in my office a member of the community who had been duped by a pyramid-selling scheme. Without going into the gory details of it this member of the community in my Helensville electorate had had a farm had invested in a scheme and had lost in the order of $1.65 million. I felt a great degree of sympathy for him because although on the face of things one can always argue that sometimes people do something a little silly this member of the public—one of my constituents—was really someone who had innocently gone into something and had been conned by a scheme like this. It was one of those situations where the amount was rather exponential in how it went. The upshot of it is that this member of the public one of my constituents has now lost his farm and I have great sympathy for him. We have great support for this legislation in what it attempts to do. 
I want to talk a little bit about section 47. It applies the search warrant powers and the ability to search for information. Again the nature of a lot of these schemes is really complex. On the face of things they look quite probable and the investment often looks quite low but there are lots and lots of reasons that people are tied into these schemes. Because of their very very complex nature I think giving the commission the power to have extended search capabilities which section 47 does is to be applauded. It will allow these schemes to be investigated further and to be looked at for quite some time. 
New Zealand unfortunately does have a history of some schemes affecting quite a number of the community. I often ask someone from the financial markets why people are fooled by these schemes and what legislation could be passed to help protect those people. The answer is that we can only go so far in our legislation in terms of providing a deterrent in the form of the penalties that are proposed in this legislation as I outlined earlier—an increase of the fine of $30000 for an individual up to $60000 and of the fine of $100000 for a company up to $200000; and a fine of $200000 for someone involved in a pyramid scheme. That is a very good starting point. One of the things we can do is pass legislation like this which will help give enforcement and infringement notification. 
But it is incumbent on members of the financial services community as well if they ever see these schemes to the extent that they are financial advisers to look at and comment on these schemes. Also people have the opportunity when these schemes are exposed to bring them to the attention of the public either via the terms of this bill or via the Commerce Commission. In describing one of the most important ways to close down these pyramid schemes the analogy I give is Internet viruses which we see on our computers these days. Members of the House will know that when there is a virus of some sort very often what happens is an email goes around the community and advises people about what is happening. The other day I received an email with a teddy bear icon. It was not one of those love letters dating back from the time when I was at Burnside High School from someone who had been affectionate to me at that time; no it was an Internet virus of some sort. In terms of pyramid schemes forearmed is forewarned. That is very very important. All members of the community have a responsibility to bring these schemes to the attention of the public and to the attention of the Commerce Commission. Under section 47 they can investigate these matters and can highlight them to members of the public. 
Although some of us have had training in the financial markets and have had an opportunity to study these things many people have not. These schemes prey on people who have not had the opportunity to make a full study of these things. Very often they are people who can least afford to lose money and can least afford to have their families afflicted by these schemes. 
National supports the Fair Trading Amendment Bill (No 3). We look forward to this bill becoming legislation that protects New Zealanders who would be preyed on by those who would promote pyramid schemes in a manner that is to their detriment. As I said earlier before I came to the House I looked at relevant legislation in other jurisdictions. I can tell members that if they do a search of the Internet on what is happening in Australia and the United Kingdom they will find as I did—and I printed it out—very similar legislation from the Department of Trade and Industry in the United Kingdom that promotes exactly what is happening in this bill. It has some very good pointers in terms of citizens advice and where members can have legislation. On that note I commend this legislation to the House.