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Monday, Jul 30, 2012 2:15 AM UTC

Criminals abuse New Zealand’s liberal company laws

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Topics: From the Wires,

WELLINGTON, New Zealand (AP) — When American Jeffery Lowrance this month pleaded guilty in federal court to wire fraud and money laundering after running a $25 million Ponzi scheme, he was just the latest in a long list of criminals to take advantage of liberal company laws in New Zealand.

Like other criminals before him, he found that for about $130 and a small amount of online paperwork, he could set up a shell company in New Zealand without stepping foot in the country or having any financial presence. He registered First Capital Savings & Loan to an Auckland address but ran his scheme from Panama.

The World Bank ranks New Zealand as the easiest place in the world to set up a business, a point of pride for the island nation, which seeks to encourage trade and investment. But the system is open to abuse.

In an alarming case two years ago, a New Zealand shell company, SP Trading, leased an airplane that was seized in Thailand while carrying 35 tons of rocket-propelled grenades, surface-to-air missiles and other weaponry. The plane had picked up the cargo in North Korea and was headed for Iran. The crew, four Kazahks and a Belarusian, were incarcerated and charged with possessing weapons.

Soon after that, New Zealand’s Companies Office set up risk-profiling teams to scour the company register for suspect companies. Since 2010, they’ve found 2,600 illegitimate companies, and have been de-listing companies that don’t comply with various rules at the rate of more than 1,000 per month. Yet with more than 560,000 companies now registered in New Zealand — one for every eight citizens — the database is large and growing.

And in the case of SP Trading, it wasn’t until two months ago that the Companies Office finally removed it from its register of legitimate businesses.

The European Union became concerned enough that last year it struck New Zealand from its so-called “white list” of countries that require only minimal customer due diligence for transactions involving financial and credit institutions. Concerned that New Zealand could be prone to money laundering and terrorist financing, the EU reaffirmed this year that New Zealand wouldn’t be on the list, which includes Australia, Canada and the U.S.

That’s been an embarrassment for the developed nation which is regularly rated among the world’s least corrupt.

Last week, New Zealand’s Commerce Minister Craig Foss introduced a new bill which he says will tighten the rules by requiring each listed company to have a New Zealand-based agent who will bear some legal responsibility. But even if passed by the parliament, the new law would not come into effect until mid-2013 and would not go far enough to satisfy some critics.

“It’s about balance,” Foss said in an interview. “We are renowned for our ability to get companies up and running in New Zealand. We need to balance that ease with our obligations to make sure we are doing what we can to stop abuse.”

He said the new rules would dovetail with anti-money laundering legislation that is being spearheaded by Justice Minister Judith Collins.

Yet some say New Zealand has yet to get serious about stopping abuse. Financial blog naked capitalism has repeatedly accused New Zealand of playing the equivalent of the arcade game “Whac-a-Mole” by knocking down illegitimate operators as they pop up but not dealing with the systemic problems that give rise to the abuse.

“There are significant gaps in New Zealand legislation, especially concerning the registration and supervision of companies,” said Michalis Rokas, the Chargé d’Affaires for the EU delegation in New Zealand.

Rokas said EU member states will likely review whether New Zealand can be added back to the white list if and when the country enacts the proposed new laws.

Alastair Stewart, a spokesman for the Ministry of Business, Innovation and Employment, wrote in an email that authorities are aware that operators like Lowrance are abusing the system and they’re undertaking a wide program of work “to further reduce the misuse of New Zealand’s-registered companies and protect our international reputation.”

Records indicate that Lowrance, who once lived in Houston but was last year extradited by federal authorities from Peru, set up his New Zealand company in early 2007. The Companies Office didn’t shut it down until mid-2010, eight months after the U.S. District Court of South Dakota issued a $42 million default judgment against Lowrance.

According to another civil judgment filed in Illinois, Lowrance told his 400-plus victims they would get returns of up to 7 percent each month by investing in his foreign currency trading scheme. In fact, Lowrance kept the money for himself, the judgment says, using some of it to fund an unsuccessful religious newspaper called “USA Tomorrow.”

Lowrance’s victims included a 78-year-old retired Illinois school teacher and a 77-year-old California woman who sold books and flags on eBay.

Under the terms of his plea deal in the criminal case, Lowrance is due to be sentenced later this year to a maximum 15 years, 8 months in prison.

More Nick Perry.

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