Monday, July 25, 2016

Dodgy New Zealand Companies: Mapping Their Global Footprint Since 2009

UK Prime Minister Theresa May made this observation last week:

It doesn’t matter to me whether you’re Amazon, Google or Starbucks, you have a duty to put something back, you have a debt to your fellow citizens, you have a responsibility to pay your taxes. So as Prime Minister, I will crack down on individual and corporate tax avoidance and evasion. 

* Are law firms being exploited by their clients to launder money? [Wall Street Journal]

NZ is far from alone in having problems in the shadowy world of offshore finance. But the country, partly due to having a cheap and simple companies registration system, and being an easy place to do business, coupled with an international reputation for being among the least corrupt nations around, has proven ripe for exploitation.

And Swiss cheese style regulatory holes don’t help. For example, NZ foreign trusts. In a great example of the law of unintended consequences, when set up just right, NZ foreign trusts can escape tax everywhere.

Via POGO:  “In a new report, London-based watchdog Global Witness sheds light on the dangers of anonymously-owned companies in government contracting. The recent Panama Papers scandal has raised concerns of how money stashed in anonymous shell companies is used to evade taxes and fund international crime. In a similar vein, a Global Witness report titled Hidden Menace: How secret company owners are putting troops at risk and harming American taxpayers is a fascinating and startling look at how money lost to anonymously-owned contractors engenders waste, defrauds taxpayers, and threatens national security…”

Dodgy New Zealand Companies: Mapping Their Global Footprint Since 2009

By Gareth Vaughan and Denise McNabb of, and Richard Smith of Naked Capitalism. An earlier version of this post appeared at
New Zealand Foreign Trusts, to be radically reformed after the recently-announced wholesale adoption of the Shewan report’s recommendations, are just the tip of the iceberg in terms of the ethically challenged and outright criminal use of a range of New Zealand corporate entities overseas.
Aside from trusts, New Zealand registered companies, financial service providers and building societies all feature too. Countries as diverse as Brazil, China, Malta, Latvia, Denmark, and the United States have felt their impact. Ponzi schemes, drugs, arms, tax scams and money laundering all feature alongside the simply bizarre. Usually the perpetrators are not New Zealanders. But New Zealanders have proven themselves willing to act as fronts for some very dodgy people offshore.
Concern about the behaviour of NZ registered, but overseas operating companies ramped up after the activities of shell company SP Trading came to light in 2009 
The aircraft was forced down while travelling over Thai airspace. When investigated in Bangkok it was found to contain 35 tonnes of North Korean weaponry including rocket-propelled grenades, missile and rocket launchers, missile tubes, surface to air missile launchers, spare parts and other heavy weapons to an estimated value of US$18 million. In the extensive publicity of the incident that followed there was considerable focus on the fact that the lessee of the plane was a New Zealand registered shell company [SP Trading].  
This extract is taken from a High Court judgment from Justice Raynor Asher. The judgment blocked an attempt by Lu Zhang, the sole director of SP Trading whose day job was flipping burgers at Burger King, to be discharged without conviction having pleaded guilty to making 74 false statements under the Companies Act. (She was convicted and discharged without further penalty).
Dodgy New Zealand Companies: Mapping Their Global Footprint Since 2009

Corporate Tax Collection In Spain Goes Negative €539 Million Michael Shedlock

 Middle Ages in Greece: More than 120,000 employees get paid less than 100 euros per month! failed evolution

"My big tip to people planning to use myTax is to hold off until August. By this time, we will have received most of the data we need from employers, banks, government agencies and other third parties to pre-fill tax returns," ATO assistant commissioner Graham Whyte said in a recent media statement. Pre-filling not only saves you time, it's also likely to result in faster processing Why the tax office doesn't want you to use myTax to submit your return yet

Study: Top Bank Execs Saw the Crisis Coming and Sold Their Company’s Shares

... So much for “whocouddanode”.

By Ozlem Akin, Assistant Professor of Finance at Ozyegin University, José M. Marín, Professor of Excellence at Carlos III University of Madrid, and José-Luis Peydró, ICREA Professor of Economics at UPF, Barcelona GSE Research Professor and Research Associate of CREI. Originally published at the Institute for New Economic Thinking website
Banking crises are recurrent phenomena that often trigger deep and long-lasting recessions with enormous economic and political costs. Yet the empirical evidence is now overwhelming that banking crises do not come as bolts from the blue – they come after periods of strong bank credit growth and risk-taking, often associated with real-estate bubbles. The crisis of 2008 was no different: it is clear that banks took on more and more risk as bubbles swelled in many countries.
A key research question is why banks take such excessive risks. Many defenders of finance in the recent crisis suggest that the giant institutions were really taken by surprise when the bubble popped. Otherwise, runs the argument, why wouldn’t they have sold off all the junk? The implication of this “behavioral” view is that banks take on high risks because, for example, they neglect unlikely tail risks and have over-optimistic beliefs about the economy.
But there is another, less innocent answer: explicit and implicit bank guarantees by states, such as deposit insurance, provision of central bank liquidity, and bail-outs make it rational for banks to take on excessive risk. Sometimes this “moral hazard” point of view is combined with an “agency failure” account, which stresses how bank managements can escape from control of their shareowners and holders of bank debt.
These views of why banks take on excessive risk are testable. In a recent paper we tackle this question by providing sector-wide evidence from US. We examine what bank insiders were doing before the crisis and use executives’ trading with their own bank shares as a proxy for their understanding of risk before the crisis hit in 2007-08. Specifically, we investigate the relationship between bank’s performance in the crisis and bank executives’ sale of their own bank shares in the period prior to the crisis.
The paper finds that the top executives’ ex-ante sale of their own bank shares predicts worse bank returns during the crisis; interestingly, effects are insignificant for independent directors’ and other officers’ sales of shares. That is, effects are substantially stronger for the insiders with the highest and best level of information, the top five executives. Moreover, the top five executives’ impact is stronger for banks with higher ex-ante exposure to the real estate bubble, where an increase of one standard deviation of insider sales is associated with a 13.33 percentage point drop in stock returns during the crisis period. Our results suggest that insiders understood the heavy risk-taking in their banks; they were not simply over-optimistic, and hence they sold more of their own shares before the crisis.
These results have not only implications for corporate finance or banking theory based on agency problems, but also for an understanding of financial crises and public policy – especially on the recent prudential policy measures across both sides of the Atlantic. Our evidence is consistent with agency problems in the banking industry being important for risk-taking. Accordingly, the recent policy initiatives to raise bank capital (including Basel III) or enforce macroprudential policies may be useful for limiting excessive bank risk-taking. If high risk-taking in banks were exclusively due to behavioral reasons, then some of the new prudential policies providing better incentives for bankers would not matter at all.
No less importantly, however, our results have policy implications for the regulation of insider trading in banks. Insiders’ ability to trade (selling shares of their own bank when they anticipate that their excessive risk-taking may lead to large losses) may exacerbate conflicts of interest between them and shareholders, bank creditors, and even the other employees of the bank who did not or could not see what was coming. Banning trading by bank insiders might reduce excessive risk-taking by banks and operate as a (partial) substitute for bank capital regulation or macroprudential policies. Whether a total ban on insider trading would be justified, however, requires further analysis, since that may have other effects that also need to be assessed.

Akin, O, Marin, J and Peydró, J-L. 2016. “Anticipating the Financial Crisis: Evidence from Insider Trading in Banks”. London, Centre for Economic Policy Research DP 11302.