Tuesday, August 21, 2012

The perils of deregulation

In the 80's and 90's, New Zealand underwent a revolution. We deregulated our economy and shredded "red tape", opening up the country to foreign capital and reducing barriers to establishing a company. As a result, we became one of the easiest places in the world to do business. But there is a dark side to this as well: we've become a favoured destination for international money launderers:

A report prepared for Commerce Minister Craig Foss says $1.5 billion is being laundered through New Zealand every year.

And the Reserve Bank said it had identified 1000 entities 'potentially involved in frauds in overseas jurisdictions'.

The Ministry of Business, Innovation and Employment report, obtained by the Sunday Star-Times under the Official Information Act, said those who "wish to conduct unlawful activities are increasingly seeking to incorporate companies in New Zealand".

It said New Zealand's lax company registration procedures and non-compliance with international money-laundering agreements were causing a problem that had made the country "a domicile of choice" for international criminals wanting to launder money, and traffic arms and drugs.

We're already beginning to face international consequences for this: the EU has removed us from its "white list" of trusted banking jurisdictions. And unless the government does something about it, we'll probably face more. Unfortunately, their proposed response - the Companies and Limited Partnerships Bill - doesn't go far enough to close these loopholes, and even the government's advice admits this. The problem is that what international capital wants - lax regulation and no oversight - is also exactly what international crime wants. And stopping one is going to mean offending the other. And sadly, given National's subservience to international capital, they're unlikely to do what is required to clean up our financial sector and drive out the money launderers.