New Zealand is generally recognized as having some of the
lowest instances of corruption across the globe, at least that is the
perception. Over the past 3 years it has either been Number 1 or led outright
International Corruptions Perceptions Index with scores of
It was, therefore, with some surprise that I came across
a story referred to in yesterday's Corruptions
Currents blog by the Wall Street
Journal (WSJ), on a website in New Zealand, Stuff.co.nz, entitled "NZ
firms linked to money laundering" authored by Michael Field.
The article reported that companies created in New
Zealand had been linked to "Russian crime, a Mexican drug cartel and Romanian
extortion." Additionally it reported that certain companies created in New
Zealand had been tied to a company alleged to have smuggled arms into North
Korea. These were accomplished by the creation of New Zealand shell companies
which were used to move monies through to avoid detection.
The article reported certain international criticisms of
New Zealand corporate registration protocols. The Canadian Financial
Transactions and Reports Analysis Centre, "identified the "exploitation of New
Zealand's weak company registration laws" as a problem. International expert
Martin Woods was quoted in the article as saying that shell companies were
"ideal vehicles for money launderers, tax evaders and arms traffickers". But
the topper is the following line, "The government admits there is a problem but
says it has had other priorities" but we do note that this final quote is not
The problem all of this raises for a compliance
practitioner here in the US is how to evaluate a company for due diligence
purposes? The Transparency International Corruptions Perceptions Index is a
generally recognized index that many companies rely on to set the appropriate
level of due diligence. New Zealand, with a sterling score of 9.3 or 9.4 and a
ranking of Number 1 over the past three years, is a country that may be
perceived to have one of the lowest levels of corruption in the world. However,
the article in Stuff.co.nz demonstrates the need for active and strong due
diligence in all places across the globe.
The article reports that one individual was, at one
point, listed as a Director of over 300 New Zealand formed companies. Another
person, listed as the Director of the New Zealand company alleged to have been
involved with the shipment of arms to North Korea was "convicted of 75 breaches
of the Companies Act for giving false addresses on registration forms". Both of
these examples cited in the article should give pause to companies when they
set their due diligence levels. A traditional Level One US/UK database search
may not be enough to protect your company.
You may need to move to a more sophisticated search such
as one which makes a database search for in-county records. It is certainly
important to know if and when a person holds multiple Directorships in various
and not obviously related companies. This should raise a very big Red Flag.
The moral of this story is that due diligence is not a
rote exercise. Care must be given in all phases. Simply because you are doing
compliance due diligence for Foreign Corrupt Practices Act (FCPA) issues does
not mean you can ignore money laundering and export control issues. I have
written on compliance convergence and heard my colleague Howard Sklar talk on
this several times. Your compliance program needs to be cognizant and
integrated to evaluate and manage these risks for your company.
Visit the FCPA Compliance and Ethics Blog,
hosted by Thomas Fox, for more commentary on FCPA compliance, indemnities and
other forms of risk management for a worldwide energy practice, tax issues
faced by multi-national US companies, insurance coverage issues and protection
of trade secrets.
This publication contains general information
only and is based on the experiences and research of the author. The author is
not, by means of this publication, rendering business, legal advice, or other
professional advice or services. This publication is not a substitute for such
legal advice or services, nor should it be used as a basis for any decision or
action that may affect your business. Before making any decision or taking any
action that may affect your business, you should consult a qualified legal
advisor. The author, his affiliates, and related entities shall not be
responsible for any loss sustained by any person or entity that relies on this
publication. The Author gives his permission to link, post, distribute, or
reference this article for any lawful purpose, provided attribution is made to
the author. The author can be reached at email@example.com.
© Thomas R. Fox, 2011
For more information about LexisNexis
products and solutions connect with us through our corporate site.