Petrol companies need to be transparent in New Zealand

It was mentioned today that the Government has summoned BP executives to the Beehive to explain why BP was planning what basically amounts to a horrendously misguided price fixing attempt around Levin. The announcement comes after an internal memo which has sparked outrage at BP was leaked to the media.

It also brings into the spotlight the corporate records of petroleum companies in this part of the world. There are a number of reasons why petroleum companies need to lift their game in New Zealand:

  1. Contrary to the view of many on the right – Judith Collins being a notable exception – New Zealanders have higher expectations of fuel companies than they are being given credit for
  2. New Zealand has a reputation to uphold as an environmentally and socially responsible country and it needs economic sectors to be on board, as all will suffer the downturn effects of any consequent slow down if we do not
  3. New Zealand law takes – or is expected to take – a dim view of price fixing such as that which British Petroleum has been accused of near Levin

Oil companies make huge profits – if we put together the combined global 2017 revenue of the companies in New Zealand the total figure would be U.S.$758 billion or B.P U.S.$240b + Mobil U.S.$237b, + Caltex U.S.$141b = U.S.$618b. Much is sourced from Asia, west Africa and the Middle East.

Any suggestion that the petroleum companies will suffer if New Zealand and other countries makes them pay full corporate tax is misleading at best. If we applied N.Z. tax to Z Energy which made $2.51 billion in 2016, it would have paid $705,600,000 in tax if paid in full. Z Energy however is a New Zealand company and perhaps understands as a result of being New Zealand owned that it has a social responsibility to be a good corporate citizen.

Despite sponsorships of various community events in New Zealand, the corporate citizenship of B.P., Caltex and Exxon Mobil cannot claim to have such good corporate records in other countries. Environmental disasters, human rights abuses, tax evasion are just a few of the crimes that these companies have committed or are complicit in.

BP need to come clean at the earliest opportunity about what they were trying to do in Levin. Anything less will serve to undermine their corporate citizenship record in New Zealand. It may surprise BP to know that the media are expected in New Zealand to carry out their fourth estate responsibilities to uncover stories and then report them.

So, come on BP. Lift your game.

Strengthening the sentencing regime for high end financial fraud

Reading about the Panama Papers saga recently has provided much food for thought on corporate law, corporate responsibility and how society views it. It has also given me a chance to do some thinking about how I would like to see the New Zealand courts proceed with dispensing justice in such cases.

Have you ever wondered what sort of sentence you would hand down as a judge presiding over a corporate fraud/insider trading trial where billions of dollars were lost or misused deliberately, and the accused were found guilty? The reaction of society would be understandably harsh and you would have to reflect that. However, you would also have to be realistic about the sentence in terms of punishing the offender, but also deterring them from future offences. Below are my thoughts on reconfiguring New Zealand’s sentencing regime for such offences.

In order to deter the sort of high end collapse and potential fraud that companies such as the Lehman Brothers were implicated in, I think a comprehensive overhaul of financial trading laws and a register of traders is needed. The idea behind a register of traders is two fold:

  • To create a nationally recognized brokers who have agreed to be bound by an enforced code of conduct, whose
  • To give confidence that only vetted people with no criminal record can be employed in positions of trust

Right now fraud cases that involve sums of money that are less than N.Z.$250,000 go to the District Court and the High Court deals with larger sums. This division I believe is still appropriate for purposes of avoiding clogging up the lower part of the court hierarchy.

In order to make it clear to people working in the finance sector the extremely dim view that society takes on large scale fraud, a range of measures where jail sentences are just part of a larger comprehensive arsenal available to the sentencing judge are needed and could include:

  • Revocation of passports – given society’s revulsion with fraud in general, what nation will honestly want a convicted visiting/living in their territory?
  • Confiscation of luxury assets – secondary houses, helicopters, yachts, private jets/fixed wing aircraft – if the they were found to have been purchased using the proceeds of illegal transactions
  • Compulsory community service during

The structure of the sentences should take a definitive path. If there is no remorse shown then the appropriate sentence structure should be the upper echelon of jail sentences and passport revocation + confiscation of assets and/or community services. Should there be remorse a perhaps the lower echelon of jail sentences could be accompanied by community service. Should there be the means to fully repay then jail sentences and the confiscation of assets should apply.

Although the failures of New Zealand financial institutions are unlikely to match the gravity of Lehman Brothers where around $613 billion was owed, we have had large scale collapses here exceeding N.Z.$1 billion ($1.6 billion for South Canterbury Finance). Whilst I am unclear on the degree of personal or corporate offending here, which is which this post is concerned about, was involved in the Lehman Brothers collapse, the scale of failure was exceptional. I think that executives and corporate management have a particularly high level of responsibility and when they knowingly abrogate that responsibility, not only should the safe guards be of a particular standard, but so should the consequences for such action.

So with regards to New Zealand, the nearly 150 year sentence handed to Bernie Madoff for his ponzi scheme will no work – not least because only a fraction will ever get served. However a 25 year jail sentence with a $1 million fine for individuals and 40 year jail sentence for corporate offenders with an open ended fine depending on ability to pay, could be good upper sentencing limits.

But who in the New Zealand Parliament would be brave enough to overhaul sentencing laws to enable such punishment and deterrence? And that is where there might be a problem.

The problem with shell companies

A shell company is a business with no active business activities or assets. It is not necessarily an illegal enterprise as often they are the foundation for a potential start up company. In saying that shell companies are not always genuine businesses and often – intentionally or not – they are the front for illegal business such as money laundering, bribery, scams and so forth. Numerous examples are known to exist in New Zealand, but one of the more spectacular cases is one that has just been outed.

This is not the first time that New Zealand has faced embarrassment in dealing with shell companies. In 2012 an investigation by the B.B.C., Guardian and International Consortium of Investigative Journalists uncovered evidence that New Zealand shell companies had been the front for the illicit business activities by the Russian Mafia, drug barons in Mexico among others. The same investigation found that New Zealand had been struck off the list of favoured countries by European banks because of money laundering activities by New Zealand registered companies based in Latvia.

Problems with shell companies in New Zealand have been known about at least since 2011, when the then Minister for Commerce, Simon Upton called out SP Trading following an investigation that found it had chartered a plane for an illegal North Korean armaments transfer. Months before that 2012 investigation came to the surface, New Zealand Government officials had claimed to be cracking down on shell companies. The then Minister for Commerce, Craig Foss, said that New Zealand was preparing legislation to be put through Parliament to address the problem. Two years later, an intellectual property firm called Baldwins noted the law change requires companies to have a director living in New Zealand; and introduced offences for very serious acts.

I think New Zealanders would be unimpressed – to put it mildly – if they knew that Iranian and North Korean arms shipments were being handled by agents with a shell company for a face registered in New Zealand. Given that nearly four years after the Government first acknowledged a problem existed, we now have shell companies linked to a damaging oil company bribery scandal, I wonder if the legislative changes a) went far enough and b) are being properly enforced.

I do not want by any means to discourage people from starting legitimate businesses in New Zealand. The ease with which people can do business in New Zealand is well admired around the world, and justly so. Although the law change was definitely a step forward, it is obvious that it needs calibrating or changes made if there can be a link  between a New Zealand shell company and Unanoil. New Zealand’s image as a transparent and non-corrupt country also comes into question if such activities are allowed to continue unchallenged. That is not okay.


Reforming corporate justice laws

One of the reasons so many people are becoming concerned about the Trans Pacific Partnership Agreement are rumours that corporate court cases might be heard in a secret court that the public and mainstream legal system have no access to, much less jurisdiction over. Although not substantiated, the shroud of secrecy that envelopes the whole T.P.P.A. means that unless legal documents referring to the court are leaked from within, no one will ever know. And in a nation where a functional justice system is considered central to the law, that should be a scary thought.

The unwillingness of this Government of Prime Minister John Key to address the short comings of corporate law was highlighted again this week by division amongst Ministers of the Crown over whether or not to introduce provisions in a proposed law change that enable companies to be punished for corporate manslaughter. The proposed law changes stem from recommendations made by the inquiry into the Pike River mining disaster in which 29 people died and corporate management of Pike River was found severely wanting.

Another concern that needs to be addressed is whether a corporate body can be tried in a secret court, such as the alleged one that is fuelling the rumours around the Trans Pacific Partnership Agreement. To me this is not an acceptable practice. Where possible court proceedings need to be transparent and accountable to the laws of the nation where they were had. Why should corporates be any more less accountable than the Ma and Pa businesses you see on street corners, the regional brands such as Briscoes or national brands such as the Warehouse? Given New Zealand’s reputation overseas as a nation that promotes a fair go – although some of the companies operating here such as Oyang Corporation seem to think it does not apply to them – corporate law needs to be revisited with a view to closing existing loopholes.

The third concern, and one that inspired the Occupy Movement, is corporate tax evasion/fraud. Few things probably anger me more in terms of dealing with cheats than corporate fraud. And I can see how the Icelandic move to jail the bankers who perpetuated the collapse of so many financial institutions there caught on. Although I am not sure how well a similar move would have played out in New Zealand, there is no doubt it was a brave call to make. My own views about dealing with tax cheats/fraudsters are that they should be put on a register of convicted criminals whose crimes were of a financial nature and be legally blocked from ever holding financial or other corporate directorship again, along with a combination of jail sentences and/or property seizures if the defendant has significant assets such as yachts, apartments or private jets.

Like I said, corporates are no more above the law than your local Ma and Pa business, their customers, suppliers or anyone else. Nor should they be.