Bracing for the Panama Papers aftershock

5:35 am on 6 May 2016

Power Play - The fallout from the Panama Papers continues to dominate politics a month after the first release of documents, but politicians should steel themselves - there is more to come.

The release of millions of documents from a Panamanian law firm showed how the world's rich and famous, including world leaders, hide their money offshore.

This includes the setting up of foreign trusts in New Zealand to avoid paying tax.

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Photo: 123rf.com

In the days after the initial release, the government announced a review of New Zealand's foreign trust rules to be led by tax expert John Shewan.

In the weeks since, Prime Minister John Key and his colleagues have repeatedly insisted that is all that is necessary at this point, but as the revelations continue to come, the impetus for a broader inquiry is mounting.

There are risks for New Zealand in being seen as a tax haven.

Transparency International says the country is seen as having integrity and as a good place to do business, which is invaluable.

It argues that holding such a narrow review is a lost opportunity and will merely investigate foreign trusts rather than tackle the broader spectrum of financial crime risks associated with New Zealand companies and trusts.

The Prime Minister has also found himself personally involved, albeit in an indirect way.

Prime Minister John Key

Prime Minister John Key Photo: RNZ/ Jane Patterson

Mr Key's personal lawyer, Ken Whitney, runs a trust company that, in its own words, is a "specialist provider of trustee and associated services for foreign trusts using New Zealand as their jurisdiction of choice".

Mr Key has a deposit with that firm, which has meant the prime minister has been unable to extricate himself from the controversy.

Then came the revelation last week that Mr Whitney name-dropped the prime minister when seeking a meeting with the Revenue Minister to raise concerns about a review of the foreign trust industry.

The meeting took place in late 2014 between then-minister Todd McClay and a group of foreign trust lobbyists, including Mr Whitney.

There was also a follow-up meeting with OliverShaw, which was acting as advisors to the foreign trust lobby.

Documents showed Inland Revenue had been considering a review of foreign trusts in 2014, then canned the idea in 2015.

Mr McClay insists that was because there was no tax risk to New Zealand and the department's work programme had become much busier.

But opposition parties have scoffed at that explanation, saying the timing tells the story.

The Green Party has repeatedly argued the meeting and the decision not to review foreign trusts highlights how powerful vested interests can get the ear of the government, while other interest groups have to shout from Parliament's forecourt.

Whether or not that is true, it could give the appearance that if you are not part of the 'broraucracy' (to borrow a phrase from Winston Peters) you do not get access.

Another strand of the Panama Papers fallout has affected the Overseas Investment Office, which is now set to substantially increase its fees and subsequently get a 25 percent boost in staffing.

The government says this was the result of a review that has been under way since last year - but the timing of the announcement - in the days after the office has been in the spotlight for a serious botch-up - is just too convenient.

The OIO had found one land purchase approval that had ties to Mossack Fonseca, the law firm at the centre of the Panama Papers controversy.

It was then revealed that two Argentine brothers were cleared to make that purchase despite having criminal convictions over a toxic chemical leak.

The office apologised to the government for the mistake and is now reviewing that approval, and also its good character test.

The next instalment of the Panama Papers is due to be released at 6am on Tuesday.

It will come in the form of a searchable database with information about more than 200,000 companies, trusts, foundations and funds incorporated in 21 tax havens including New Zealand.

The government, the OIO, and potentially some New Zealand businesses have the weekend to catch their breath - because next week is likely to bring further revelations.

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