IGovt Identity Verification – New Requirements for Company Registration in New Zealand
1. Public Concern
Recent news regarding a New Zealand registered company and its alleged link to the smuggling of arms from North Korea to Iran has raised concerns at the ease with which both companies and directors may become registered in New Zealand.
Particular concern is aimed at the fact that under the current system no form of identification confirmation is required in the registration process which experts have suggested exposes the New Zealand system to abuse in the form of money laundering and terrorist financing.[1] As a result there have been calls to tighten up the registration process.
However, comments made by Companies Office General manager Justin Hygate remind us that any proposed changes to the company registration system must be weighed carefully:
"The fact we have got this very simple company registration system in New Zealand helps us do business. In the vast majority of cases - 99.9 per cent of companies - the owners are obvious".[2]
While recognising that checking peoples identity prior to registering a company or becoming a director could help make the world more secure, Mr Hygate, referring to the North Korea arms example above, stated that, "All the players have been identified and are ‘real people'. None of the additional checks we could have done would have prevented what happened happening."[3]
[1] Michael Field, para 8, Seychelles director breaks silence, The Dominion Post, 13 January 2010: http://www.stuff.co.nz/business/world/3225205/Seychelles-director-breaks-silence
[2] Tom Pullar-Strecker, para 18, Identity verification planned, The Dominion Post, 18 January 2010: http://www.stuff.co.nz/business/industries/3236050/Identity-verification-planned
[3] Ibid para 20.
2. Government Response - iGovt Identity Verification Service
In response to the concerns raised above officials have proposed the introduction of the iGovt Identity Verification Service ("the service") into the company registration process. The service involves a two step authentication process similar to that used by banks to secure internet banking. The process is as follows:
- 1. Any person seeking registration as a director would first register in person at a government office by providing their passport and mobile phone number.
- 2. Once registered the person may then request a unique code to be sent to their mobile via the Government website. This code will establish the person's identity when keyed into the Companies website.
3. Proposed Benefits
Aside from providing greater protection from possible criminal activity it is suggested that the service will provide the following benefits:
- (a) More secure online transactions
- (b) Enable the Companies Office to check identities while still allowing them to submit online documents
- (c) Remove manual checks on signatures allowing registration at all times
- (d) Provide greater confidence about identities
4. How will the service affect currently registered users?
While it has not been confirmed whether it will be compulsory for currently registered users to enrol in the iGovt verification system, this would appear unlikely. The immediate problem with compulsory registration is that many New Zealand companies have overseas directors, all of whom are unable to use the iGovt Identity Verification Service. In order to qualify for use a person must:
- (a) Apply for an iGovt ID in person; and
- (b) Hold a current New Zealand passport (less than 5 years old); or
- (c) Have citizenship issued in the last five years.
Compulsory enrolment would, on the face of it, remove the ability for a company to have overseas directors which could jeopardise legitimate international business involvement in New Zealand. This concern has not gone past Mr Hygate who has stated that, "To come up with [an] arrangement that prevented legitimate international involvement in businesses would be silly."[1]
5. Future Developments
While the initial effect of the service, should it be non compulsory, will be limited, the true purpose of its introduction is to provide the foundations for a system that is mutually recognised by New Zealand's major trading partners. As it stands very few of these trading partners require proof of identity before registration on the basis that it can prevent or deter international business.
However, should this change and similar systems of identification be initiated around the world, then New Zealand will be in a position where we can share information electronically (such as identity verification) between jurisdictions. The Vanguard system currently in development in Australia already provides a clear incentive for New Zealand to initiate the iGovt service given the large proportion of Australian-based New Zealand directors. It may also serve as the first sign that such systems will become increasingly common.
6. What happens next?
The introduction of the iGovt Identity Verification Service was to be discussed with the Commerce Minster on 18 January 2010. The potential ramifications are of interest to anyone involved in a New Zealand based company and should be monitored accordingly. We will endeavour to keep you updated on any developments. Please do not hesitate to contact our company law specialists should you have any questions
[1] Ibid para 14.
