New Zealand Company Linked with Weapons Smuggling

December 23, 2009 International FinanceNew Zealand Finance

Dancing Girls of the NorthA New Zealand company has reportedly been linked with transportation of North Korean weapons to the Middle East.

As previously reported, on December 12th a Russian made Il-76 aircraft, carrying weaponry from North Korea, was seized by Thai authorities in a Bangkok airport. The plane was allegedly chartered by a mysterious New Zealand registered company, SP Trading Limited. The destination and buyers are still unknown, and the crew members maintain that they have no knowledge of the weaponry on board. Details emerged that the plane was originally chartered for the flight by the Hong Kong registered Union Top Management Limited, and rechartered to SP Trading.

According to publicly available information on the New Zealand Companies Office, SP Trading was registered on July 22nd, 2009. Its registered office is located at the Salvation Army Building on Level 5, 369 Queen Street, Auckland. The only director of the company is Lu Zhang, and the sole shareholder is Vicam (Auckland) Limited, which is located at the same address.

Even cursory research indicates that over 2,000 companies are registered to the same address in the Salvation Army Building, and in almost 100 of them Lou Zhang is the director. Vicam (Auckland) Limited is often discovered to be the sole shareholder of these companies. In some cases, the residential address of the directors was also in the Salvation Army Building.

According to a press report, the companies were registered by the Vanuatu based GT Group, and the address belongs to Danite Corporate Offices, a provider of virtual offices. The media has reported that GT Group provides only corporate formation services for their regular clients from the UK and has no connection to the allegation against SP Trading. The Police and Foreign Affairs Ministry are investigating the local links and await further information from their overseas partners.

This is not the first case when a New Zealand registered company sparking international tension. Earlier this year, the media and authorities reported that approximately 200 investors filed a federal law suit against First Capital Saving & Loan Limited, a company registered in Auckland.

For the last few years, New Zealand registered companies have become a popular product on the international tax planning market. According to the Doing Business 2010 report, New Zealand is ranked first in the world for starting a business. The ease with which a business could be incorporated in New Zealand is the major reason why New Zealand registered companies are so popular. But the second reason is New Zealand’s liberal legislation and lack of Government control, in fact it, is quite easy for international businessmen to declare a New Zealand registered company as dormant and forgo any further reporting requirements. The strict laws governing New Zealand companies’ registered office requirements are also easily bypassed, and are unenforcible in practicality. There are thorough New Zealand legislations specifying the huge responsibilities of New Zealand company directors. So it comes as no surprise that a large proportion of the more than 2,000 companies registered in the Auckland’s Salvation Army Building, and others like them, name overseas nationals as their directors, effectively placing the directors out of reach of New Zealand legislation.

There is little doubt that the majority of foreign owned New Zealand companies are registered for legitimate business purposes. Though, the lack of control and due diligence procedures have created a profitable international market which exploits advantages of the country’s legislation and in many cases equates New Zealand companies to those registered in tax haven jurisdictions. Hopefully the international attention created by such an unusual situation will help to safeguard the image of New Zealand companies and cleanse the market for legitimate businesses.

Photo by leef_smith