Banks bear the brunt of tax laws which force foreigners to open an account

Banks say tax rules cracking down on property speculation force them to screen for money-laundering at their own cost.

Banks are refusing to open accounts for foreigners if they think the costs outweigh the benefits.

New property and tax laws launched late last year made “offshore persons” buying or selling property get an Inland Revenue Department number, and also make a New Zealand bank account a prerequisite for offshore people getting an IRD number.

In the first six months of the new regime, the IRD has been swamped with more than 52,000 applications for tax numbers from people overseas.

Faced with rising demand, financial consultants KPMG told a select committee recently banks were sometimes refusing to open bank accounts for people based overseas.

John Cantin, a partner with KPMG, said many overseas clients were telling him it was either too tough for the banks to prove who they were, or that the account was only needed for an IRD number and there would not be enough business involved.

“It’s not that they’re concerned necessarily with the bona fides of the people, it’s just that the cost outweighs the business benefit,” Cantin said.

Because the law’s definition of “offshore persons” was wide, it meant business, trusts and seasonal workers – even sometimes conference delegates – who needed to pay tax needed to have a New Zealand bank account too.

Massey University banking expert David Tripe said part of the problem banks had was the need to verify people’s identities to comply with strict international anti-money laundering rules.

Banks had a right to pick and choose their customers.

“They don’t have to open an account for anybody,” Tripe said.

The Bankers Association would not confirm whether banks were refusing to open accounts to foreigners, but said banks “generally welcome the prospect of opening bank accounts for non-residents”. However, they also took the anti-money laundering laws very seriously.

ANZ Bank’s financial crime expert Steve Cumber recently told Parliament’s finance select committee that opening bank accounts for overseas persons was “costly [and] resource intensive,” and risky if they were from a country deemed high risk of money laundering.

“The prospect of losing a correspondent relationship with a large US or European bank or being fined by US regulators, and the implications these actions would have on ANZ’s reputation, weigh on our minds” Cumber said.

Mark Russell, a tax partner with PWC said there was a feeling that the IRD was “outsourcing” the cost of identity verification onto the banks.

“We can all see what’s trying to be achieved, and that’s very supportable, but is there a way that we can achieve the same ultimate outcome, which is an appropriately robust identification process, without putting an undue burden on the banks and undue slowing down the process of applying for an IRD number?”

The banks were making submissions on the Taxation (Residential Land Withholding Tax, GST on Online Services and Student Loans) Bill, the last piece of the Government’s property tax crackdown.

It is expected to pass its third reading this week.