Part 4: Assessing the investor

How the Overseas Investment Office uses information.

4.1
After the OIO has accepted the application, there are several steps in considering whether consent should be granted. The OIO uses the information obtained from the applicant and other sources and information it already holds.

4.2
One of the key steps in the OIO's assessment of an application is the identification of the person or entity who in substance will control the investment. Specifically, one of the following needs to be identified:

  • the "relevant overseas person" – the person/s or organisation/s making the investment; or
  • where the relevant overseas person is an entity rather than an individual, the individuals with control of the relevant overseas person for the investment ("individuals with control"). This might not be the person or entity that has applied for the consent.

4.3
The OIO describes the concepts of the "relevant overseas person" and "individuals with control" as reflecting the commercial reality that, for many investments, it is necessary to look past the person or entity purchasing an asset to identify those who will have ultimate ownership and control of the asset. Those persons, once identified, are subject to the investor test (described later in this Part).

Using applicant-provided information to identify who controls an overseas investment

4.4
The OIO's identification of the relevant overseas person and individuals with control is guided by the nature of the particular investor and investment. The applicant identifies who it considers the relevant overseas person or individuals with control are for the investment and provides the rationale for that conclusion. The OIO decides whether it agrees with that assessment.

4.5
To carry out that assessment, the OIO uses in the first instance the information provided by the applicant. This can include representations by the agent as part of the application. Where the OIO is using information provided by the applicant, we saw evidence of the OIO verifying or testing that information where, in the OIO's judgement, that was required.

4.6
Which relevant overseas person or individual with control is identified can influence the amount of information requested by the OIO. If that person or entity is clear and/or the OIO agrees with the applicant, little more is required. Where the OIO does not agree and seeks to identify those persons for itself, it might require substantially more information from the applicant or its agents.

4.7
In some situations, an investment is sought by a company that is part of a larger group of companies. In these situations, a practice used by OIO has been to consider companies several levels higher in the company structure (from the entity making the investment) as the relevant overseas persons. The directors of those companies are then routinely found to be individuals with control. We were told about a proposed investment where the OIO had identified more than 30 overseas directors of companies it considered had control and requested statutory declarations about their good character from all of them.

4.8
It is important that the OIO has the best or most complete information available when it is considering who is in fact in control of an investment. Identifying the correct person in control of the investment ensures that the criteria in the Act are applied for the relevant person. In the cases we reviewed, the OIO sought to identify the correct relevant overseas person or individuals with control and, if needed, sought more information from the applicant. It was evident from the analysis put to the decision-maker that the OIO staff had considered this point thoroughly.

4.9
Identifying the directors of companies in a group structure as those with control could result in the criteria in the Act being applied to persons with little or no knowledge of the investment. Such an approach can also increase costs for both the OIO and the applicant. For example, the OIO might then need to carry out unnecessary searches and reports about good character, and the applicant might be required to obtain more statutory declarations of good character than necessary and from persons not directly connected to the investment.

4.10
In our view, a good practice in these group situations would be to identify those persons who in substance control the investment. In complex situations, this might not be straightforward or may require some perseverance. However, it is those really in control of the investment that the Act is concerned with and the criteria should be applied to them. On a practical level, this also prevents the applicant having to collate information about, and assurances from, persons not substantively involved in the investment. The OIO told us that it intends to take more of a case-by-case approach to ensure that it focuses only on those who, in substance, control the investment.

Relying on applicant-provided information, internet searches, and statutory declarations

4.11
Once the OIO has identified the relevant overseas person or individuals with control of the investment, it can consider the investor test. We refer to the relevant overseas person and the individuals with control of the investment collectively as the overseas investor. Where the relevant overseas person is in control of the investment, they are subject to the investor test. Where the relevant overseas person is not in control of the investment, the individuals with control are subject to the investor test.

4.12
As we have noted, that test involves assessing whether the overseas investor has the necessary experience, has demonstrated a financial commitment to the investment, is of good character, and is not excluded under section 15 or 16 of the Immigration Act 2009.

Business experience and acumen

4.13
In the applications we reviewed, the OIO took a flexible approach to whether the overseas investor has sufficient business experience and acumen based on the nature of the investment. This is routinely explained to the decision-makers in this way:17

The Court of Appeal has confirmed that the wording of this criterion allows considerable flexibility in determining what business experience and acumen is relevant to a proposed investment. More or less specific expertise may be required depending on the nature of the investment. Business experience and acumen that contributes to an investment's success may be treated as relevant even though the investor may have to supplement its experience and acumen by utilising the experience and acumen of others to ensure the investment succeeds.

4.14
We saw evidence of this approach reflected in the OIO's recommendations and advice to decision-makers. For example, the OIO does not expect a high level of experience for investments in lifestyle properties compared with investments in businesses. In the case of an acquisition of one lifestyle property, the OIO noted that "this would require relatively little specific expertise". Experience in maintaining and running a home, obtaining tertiary education, and professional training and experience were considered sufficient expertise for that investment. Previous business experience or ownership of similar businesses were factors considered by the OIO in several applications related to investments in businesses.

4.15
In the applications we reviewed, we found that the OIO largely relied on biographical information and information about past experience supplied by the applicant. In two of the applications we reviewed, we saw evidence of the OIO seeking or relying on information in addition to that provided by the applicant. In one case, this included the OIO searching on a range of business-networking sites.

4.16
In our view, the OIO's flexible approach to this element of the test is pragmatic and appropriate. Determining whether a particular overseas investor has the business experience and acumen to successfully carry out the investment will be a different exercise in each situation. Similarly, the information required for this assessment will depend on the nature of each investment. There is unlikely to be a standard set of information requirements for all investments. In the applications we reviewed, the type of information the OIO relied on was relative to the nature and complexity of the investment.

Financial commitment

4.17
Another consideration is whether the overseas investor demonstrates a financial commitment to the investment.

4.18
In the applications we reviewed, the OIO considered factors such as:

  • the engagement of professional advisers (mostly law firms);
  • the existence of some form of agreement, such as a sale and purchase agreement (or entering into a merger agreement); and
  • the paying of a deposit.

4.19
In some applications, the OIO took into account the costs to the applicant of engaging in the investment, such as the commitment of executive time, participation in a competitive bid process, and the commitment of time to a due diligence process.

4.20
The courts have said this criterion can be interpreted and applied in the context of the particular investment proposed and ultimately as a pragmatic exercise.18 The OIO took this approach in the applications we reviewed.

Good character

4.21
Another key issue in the investor test is whether the relevant overseas person or individual with control is of good character and is not excluded under sections 15 or 16 of the Immigration Act 2009.19 In the applications we reviewed, the OIO relied on the statutory declarations about good character provided by the applicant to be satisfied there is no exclusion under sections 15 or 16 of the Immigration Act 2009. This was supplemented by internet searches performed by the OIO.

4.22
When making recommendations to a decision-maker, the OIO routinely provides the following advice about what the decision-maker must determine and take into account when considering if an overseas investor is of good character:

The decision[-]maker must be satisfied that the relevant overseas person is of good character. Section 19 of the Act specifies that the decision-maker must take the following factors into account (without limitation) in assessing whether a person is of good character:
  • offences or contraventions of the law by the person, or by any person in which the person has, or had at the time of the offence or contravention, a 25% or more ownership or control interest (whether convicted or not); and
  • any other matter that reflects adversely on the person's fitness to have the particular overseas investment.

Internet checks

4.23
An online search for public information is one method used by the OIO in considering good character. These are internet searches on the names of people and organisations. Before the OIO used the new triage approach, these searches were carried out by the OIO solicitor working on the application. These searches are now carried out by a good character researcher, who provides the information to those considering the application. Internet searches are done early in the process, and are considered when the application is reviewed as part of the triage process.

4.24
The applications we reviewed (which were before the triage process was implemented) generally had a record of the date these internet checks were conducted and links to any information found. If information was found but not considered relevant (for example, it was a person of the same name but with a different birth date or nationality), there was a record of why that information was not considered relevant.

4.25
In all of the applications we reviewed, we saw evidence of the OIO including the results of internet checks in its advice to the decision-maker where those results were considered relevant to the application. To reduce the risk of critical information not being passed on to the decision-maker, the OIO also typically provides them with a full copy of the information provided by the applicant.20

4.26
We also saw at least five instances from the 15 applications that we reviewed where internet checks showed information about which the OIO sought comment from the overseas investor. Where the OIO sought that further comment, we did not see evidence of it verifying the accuracy of the responses from overseas investors. The OIO did, as is common practice, obtain a statutory declaration from the investor that it had provided true and accurate information to the OIO.

Statutory declarations

4.27
As well as information from its internet searches, the OIO relies on statutory declarations from overseas investors declaring that they are of good character. This approach is routinely explained to the decision-makers when the OIO is making recommendations in this way:

The Applicant has provided statutory declarations stating that the individuals with control are of good character, have not committed an offence or contravened the law as described above and know of no other matter that reflects adversely on their fitness to have the Investments.
The OIO is satisfied that the statutory declarations can be relied on as they comply with the requirements of the Oaths and Declarations Act 1957.
The OIO has also conducted open source background checks on the individuals with control and found nothing relevant to this criterion.
Therefore, the OIO is satisfied that the individuals with control are of good character.

4.28
Where an individual with control has provided a statutory declaration that they are of good character, the OIO usually makes a statement such as the following as part of the recommendation to the decision-maker:

The applicants have provided statutory declarations (signed by each individual with control) stating the [Individuals with Control] are, respectively, of good character, have not committed an offence or contravened the law.

4.29
This approach is to provide some assurance about good character. A statutory declaration must be completed in front of an authorised witness, and there are legal consequences for making a declaration that is not accurate. Under the Crimes Act 1961, it is an offence to make a false statutory declaration, with a penalty of imprisonment of up to three years.21 Section 46 of the Overseas Investment Act also creates an offence for anyone who makes a false or misleading statement, or material omission, as part of an application or in their communications with the OIO. The penalty is a fine of up to $300,000. Providing false information could also ultimately result in the court ordering the disposal of the property acquired in the investment.22

4.30
We saw an example in the files that we reviewed of an application being declined where one of the reasons for that was the good character statutory declaration not meeting the requirement of the Oaths and Declarations Act 1957.

4.31
Two of the applications we reviewed included lengthy discussion and advice about whether the investor was of good character.

4.32
In our review, it was evident that the OIO relied heavily on statutory declarations and internet searches when considering good character.

4.33
In 2016, the OIO engaged a Queen's Counsel to review its processes for assessing good character.23 This was in response to an application where the OIO failed to provide the Ministers making the decision with relevant results of an internet good character check. That review found that the OIO's systems for checking good character were appropriate and that it is reasonable for the OIO to use and rely on statutory declarations.

4.34
It would be unreasonable to expect the OIO to obtain every detail about the character of the person behind the investment. What is important is that the OIO turns its mind to the question and obtains sufficient information to be satisfied that the statutory criteria is met. As with other parts of the OIO's role, a level of judgement is required. In the applications we reviewed, the OIO exercised this judgement. The OIO turned its mind to the question of good character in all the applications we reviewed, and presented all the relevant information relating to that point to the decision-maker when making its recommendation.

4.35
In the applications we reviewed, we also found no evidence of the OIO failing to inform the decision-maker of the results of the internet searches where those results were deemed to be relevant to the application.

Additional information

4.36
In the applications we reviewed, we saw evidence of the OIO seeking other information to inform decisions about good character and of advising an applicant of the need for statutory declarations to be current:

… the OIO/Ministers are reluctant to rely on statutory declarations of good character provided in relation to previous applications … where such declarations are more than six months old.

4.37
The decision to seek other information to inform assessment of good character appears to have been informed by professional judgement of the circumstances of an application and the risk associated with the individuals and/or organisations involved. We saw examples of the OIO using the following types of information:

  • the results of the OIO internal investigations (an investigation into a previous retrospective consent and investigations into other investments with parties in common);
  • a police check from a foreign jurisdiction provided by the applicant;24
  • monitoring of good character for previous overseas investments controlled by that person;
  • good character assessments made by previous decision-makers;
  • whether there are conditions of consent in other investments requiring the person to be of good character;
  • anonymous third-party submissions (these were rare in the applications that we reviewed);
  • advice from New Zealand officials based in an overseas jurisdiction;
  • information from an official entity with security responsibilities in an overseas jurisdiction; and
  • the relevant overseas person's membership of professional bodies in other countries.

17: The OIO is referring to the decision of the Court of Appeal in Tiroa E and Te Hape B Trusts v Chief Executive of Land Information New Zealand [2012] NZCA 355.

18: Tiroa E and Te Hape B Trusts v Chief Executive of Land Information New Zealand [2012] NZCA 355 at [37] and [40].

19: Sections 15 of the Immigration Act 2005 says that certain convicted or deported persons are not eligible for a visa or permission to enter or be in New Zealand. Section 16 of that Act says a person can be refused entry to New Zealand if there is reason to believe the person is likely to commit an offence in New Zealand or is (or is likely to be) a threat or risk to security, public order, or the public interest.

20: In some cases, a full copy of the application (with all its associated attachments) can have hundreds of pages of information. Whether it is reasonable or practical to expect the decision-maker to consider the full application, in addition to the advice and summary of the information (itself usually tens of pages) provided by the OIO, is something that the OIO needs to consider, taking into account the complexity of the overseas investment.

21: Section 111 of the Crimes Act 1961.

22: Section 47 of the Overseas Investment Act 2005. See also sections 48-51.

23: The Queen's Counsel's review is available at linz.govt.nz.

24: We note that the Queen's Counsel's review includes commentary on the possible use of police checks by the OIO.