Part 7: Monitoring, enforcement, and public information

7.1
Once a consent has been granted, the OIO has a role in monitoring compliance with the consent (and any conditions attached to it) and taking enforcement action where that is required.

The need for more focus on monitoring and compliance

Monitoring

7.2
When a consent is granted, information about any conditions that apply to it is entered into the OIO's Investment Management System database. This system can generate reminder letters to the consent holder (that, for example, updates or reports are due).

7.3
Typically, a consent holder is required to provide certain reports to the OIO. These can be reports about when and how the investment was entered into, an annual report about how it is progressing against the various requirements outlined in the consent and the conditions, and notification of any changes to the material aspects of the consent (such as good character, control, or financial commitment). The reports are reviewed by the OIO against the information in the Investment Management System and a list of the conditions applying in each application. Any issues or concerns resulting from these reviews are passed to those responsible for enforcement.

7.4
In recent years, the OIO has had many obligations outlined in consents to monitor each year. In each of the financial years between 2011/12 and 2014/15 there were between 630 and 704 obligations arising from consents that required monitoring. During that period, there was one full-time equivalent staff member carrying out this monitoring.

7.5
We understand from our discussions with the OIO that, until recently, monitoring has largely been approached as an administrative task. By this we mean that although the provision of monitoring information has been tracked and recorded, there has been limited analysis of that information. This is consistent with what we observed, including in our review of applications.

7.6
In the applications we reviewed, we saw evidence of the OIO sending reminders to the consent holder that a monitoring report was due (usually sent one month before it was due), and evidence of recording monitoring information when it was provided. There was limited evidence that the content of the monitoring information was verified or considered. The OIO told us that it intends to release a standard reporting template to help consent holders provide clearer reports to assess progress against consent conditions.

7.7
We were told by agents who make applications on behalf of applicants that there is little feedback provided by the OIO about the monitoring information provided by the applicant, except where the OIO suspects there is a compliance issue. The OIO could consider whether communication with agents about these reports would improve the quality of those reports, and therefore the OIO's understanding of the investor's compliance.

Enforcement

7.8
Applicants for overseas investments need to comply with the requirements of the Act and any conditions on a consent for an overseas investment. If applicants do not comply, there can be consequences.

7.9
The scheme of the Act provides offences for certain behaviour, powers for the court to order certain sanctions (on application by the OIO), and administrative penalties that the OIO can impose. The OIO is able to impose administrative penalties for the late filing of information by an applicant or consent holder, and for seeking a retrospective consent for an investment made without consent.³⁰

7.10
In the applications we reviewed, we saw a few examples of enforcement activities. In these examples, the OIO obtained information from sources other than the applicant and outside the application process:

• One of these applications involved an investigation that determined there had been a breach of the Act and an administrative penalty was imposed. Good character issues formed part of this investigation, and the OIO obtained foreign company annual returns, deeds, facility and loan agreements guarantees and mortgage documents as part of the investigation. Another application we reviewed also resulted in an administrative penalty imposed by the OIO.
• Another investigation was ongoing at the time of our fieldwork. This included the OIO obtaining information from the New Zealand Police, Immigration New Zealand, Inland Revenue Department, and the Department of Internal Affairs.
• In one application there was evidence of the OIO using information gained through a different application and different people to test ongoing compliance with the conditions for an existing consent.

7.11
Of the 15 applications we reviewed, five involved an applicant applying for retrospective consent. The OIO took a variety of approaches in those situations. For example, one application contained the required information and ultimately retrospective consent was granted. Obtaining this retrospective consent was part of a settlement agreement between the applicant and the OIO in relation to past non-consented transactions. In another application, consent was not ultimately granted (and therefore the investment did not meet the statutory criteria) and the OIO pursued a more formal investigation and sanction.³¹

7.12
Since late 2016, the OIO has begun to increase its focus on enforcement and compliance. Changes include:

• Establishing a dedicated Enforcement Team with a specific responsibility for monitoring and enforcement. That team comprises 7.8 full-time equivalent staff, including a Manager, Principal Adviser, and an analyst.
• Increasing the flow of information between the Enforcement Team and those considering applications.
• Publishing information about enforcement strategic priorities and criteria, including outlining when the OIO might consider taking action and how that might happen.³²
• Publishing information about the enforcement activities it has carried out since 2015.
• A commitment to performing a certain number of site visits each year (across all consents) to check compliance with the conditions of consent.
• Adopting new performance measures about enforcement.³³
• Developing more formal relationships with other public entities to enhance its ability to enforce consents, and to share information about applicants, potential investments, and whether consent holders are complying with the Act.

7.13
As part of its increased focus, the OIO has improved, or is seeking to improve, how information about consents and applicants behaviour flows between those carrying out monitoring/enforcement and those considering applications. By way of example, it is envisaged that the Enforcement Team could contribute more to the consideration of the application in the triage process when an application is first received.

7.14
These changes were needed. This is because monitoring and management of non-compliance are key components of any regulatory regime. They are part of the key responsibilities of any effective regulator.

7.15
Figure 4 shows the use of enforcement activities by the OIO between 2015 and 2017. More enforcement activities have happened in 2017 than in previous years, in number and proportion of applications decided.

Figure 4
Enforcement activities by type, 2015 to 2017

Source: Overseas Investment Office.

7.16
In making more information available to the public about its enforcement activities and more resources available for enforcement, the OIO could increase an awareness of the need to comply and the consequences of not doing so. It could also provide some assurance that the overseas investment system, as far as the OIO is responsible for it, is working.

Accessing intelligence to identify overseas investments made without consent

7.17
In our view, it is important that the OIO has access to intelligence that will enable it to identify overseas investments made without consent having been sought, as part of strengthening its enforcement activities. This is the sort of information that could be obtained from complaints,³⁴ media coverage, other regulatory bodies, and other organisations. The OIO told us that it was considering developing more formal relationships with some other public entities. We support that happening if it leads to better information and intelligence available to the OIO to enforce the Act (including any conditions of consent made under that Act).

Making more information publicly available

7.18
The OIO publishes a summary of each application on its website (a "decision summary") once a decision has been made on that application. The information is posted monthly and usually includes:

• the date of the decision and whether it was granted or declined;
• a brief description of the investment and the background to the investment;
• details about the applicant, the vendor, and the consideration to be provided; and
• a contact for more information (usually an agent of the applicant).

7.19
The OIO has also published monthly summary statistics, including information such as the value of the assets acquired in that month, the total land area approved for sale to overseas persons, the number of applications declined, and comparative information for the previous year.

7.20
As well as information about applications and enforcement, there is scope for the OIO to make more information publicly available, including:

• more specific information about the conditions of an individual consent, where that is appropriate within the requirements of privacy and commercial sensitivity, and including the specific benefits to New Zealand. This might strengthen public accountability of the applicants and inform the OIO's work advising on the conditions of a consent; and
• analysis of what sorts of overseas investments and/or conditions result in what sorts of benefits to New Zealand.

7.21
In March 2018, when providing feedback on a draft of this report, the OIO told us it had made recent improvements to the information it makes available. The improvements it describes include:

• improving the information on released decision summaries;
• updating the content of the website to support the application process and to provide guidance about how to best make an application; and
• providing information on the website about enforcement priorities and processes and about enforcement action taken.

30: Sections 42-53 of the Overseas Investment Act 2005.

31: This investigation and enforcement action was ongoing at the time of our fieldwork.

32: The enforcement strategic priorities and criteria are available at linz.govt.nz.

33: At least 90% of incidents are reviewed for possible breach of the Overseas Investment Act within 10 working days of receipt of a public alert, and at least 20 enforcement actions are taken each year by the OIO.

34: We note that in early 2017 the OIO added a facility to its website to enable people to report a suspected breach of the Overseas Investment Act 2005. This is available at linz.govt.nz.