Active OIO compliance enforcement
In February this year, the Overseas Investment Office (OIO) published a summary of all enforcement actions taken by it under the Overseas Investment Act 2005 (OIA) since 2015.
This summary provides an overview of key trends in enforcement over recent years, and offers valuable insight into how the OIO is implementing its objective of improving monitoring and enforcement action, as set out in the Land Information New Zealand 2017/18 annual report.
Key enforcement trends since 2015
- The OIO has increasingly implemented alternative enforcement measures such as warnings or compliance letters (letters clarifying the application of overseas investment rules to certain situations), with the number of compliance letters issued increasing by 500% since 2016. By way of an example, on 21 March 2019 the High Court fined a Singapore-based company and its Chairman a total of $220,000 (plus costs) for breaching a continuing consent condition to be of good character, as a result of the company being found guilty of fraudulent accounting in the US;
- Although civil penalties are rare – more commonly non-compliance is dealt with through a warning or disposal order – penalties have been as high as $500,000;
- Failure to comply with consent conditions, as opposed to failure to obtain consent, has overwhelmingly been the reason that property disposal orders have been issued; and
- Enforcement action has been taken against overseas investors who use New Zealand third party associates to acquire sensitive assets in an attempt to avoid or delay the need for consent (particularly where time is of the essence for completing a transaction).
Residential land enforcement yet to occur
No enforcement action has yet been taken in regard to acquisition of residential land by overseas persons.
As such, it remains to be seen what approach the OIO will take to enforcement of the new rules applying to residential land purchases by overseas persons, and the extent of any penalties the OIO will impose.
Important takeaways for overseas investors
These enforcement trends are a reminder that obtaining consent is not the only step in the overseas investment process. Compliance with consent conditions is equally as important and failure to comply can lead to a disposal order. This is particularly important in light of the extended condition monitoring powers granted to the OIO under the Overseas Investment Amendment Act 2018, allowing it to require investors to pro-actively provide information, or make statutory declarations regarding compliance.
Enforcement action taken against associates also reiterates that the concept of an “associate” under the OIA is very broad. It extends beyond parties that simply share common ownership or control to include persons acting jointly or in concert.
A reliance on inaccurate legal advice has not allowed parties to avoid liability for a breach of the OIA, highlighting the important of obtaining quality legal advice at an early stage in the consent process.
We can help
If you are an overseas investor seeking legal advice on a potential investment, or would like to discuss OIO compliance concerns, feel free to contact a member of our property team (to discuss sensitive land investments) or our corporate and commercial team (to discuss acquisitions of significant business assets).