Address to Institute of Directors

  • Judith Collins
Corrections Police Serious Fraud Office

Good morning.

It is wonderful to see you all here so bright and early today.

And it’s great to see so many familiar faces.

It is a pleasure to be talking to a group of people who will be very much in the driver’s seat of New Zealand’s economic recovery in the months and years ahead.

As New Zealand and the world emerges from the recession there will be plenty of opportunities for New Zealand businesses.

Much of the work the Government is doing now is to ensure that we take full advantage of those opportunities.

I’ll talk a bit more about that shortly.

But first I’d like to thank the Institute of Directors for inviting me along today.

Before becoming a Cabinet Minister I was a member of the Institute, so I truly feel I am among friends.

I’d also like to acknowledge the Institute for its great work helping directors achieve excellence in governance.

When companies – large and small – have a high standard of leadership, all New Zealanders reap the benefits.

I believe my speech this morning was billed as being “whatever is on my mind”.

Well, I know I can speak for all of my Cabinet colleagues when I say that the main thing on all our minds is making some long overdue adjustments to New Zealand’s economy.

We are building strong foundations to give New Zealanders the confidence and certainty they need to invest in and create new businesses, take on more workers and pay them more.

We have already made good progress, having introduced tax changes to encourage work, savings and investment and to discourage excessive borrowing and housing speculation.

This year a New Zealander earning the average wage will take home $64 more each week from their pay packet than they would have in 2008.

On April 1 this year, the company tax rate will be cut from 30c in the dollar to 28c.

This will help make our companies more competitive with other countries, and will give them more capacity to grow and create new jobs.

However, one of the main things on the Minister of Finance’s mind lately has been our massive foreign debt, which stands at $37,000 for every man, woman and child in this country.

As directors, you’ll be only too familiar with our conundrum.

New Zealand is one of the most indebted countries in the world, and lenders are becoming concerned.

The Finance Minister has likened New Zealand to Portugal, Ireland, Italy, Greece and Spain, which must have been a shock to some.

The country is facing a $15 billion cash deficit this year. I don’t think any of us want that to get any bigger.

For some time the economy has been out of kilter.

Too much of our capital has been on the non-earning side of the ledger.

We’ve been spending on things that aren’t going to bring in revenue and make New Zealanders better off.

Last year our export receipts were the same as they were way back in 2002, even though demand for our export goods is as high as it has ever been.

In other words, the spending machine has been out of control, but the earning machine has been up on blocks.

Our big challenge this year will be to move capital to the earning side of the economy – away from non-productive spending such as the state sector and residential property.

That is why the next Budget will be very much focused on investment and savings.

That has got to be good news for people such as you.

The ability to raise capital has long been one of the biggest obstacles to business growth in New Zealand – both to start-ups looking to get on their feet and to established businesses looking to expand.

If we want people to invest and save we must ensure there are good quality investment opportunities available.

The Government has asked Treasury for advice on the merits of extending the mixed-ownership model to four SOES – Mighty River Power, Meridian, Genesis and Solid Energy.

We are also seeking advice on reducing the Government’s shareholding in Air New Zealand, again while maintaining a majority stake.

In each case the Government would maintain a majority shareholding, yet it is envisaged that the model would provide new opportunities of governance, for investment and also for raising capital.

There has been criticism of selling minority shareholdings in these four SOEs based on a fear of foreign investment.

Not only would selling minority shares in the SOEs bring in much needed capital, but it would enable the SOEs, who will need increased capital for expansion, to access funds from their many shareholders rather than simply being reliant on government funding.

Governance in the mixed-ownership model is going to require the best directors who will be able to make the most of this exciting development.

Transforming the economy is not something that the Minister of Finance can do by himself.

If we want to enjoy economic growth, raise our standard of living and make this a better and safer country, every part of Government has a part to play.

Which brings me to what is on my mind, in particular.

As Minister of Police, Corrections and the Serious Fraud Office, it is my responsibility – along with my Justice sector colleagues – to ensure that New Zealand has a low rate of crime and corruption.

A strong and healthy economy relies just as much on the rule of law as it does reliable infrastructure and a transparent regulatory system.

A peaceful and law-abiding society gives people the opportunity to work hard, to pursue and achieve their goals and to accumulate wealth.

It gives businesses the confidence to invest and grow.

We are very fortunate that New Zealand is a safe and corruption-free country.

New Zealand is ranked 1st out of 179 countries in Transparency International’s Corruption Perceptions Index.

This is not something we should take for granted.

New Zealand companies have long experienced difficulties in new markets when confronted with corrupt or incompetent law enforcement or judiciary.

A lack of commitment to the rule of law or to a civil courts structure has been cited as a reason some of our leading companies have had to retreat from what should have been lucrative markets.

The rule of law is as vital to the free market as, in my opinion, access to capital.

In a globalised, interconnected world, geographic isolation no longer guarantees that we will be insulated from some of the less desirable trends overseas.
This is certainly true of crime and criminals.

In recent months one of Australia’s largest and most troublesome outlaw motorcycle gangs has been attempting to set up a franchise here in New Zealand.
This gang has been designated a criminal organisation by authorities across the Tasman.

Like many criminal gangs, this particular gang is a large criminal business that has been implicated in violence and drug dealing.

In addition, this gang is involved in money laundering, in protection rackets and legalised industries.

Like any large business, they are constantly looking at ways to expand their markets – into New Zealand in this case.

To be frank, we need them here about as much as we need snakes and the Cane Toad.

The growth of organised crime, domestic and otherwise, is one of the key law and order issues confronting the Government.

Here’s why.

The drugs trade has made gangs very rich.

The Police estimate that the combined profit from methamphetamine and cannabis sales alone is between $1.4 billion and $2.2 billion per year in New Zealand.

When criminals gain access to large amounts of money it increases the possibility of corruption taking root.

When police, politicians and officials are on the payroll of criminals or special interest groups, votes, laws and permissions can potentially be bought.

Corruption undermines the rule of law, erodes the effectiveness of government regulations, strangles government revenues and contributes to a slowing of economic growth.

Left unchecked, criminal gangs would begin to exert significant influence over our institutions and way of life.

This simply can’t be allowed to happen.

Corruption is not the only impact gangs would have on our future economic growth.

Gangs and their associates are responsible for a large proportion of crime in this country.

Their criminal behaviour is like a tax on the entire economy.

It reduces the competitiveness of our businesses, reallocates resources creating uncertainty and inefficiency and discourages domestic and foreign direct investment.

An economy with low crime is generally more productive, happier, more cohesive and healthier than one that has high levels of crime.

New Zealand spends a lot on its justice system. Each year Police, the Courts and Corrections cost the taxpayer around $3.5 billion in total.

The human cost for victims of crime is impossible to quantify.

For anyone who has been a victim of crime – particularly a violent crime – the human cost continues to be paid by victims and their families every day.

Each criminal act puts into motion a process that involves response and investigation by Police, hearings, trial and sentencing by the courts, and sentence management and rehabilitation by Corrections.

In 2003/04 – the last year from which figures are available – the cost of crime in New Zealand was estimated to be $9.1 billion.

That's almost $11 billion in today's dollars - nearly the total amount the Government spends each year on education.

I don’t believe anyone begrudges that spending. Investment in community safety is a good investment.

But lower rates of crime and fewer offenders in our prisons would free up revenue to invest in growth.

A stronger economy would lead to a higher standard of living, better health and education.

This would in turn reduce some of the social ills that lead to crime.

I have focused on gangs and organised crime because while they are only a part of the overall crime picture, they are quite a large part.

Unfortunately, criminal gangs have been tolerated in this country for far too long.

They have managed to convince some well-meaning people that they are legitimate organisations who provide support to the disenfranchised in society.

Well, I don’t buy that.

Gangs exist to commit crime.

Soft pedalling on gangs over the past decade has only bought them time to grow stronger.

One of the main priorities of this Government was to ensure our law enforcement agencies were well equipped to deal with this threat.

Police have been given new powers to intercept gang communications, take down gang fortresses and seize gang assets.

By the end of this year there will be an extra 600 frontline officers throughout the country.

These changes are already starting to bite.

Last year a record 30.4kg of methamphetamine was seized by Police and Customs, up from 20.8kg in 2009.

That’s around $30 million that won’t find its way into the shadow economy run by organised crime.

That’s a lot less misery in our communities resulting from the use and abuse of this devastating drug.

As I mentioned earlier, gangs are now multi-national businesses.

They exist for the profits that can be made.

We are going after those profits.

They don’t pay taxes like legitimate businesses do.

They claim welfare benefits.

They steal.

They intimidate honest businesspeople who get in their way.

Police have used their new powers to seize $36.5 million worth of assets from criminals.

These include cars, boats, heavy machinery, jewellery and property.

Under their new powers, Police don’t require an offender to be convicted by the courts before their ill-gotten gains can be taken by the Crown.

2010 would have been a tough Christmas for many gang bosses.

It’s my hope that 2011 is even tougher for them.

The strong message we are sending is that crime shouldn’t pay.

It’s not just organised crime and street crime that we’re focusing on.

It’s also white collar crime.

The Serious Fraud Office was once this country’s premier lead law enforcement agency for investigating and prosecuting serious and complex financial crime.

However, at a time when there was a pressing need to boost oversight of the financial services industry, the previous Government signalled its intentions to actually disband the SFO.

There are still too many cowboys out there for our liking. They erode the confidence of New Zealanders in investing in our productive industries.

Unlike the Securities Commission, who may prosecute all directors of a board for strict liability offences, such as misleading prospectuses, the SFO’s powers are aimed at “truly criminal” offending.

This recognizes that the vast majority of directors are honest and have integrity.

The message from the SFO is that it wants to work with directors to uncover serious financial crimes – and it will take information in confidence.

We think it is important to retain and rebuild the SFO.

Recently the new head of the SFO Adam Feeley embarked on a restructuring programme to ensure the office is well positioned to tackle the threat from sophisticated white collar criminals.

The SFO also has an important role to play in maintaining New Zealand’s reputation as a safe place to invest and do business.

The SFO has some challenging goals for the next three years.

I’m expecting that the SFO will work closely with receivers, the business community, professional organisations and others who have an interest in a corruption free New Zealand.

It will also be crucial that the SFO works more effectively with other regulators to ensure a speedier, united response to cases of suspected fraud.

Perhaps most importantly, it will be expected to set clear priorities based around their impact on the public and the New Zealand economy.

In 2010 the SFO cleared a backlog of cases, including cases up to seven years old. Today the average age of a case is five months.

During the year 27 investigations were opened, including a number of investigations into finance companies.

The cases investigated during that time had losses totalling approximately $1.5 billion, affecting approximately 115,000 victims – many of who were investors.

The SFO has laid more than 800 charges against 26 people. Several white collar criminals are now behind bars.

The word from our prisons is that these criminals are not enjoying their time as guests of the Department of Corrections.

We all agree that public safety is, and will always be, the main reason our justice system exists.

But a pragmatic view also holds that justice, law and order and security cannot be divorced from economic growth.

Crime, be it street crime, organized crime or white collar crime, is a dead weight around all our futures.

Without the security and structure that effective law enforcement provides, the economy would not be able to function with any degree of efficiency or certainty.

Strategies that deliver safer communities will also deliver a stronger and healthier economy and a better future for us all.

Thank you.