First conviction under overseas investment regime

A United States businessman has become the first overseas investor to be convicted under New Zealand's overseas investment regime. The conviction results from closer monitoring by the Overseas Investment Office of foreign investors' compliance with the Overseas Investment Act and more convictions could follow.

The sentencing notes 1 of the first conviction under the Overseas Investment Act 1973 (the 1973 Act) (the predecessor to the Overseas Investment Act 2005 (the 2005 Act)) have recently been released by the Overseas Investment Office (OIO).

The facts

Lance Connell Wellor, a United States businessman, was fined NZ$17,000 and ordered to pay NZ$5,000 in court costs in November 2005 for failing to comply with a condition of an Overseas Investment Commission (the Commission) consent.  The Commission was the predecessor to the OIO.

In January 2001, Mr Wellor purchased 43 hectares of land in Queenstown.  One of the conditions of the Commission's consent to the purchase was that Mr Wellor would, over a period of time, develop a 20 hectare chestnut orchard and a five hectare Douglas Fir plantation on the property.  The orchard and plantation were expected to create three full-time jobs.

However, when Mr Wellor sold the property in August 2004, the only developments made to the land were roading and foundation works for Mr Wellor's planned $5 million holiday home and guest lodge.  No work had commenced on either the orchard or the plantation. 

The decision

District Court Judge Stephen Erber, in sentencing Mr Wellor, stated that it was unacceptable for foreign investors to ignore conditions that the Commission imposed when granting consent.  Judge Erber stated "it must be perfectly clear to people who buy land here that conditions are to be complied with". 

One of the changes to the overseas investment regime under the 2005 Act is that the penalties for breaches are significantly higher than under the 1973 Act. 

Indeed Judge Erber stated that had Mr Wellor been subject to the 2005 Act he may have had to forfeit the profit he made from the resale of the property, which was estimated to be over NZ$700,000.  Under the 2005 Act, foreign investors can now be fined up to NZ$300,000 or face up to 12 months' imprisonment.  The High Court also has the power to force a foreign investor to dispose of his/her property.

Further convictions expected

Following the conviction of Mr Wellor, Overseas Investment OIO Manager Annelies McClure said that the conviction was a direct result of the OIO's renewed focus on monitoring overseas investors. 

The OIO made public in November 2005 that it was investigating 30 further cases involving overseas investors in the Auckland and Southern Lakes regions. 

To date, no further convictions have been made under either the 1973 or the 2005 Acts.  However, a warrant was issued in the Wellington District Court in February 2006 for the arrest of Earl Richard Schomburg for alleged breaches of the 1973 Act. 

Mr Schomburg, a construction company owner from Illinois in the United States, bought a $1.35 million share of Benmore Station in Canterbury in February 2003. 

It is alleged that Mr Schomburg misled the Commission by failing to disclose a previous conviction from 2000 for illegally buying and selling antelope in the United States for which he was fined US$15,000 and banned from hunting in the United States for a year. 

If found guilty under the 1973 Act, Mr Schomburg faces a fine of up to NZ$30,000 or 12 month's imprisonment. 

 

1 New Zealand Overseas Investment Commission v Lance Connell Wellor, (Unreported, 14 November 2005, District Court, Queenstown CRN4059500073).

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