UPDATED 5.22pm The Government has confirmed a shakeup of foreign trusts following a review sparked by the Panama Papers.

LISTEN ABOVE: John Shewan and Revenue Minister Michael Woodhouse speak to Larry Williams

Foreign-owned trusts based in New Zealand will be required to disclose more information when registering, which would allow regulatory authorities to search the register.

The trusts would also have to file annual returns, Finance Minister Bill English and Revenue Minister Michael Woodhouse said this afternoon.

The inquiry by former PwC chairman John Shewan also recommended changes to New Zealand’s anti-money laundering rules.

His report said that foreign trusts were legitimate vehicles, but that disclosure rules needed to be strengthened.

“The inquiry concludes that the existing foreign trust disclosure rules are inadequate,” Mr Shewan’s report said.

“The rules are not fit for purpose in the context of preserving New Zealand’s reputation as a country that cooperates with other jurisdictions to counter money laundering and aggressive tax practises.”

Mr Shewan recommended a “significant” increase in the amount of information disclosed when trusts were first set up.

Annual reporting and increased enforcement would also address the issues raised in his inquiry, he said.

In theory, New Zealand’s tax disclosure rules and anti-money-laundering rules should be enough to deter tax abuses and ensure funds held in foreign trusts were from legitimate sources, the report said.

“However, under current law and enforcement practices the risk of detection by authorities is low.

“The inquiry considers that the disclosure requirements can be justifiably described as light-handed.”

Mr Shewan found no evidence of illicit funds being hidden in New Zealand-based foreign trusts.

“However, based on the work undertaken, including a review of IRD files, the inquiry considers it is reasonable to conclude that there are cases where foreign trusts are used in this way.”

The current legislative settings, regulations, and disclosure rules created “both the potential and the environment for this to occur”, Mr Shewan concluded.

The Shewan Inquiry was prompted by the leak of 11 million documents from Panama law firm Mossack Fonseca, which specialised in tax haven activity.

Dubbed the Panama Papers, it showed that the firm had facilitated illegal activity including money laundering.

It also drew attention to New Zealand’s tax-exempt foreign trusts, which were reported to be attractive to offshore investors because of minimal disclosure requirements.

Prime Minister John Key initially defended the foreign trusts regime, saying that it included “full disclosure”. Mr Woodhouse described New Zealand’s tax rules as “world class”.

However, as pressure mounted, the Government launched a review into the disclosure rules for the trusts.

Mr Shewan’s review recommended major changes to the amount of information disclosed by a person or company setting up a foreign trust in New Zealand.

He said that a trust’s settlors, protector, non-resident trustees, and beneficiaries should disclose their name, email address, foreign address, country of tax residence, and tax numbers at the time of registration.

This should be added to a register which was searchable only by regulatory authorities, he said.

Mr English confirmed today that disclosure rules would be changed, but the extent of the changes would not be known until officials had examined the inquiry in detail.