CEO of the Cook Islands Financial Services Development Authority (FSDA), Tamatoa Jonassen, talks to Invest 2018 of why the jurisdiction is a cut above the rest.
What distinguishes the Cook Islands from other jurisdictions in the international financial services arena?
The culmination of Cook Islands geography, history, political stability, and professionalism places the Cook Islands in a unique position of advantage.
Similar to London, with a time zone halfway between Hong Kong and New York, the Cook Islands is an ideal bridge between Asia and the Americas. It is further blessed with beautiful natural endowments that not only makes it a pristine tourist destination, but also manifests substantial ocean resources of fish, pearls and a treasure trove of seabed minerals, estimated to contain 25% of the world’s supply of cobalt.
“The international trust is the Cook Islands’ flagship financial product.”
The history of the Cook Islands shows how innovative its people are, as it manoeuvred itself into an association with Britain in the face of French expansionism in the 1800s. Importing British common law into its legal framework, the Cook Islands later chose to be self-governing in free association with New Zealand on the 4th of August 1965.
With over fifty years of peaceful governance, the Cook Islands has enjoyed diplomatic relations with over forty countries and continues to enjoy the economic stability afforded by the use of the New Zealand dollar to value its own currency.
The Cook Islands passed legislation over thirty years ago creating a leading international finance centre that now boasts experienced professionals centred on service and client-focused solutions, while implementing industry related international standards. Although the international trust is the Cook Islands’ flagship financial product, other financial services are available, including the establishment of Limited Liability Companies, International Companies, Foundations, Captive Insurance, Partnerships, and banking services.
Centered in the heart of the Pacific Ocean, which joins Asia and the Americas together, the Cook Islands and its service providers are an attractive bridge to enabling financial security.
What aspects of the Cook Islands International Trust have led it to being held in such high esteem as a wealth protection vehicle?
With the enactment of the Cook Islands International Trust Act 1984, the Cook Islands embarked on a journey as a pioneer of the modern asset protection trust.
“The Cook Islands and its service providers are an attractive bridge to enabling financial security.”
Within the context of the extreme litigiousness of U.S. society, the late attorney Barry Stuart Engel joined two Cook Islands attorneys in the 1980s to create asset protection legislation that has become a hallmark of wealth and estate planning. In fact, some U.S. legal scholars today raise the spectre of malpractice if a wealth advisor doesn’t at least consider offshore asset protection when advising wealthy clients in estate planning.
Although initially criticised as being too progressive, many other countries began adopting asset protection legislation, including 16 states in the U.S., the most recent being West Virginia in 2016. Combined with decades of caselaw both in the Cook Islands and in the U.S., the asset protection features of the Cook Islands International Trust have proven effective.
The Cook Islands International Trust Act 1984 allows for flexibility in structuring and managing wealth. The legislation includes strict time limitations in which claims must be brought against a Cook Islands trust and requires that claimants prove beyond a reasonable doubt that asset transfers to the trust were principally intended to defraud that particular claimant. Furthermore, claims against a Cook Islands trust need to be commenced in the Cook Islands High Court. The certainty provided by Cook Islands legislation affords wealthy individuals and companies the comfort that their hard-earned wealth is and will remain protected for the purposes and beneficiaries determined at the establishment of the international trust.
How have recent legislative developments acted to reinforce the Cook Islands’ credentials on the compliance front?
Although international trusts registered in the Cook Islands enjoy substantial protection if properly established, any protection afforded under Cook Islands legislation is not intended to include assets that are proceeds of crime or related to terrorist financing. The Cook Islands implements international regulatory standards that demonstrate its commitment to combatting money laundering, tax evasion and the financing of terrorism.
Recent legislative updates include augmenting the Proceeds of Crime Act 2003 and Mutual Assistance in Criminal Matters Act 2003, enacting the Financial Transactions Reporting Act 2017 that replaced the 2004 legislation and implementing the Common Reporting Standard (“CRS”) to automatically and reciprocally exchange tax related information to combat tax evasion.
The continued efforts by the Cook Islands demonstrates its right-touch approach to regulation and further contributes to its positive reputation for high standards, as evidenced by positive peer reviews by the Global Forum. This builds further on the 2009 evaluation done by the Asia Pacific Group on money laundering, which placed the Cook Islands in the top 20% of approximately 165 countries assessed for implementing international regulatory standards.
Is the Cook Islands Government’s commitment to the international financial services sector as a key component of its economy, as strong now as at any point since the FSDA’s inception? If so, how is this best evidenced?
The Financial Services Development Authority (“FSDA”) was established in 2009. Since its inception, the Cook Islands Government has continued to support the growth of the financial services industry through legislation that expanded financial service products and implemented international regulatory standards.
In 2012, the Cook Islands passed legislation allowing for the registration of Foundations. The following year, the Cook Islands passed the Captive Insurance Act 2013, which expanded insurance products available to international clients. In 2014, the Cook Islands government enhanced oversight of financial service providers when it enacted the new Trustee Companies Act.
By the end of 2015, the Cook Islands had signed 21 Tax Information Exchange Agreements with other countries, demonstrating the importance the government places on its financial services sector. Several months later, the Cook Islands passed the Pacific Catastrophe Risk Insurance Facility Act 2016, revealing a vote of confidence from the World Bank and other international stakeholders in the Cook Islands’ experience, capabilities, professionalism and legal framework governing its financial service industry.
Perhaps the best evidence of the Cook Islands Government’s commitment to the industry, however, is its efforts over the past two years in implementing the Common Reporting Standard, with the first information exchanges set to take place in 2018. Despite the benefits of being a relatively small jurisdiction among CRS implementers, the Cook Islands Government has committed significant resources to implementing the same international standards that other countries are implementing.
How has the Cook Islands responded to the explosive growth in levels of private wealth held by Chinese citizens, as well as the increasingly global nature of their personal and business holdings?
The formation of the FSDA has been part of the Cook Islands response to the changing international landscape. Since its inception, the FSDA has promoted the Cook Islands in Asia at conference events and in relevant publications. With the explosion of high net worth individuals in China, the need to understand how to best protect wealth becomes more pressing for such Asian-based individuals and so the Cook Islands’ experience with asset protection becomes very relevant.
In November 2017, the Cook Islands exhibited at various conferences held in Asia, including hosting its own Cook Islands Financial Services Conference in Hong Kong.
Towards which areas will the FSDA principally be directing its energies over 2018?
The FSDA will continue to focus on the Asian and U.S. markets, while playing an important role in assisting with the implementation of CRS, especially with the Cook Islands’ first information exchanges to be conducted in 2018. With the Asia Pacific Group currently conducting an assessment on the Cook Islands, the results of that assessment are expected to come out in 2018.