km of territorial waters 3000km North East of New Zealand has, like most pacific islands, had difficulties developing a diverse economy. It depended mostly on tourism until the 1980s when the ground was set for the creation of an offshore finance industry, which has since been an area of robust growth. From 1981, a legal framework was put in place giving offshore banking and insurance a special place, ringfenced from the rest of the Cook Islands economy.
This was followed in 1984 by the International Trusts Act, which was amended in 1989 to introduce the first explicit asset protection trust law in the world. Building on the common law system the islands inherited from Britain and New Zealand, legislation has been developed to ensure greater protection for assets in trust and to give the settlor of Cook Islands trusts more ready control of their money.
Developing Offshore Center
Due to the close cooperation of business and government in the islands since the 1980s, the jurisdiction legal innovations in the area of offshore finance and asset protection have been largely favorable towards the professionals engaged in those industries and their clients. Like most offshore centers, the Cook Islands found itself on the Financial Action Task Force blacklist because it didn have the infrastructure in place required to handle anti-money laundering concerns. This spurred the Cook Islands to develop laws that provide extra safety to its investors while giving regulators the assistance and transparency they need. The islands most famous area of expertise in asset protection is derived from the use of a particular blend of laws that has developed there since the 19th century. These laws place clear protections on assets placed in trust in the Cook Islands and protection against foreign jurisdictions, so anyone trying to use litigation to gain control of funds must do so in the Cook Islands where there are relatively short statutes of limitations for creditors reclaiming funds. Aside from the inconvenience of starting court proceedings there, Cook Islands courts require proof eyond reasonable doubt that funds have been transferred to the Cook Islands with the sole purpose of denying the individual creditor. This reliance on legal instruments, rather than attempts to outsmart authorities, means that the Cook Islands are well placed to comply with the greater levels of transparency being demanded of offshore financial centers over the last decade. In 2003 , when the country was removed from the FATF lacklist the Cook Islands worked with the IMF to create the regulatory infrastructure necessary to reduce the risk of money laundering, making it a model jurisdiction in the fight against terrorism and organized crime. Followed in 2009 and 20010 by a slew of Tax Information Exchange Agreements, so far signed with sixteen countries.
A New Era
In 2008, the then finance minister Sir Terepai Maoate still felt that the offshore sector in the Cook Islands was not living up to its potential. He at that time created the Financial Services Development Authority, with the mission to promote the islands financial services overseas and to work with the government and the industry to ensure that the Cook Islands can compete in the global market. The offshore financial sector is also a leading component of the national sustainable development plan aiming to create an economy led by private industry. The government has given this area of the economy its full support, and is working to solve one of the islands major problems: the loss of talent due to emigration. All Cook Islanders hold New Zealand citizenship due to the two countries ree association, giving them free access to the much larger New Zealand and Australia job markets. In recent years, the government has turned this around though, adopting immigration regulations that allow easy access to the island for financial workers, as well as incentives to draw talent to the island financial sector. China has also been a major part of this new era, with Wen Jiabao pledging USD 375 million in development assistance and low interest loans to the area during the 2006 meeting of the Pacific Islands Forum. Chinese money and companies have already helped the Cook Islands build a court house, police station and sports center on Rarotonga, the most populous of the islands. Just those three projects are said to have had a budget of over NZ$20 million (USD 14.5 million). As part of bolstering diplomatic ties with the Cook Islands, China also covered the $650,000 costs of the country delegation to the Shanghai Expo.
Attracting clients
Although the Cook Islands offshore finance sector has traditionally looked to America and European economies to provide clients, many in the industry say that the country has a lot to offer both individuals and companies in China. The country has a stable democracy and over time has shown a commitment to the offshore sector, which has only been bolstered by recent government initiatives. As described above the legal system offers a haven of clearly defined and evenly applied justice. This means that those looking to secure their personal wealth can rest assured that their money will be safe in trusts in the Cook Islands, even if they are declared bankrupt elsewhere, or if they become insolvent and owe creditors in other jurisdictions. As for companies, the speed at which it is possible to incorporate an international company or LLC in the Cook Islands, as well as the tax exemptions for these types of international companies registered in the Cook Islands make it an attractive jurisdiction to set up a company. For businesses involved in international trade the Cook Islands can offer a safe and reliable body of regulations to allow freedom of action, while at the same time allowing for the company to protect their assets from the courts of their trading partner jurisdiction. As Chinese businessmen look to markets across the seas the Cook Islands innovative products can provide a safe place for their money to rest.
Jennifer A. Davis, Esq. EO, Cook Islands Financial Services Development Authority
What differentiates the Cook Islands from other offshore financial centers?
Legislation, Service, Location, Those are the Cook Islands main advantages. We have strong legislation that underpins all international entities formed in the Cook Islands. We also have a well-deserved reputation for exemplary service by the service providers in the Cook Islands. They are experienced with sophisticated client matters and are responsive to client needs. Location is not always a consideration when choosing the best international finance centre for client work, but we are finding the Cook Islands is ideally located for Chinese clients. As the last international finance centre in esterday the Cook Islands has six more hours than our Caribbean counterparts to complete client work. Many Chinese clients have cross-border business interests and family spread around the globe. Their Cook Islands trustee starts their day when the US is open for business and ends their day when Asia is open for business. It makes it much easier for clients to manage their international affairs.
What are the main financial products and services available for investors?
The Cook Islands is best known for its international trusts, which include asset protection features. A Cook Islands trust is often the main entity for complex family and business planning. A Cook Islands Limited Liability Company or a Cook Islands International Company are common entities that work well on their own or in conjunction with a trust allowing clients flexibility in managing their affairs. Soon Cook Islands foundations will be available for clients. This provides more planning options for clients.
Beyond the products allowed for through legislation, the Cook Islands also offers a wide range of services to assist clients. Whether it back office administration for a business, real estate finance management, or sophisticated investments, the Cook Islands can tailor solutions that work for Chinese clients.
How does the Cook Islands legal framework work to protect investor interests?
When looking to manage one current wealth and opportunities for growth, clients want to ensure that what they have is protected. The Cook Islands was the first international finance centre to incorporate asset protection features into its trust legislation and subsequently its LLC and foundations legislation. There are limitations on how much time a creditor has to bring an action for a fraudulent transfer or conveyance to a trust. Assuming a creditor does bring an action within the proscribed timeframe, they must demonstrate to the courts that they have exhausted their possibilities elsewhere to satisfy their claim. The Cook Islands courts do not recognize foreign judgments nor does bankruptcy exist in the Cook Islands as a legal concept. The burden of proof for proving a fraudulent transfer or conveyance is the higher beyond a reasonable doubt standard.
What is the relationship between the Cook Islands and China?
The Cook Islands and China have a very positive relationship and enjoy strong diplomatic ties. China financial assistance to the Pacific has benefited the Cook Islands infrastructure and there are blossoming relationships between government and the private sector to bring the unique products and services of the Cook Islands to the Chinese people.
How does the Cook Islands appeal to the unique needs of Chinese investors?
While there are cultural differences among all client markets, the more we work with Chinese investors, the more we realize that the needs are the same for clients everywhere. People want to protect their assets, grow them, and ultimately enjoy them with their family. The appeal of the Cook Islands is that the service providers do not try to fit clients into categories or preset planning. They recognize the need to customize wealth and corporate structuring to each client. The legislation gives them the tools to do this and their expertise allows them the creativity to create ideal solutions for clients.
The Cook Islands has never focused on a particular market. Some services have appealed more to certain markets than others. What we are seeing with Chinese clients is that they are already global, either with their business, their family, or both. They are already straddling cultural and geographical divides. They use the services of the Cook Islands to help them do this more seamlessly.
What recent changes has the banking industry undergone, especially in light of recent international financial problems and calls for greater information sharing?
International regulatory requirements are the largest impact on the financial services industry over the last several years. Due diligence and financial monitoring of transactions in the banking industry affects everyone, no matter what jurisdiction you are in. The Cook Islands has 16 Tax Information Exchange Agreements in place and is continuing to enter into more. Cook Islands services are not tax-driven so we have seen little impact thus far from these agreements.
What is your prognosis for the future development of the Cook Islands financial industry?
The future is bright. As we continue to raise the profile of the Cook Islands in new client markets and users spread the word of our exemplary service, we expect strong growth, particularly from China. 2012 will see the advent of new legislation for new products and services, allowing us to build on our innovation in responding to the needs of Chinese clients.
