Interview: Alan Taylor, Cook Islands Finance

Acting CEO of Cook Islands Finance, Alan Taylor, explains just why the South Pacific jurisdiction stands tallest in the international financial services arena.

What is the significance of the Cook Islands Mutual Evaluation Report having been tabled and adopted at the Asia Pacific Group on Money Laundering’s (APGML) AGM, held in Nepal in 2018?

The Cook Islands 2018 Mutual Evaluation Report (MER) is an outstanding achievement for such a small jurisdiction with limited resources. It is hugely significant for the Cook Islands in terms of enhancing its international credibility and its ability to conduct business and compete internationally.

The MER was the reward for the commitment and hard work of the Cook Islands government, its crown agencies and the private sector, particularly in the 18 months leading up to the MER being adopted in Nepal. It will be recognised internationally, given its independence and comprehensive nature, and should give governments, institutions and businesses globally great comfort when dealing with the Cook Islands and its financial services industry, while giving the small island state increased credibility when dealing with international trade partners.

Further, financial institutions will find it harder to justify money laundering risk as the reason for not transacting with Cook Islands businesses, for misinformation in the global community in relation to the Cook Islands and its financial services industry has in the past given rise to unjustified criticism. It is hoped the MER will dispel that criticism and enhance the Cook Islands’ reputation as a jurisdiction that is open for business and committed to meeting its international obligations.

Are you satisfied that the Cook Islands regulatory landscape strikes the right balance between a person’s right to privacy and confidentiality and the need to comply with more exacting compliance criteria?

Regulation in the Cook Islands seeks to meet international standards and encourage compliant financial activity and business operations. Over recent years, the Cook Islands has incorporated FATCA and CRS into its laws for the automatic sharing of financial information for tax matters and enhanced its AML/CFT laws and framework. It has also recently joined the OECD’s Inclusive Framework on Base Erosion and Profit Shifting (known as BEPS).

While the Cook Islands does not have public registers for beneficial ownership of incorporated entities or trusts, the Commissioner of the Financial Supervisory Commission and the Financial Intelligence Unit do have investigative powers where there is reason to believe financial misconduct has taken place. However, the information they obtain will only be shared in accordance with the provisions of the law.

The current political movement to establish global transparency on tax matters means that the confidentiality and privacy of one’s financial affairs can no longer be taken as a certainty. However, whilst no one denies a government its rightful tax take or wants to encourage those profiting from crime, there needs to be some comfort for those going about their lawful business that their personal information will not be available to those with no lawful need for it. The balance struck by the Cook Islands is to meet its international obligations, but, through its laws, retain an individual’s right to legitimate confidentiality.

The balance struck by the Cook Islands is to meet its international obligations, but, through its laws, retain an individual’s right to legitimate confidentiality.

What do you consider to be the other key recent developments and achievements relating to the Cook Islands international financial services arena?

Most of the more recent developments in the Cook Islands financial services arena relate to regulation and compliance with international requirements on money laundering and transparency of financial information to combat tax evasion and other financial crimes. As such, there has been little time to devote to product development and innovation, although we are hopeful that will now change over the coming months.

Over the past 12 months or so, the Cook Islands has been in open and constructive dialogue with the European Union’s (EUs) Code of Conduct Group in relation to the EU’s good tax governance initiative. That dialogue and the commitments made, ensured the Cook Islands was not placed on the EU’s blacklist of non-cooperative jurisdictions regarding tax matters published on 12 March 2019.

To what do you attribute the enduring appeal of the Cook Islands asset protection trust?

Quite simply, it works.

It is 30 years since the Cook Islands incorporated provisions into its trust law designed to enhance the asset protection features inherent in a common law trust. What is commonly called the Cook Islands asset protection trust has proved since that time that it does what it was set up to do, and that is protect wealth. It provides some of the most comprehensive protection available.

When enacted, the law was regarded as innovative and ground breaking, and its success is reflected in numerous other jurisdictions enacting the same or similar provisions into their trust laws. None, it would be fair to say, have been as comprehensive as the Cook Islands, but have nonetheless recognised the value of provisions providing increased protection to settlors and beneficiaries from foreign judgments and creditors.

There has been very little litigation over the years in the Cook Islands courts where Cook Islands international trust laws, and, in particular, the fraudulent conveyance provisions, have been examined and applied. It would appear then, that the statutory limitation periods have proved the deterrent they were intended to be, with settlors, creditors and their advisers negotiating the settlement of any disputes in their home jurisdictions.

The cases that have been reported have, however, provided points of interest, and shown the willingness of the Cook Islands courts to apply the law as it was intended. This gives great comfort to settlors when establishing a Cook Islands asset protection trust.

Meanwhile, Cook Islands trustee companies have proved to be professional, knowledgeable, responsive, and marked by integrity, while the country itself is politically stable with excellent communications and connectivity. We are confident that the combination of these factors will see the Cook Islands asset protection trust remain a world leader for many years to come.

Cook Islands trustee companies have proved to be professional, knowledgeable and responsive.

How do you see international financial services evolving in both the near and long term? Are you confident the Cook Islands is sufficiently flexible and adaptable to respond to new trends and market appetites?

Whilst trading crypto-currencies and initial coin offerings are hot topics, it is the potential of the blockchain technology that drives this activity that is most intriguing and exciting, especially for the financial services industry. It appears to have limitless possibilities, the simplest of which include storing information, simplifying identity verification and conducting international financial transactions through peer to peer payments. It would seem to provide a viable alternative to the traditional banking system and is commonly recognised to be the financial challenge and opportunity of our time that will change the way the international financial system operates.

The international financial services industry is under extreme pressure. The political push by the major world economies for transparency in tax matters (to assist them in managing their own taxpayers and funding their huge deficits), and tighter (many would say suffocating) banking regulations to control the international flow of funds and money laundering, is threatening the international financial system and the ability of businesses – and even small nations – to trade and compete.

Whether blockchain technology becomes a disruptive innovation displacing established financial products and services – and even the traditional financial system itself – remains to be seen. What we can expect, however, is that the blockchain will force the financial establishment to re-assess its models and systems, thereby creating more efficient and effective services. That alone has to be considered as bringing benefits to everyone.

The Cook Islands has always been regarded as innovative and open to new ideas, and in exploring the possibilities offered by blockchain technology from a financial services perspective, it can contribute to the ever-changing needs of today’s society.

What is it about the Cook Islands that makes it the jurisdiction best able to meet Chinese wealth management requirements?

When deciding on a jurisdiction for his/her wealth management planning needs, there are many factors the Chinese High Net-Worth Individual (HNWI) should consider.

Trusts are the cornerstone of most wealth management plans. For over 30 years, Cook Islands trust laws have proved to be robust and practical, designed to enhance the benefits provided by a common law trust and protect the individual’s assets and rights, and provide certainty to a settlor as to how assets will be managed, invested and distributed during his/her lifetime and after.

The choice of law and trustee are paramount when establishing a trust structure, and the Cook Islands can provide licensed trustees of vast experience, knowledge, integrity, substance and professionalism to rival any jurisdiction in the world. Moreover, they have experience in dealing with Asian and particularly Chinese clients, while some are even part of organisations with an Asian presence. In the Cook Islands, they are based in a sovereign jurisdiction that is politically stable and with a judiciary experienced in dealing with trust matters and that respects the rule of law. Meanwhile, the trustees are regulated by an independent authority that will monitor their activities and accept and investigate any complaints made by a settlor or trust beneficiaries.

Features of Cook Islands trust law that appeal to a Chinese settlor include being able to retain a degree of control over the assets settled into a trust through reservation of certain powers, including the power to invest and manage assets, and that a trust can be dynastic and continue indefinitely.

When all of these factors are combined with its modern communication facilities, banking options and convenient time zone allowing for same day transactions, the Cook Islands does stand out as an ideal option for the Chinese HNWI.

The Cook Islands stands out as an ideal option for the Chinese HNWI.

To what extent can the Cook Islands provide reassurance regarding cybersecurity? For example, is regulation sufficiently robust to mitigate against potential operational and security risks presented by the use of cryptocurrencies, or does more need to be done?

Cybersecurity generally is a concern for all individuals and businesses. It is recognised that the real threat to personal information now is not so much the sharing of financial information through legal channels, but data theft from financial institutions that are in the business of establishing bank accounts and structures for non-residents. Financial service providers especially, therefore, must take all necessary precautions to protect customer information and confidentiality through the use of appropriate security software and programmes. Fortunately, Cook Islands service providers are acutely aware of this and continually monitor and update systems as necessary.

The Cook Islands has subjected virtual currency businesses, which includes the issuing, transfer, storage and transacting of any virtual currency, to its anti-money laundering legislation, and anyone carrying on such business will be subject to the provisions of the Financial Transactions Reporting Act 2017 (the Act), and required to carry out customer due diligence, record keeping and reporting in accordance with the Act. At present there is no licensing requirement for such businesses, but Cook Islands licensed trustee companies are also subject to the Act, and therefore have obligations to obtain due diligence on the beneficial owners and effective controllers of all trusts and companies they establish, including those carrying on virtual currency business.

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