Cook Islands: Cook Islands Continues War Against Money Laundering

On 18 August 2000 the Cook Islands Parliament enacted the Money Laundering Prevention Act 2000 ("the Act"). The passing of the Act sends a strong message to the rest of the world that the Cook Islands remains committed to the global war against money laundering and will not allow the jurisdiction to be abused by money launderers, fraudsters or other such criminals.

As many offshore financial centres have relatively strict privacy laws, there is the perception that these laws may be abused to play host to money launderers. The Cook Islands Government and its offshore industry have always been alert to that possibility and has a history of being proactive in enacting laws and requiring procedures designed to discourage such business.

At present money laundering is a topical issue in the finance world. This increase in discussion has raised general awareness of the need to discourage money launderers by enacting appropriate legislation. Several jurisdictions are currently considering or are in the process of enacting anti-money laundering laws.

In the Cook Islands, however, the dangers of money laundering were recognised and acted upon years ago. Consistent with the Cook Islands reputation for being innovative and at the legislative forefront of the offshore world, the Cook Islands began its legislative programme to discourage money launderers in the mid 1990’s. In 1996 the Cook Islands passed the Offshore Industry (Criminal Provisions) Act 1995-96 ("OICPA") and was one of the first offshore jurisdictions to provide legislative obstruction to money launderers.

The OICPA provides procedures for trustee companies to report suspicious activities where they find themselves in the unenviable situation where proceeds of crime have been settled on a trust. At the same time the OICPA was passed the Cook Islands Executive Council also promulgated further regulations in relation to trustee company due diligence procedures. The Trustee Companies (Due Diligence) Regulations 1996 ("TCDDR") were passed and compel trustees to address issues of settlor solvency and source of funds when accepting property into a trust. Whilst the TCDDR really did no more than legislate what was already general trustee practice, it certainly sent a signal as to the kind of business the Cook Islands was seeking. The TCDDR provides penalties for trustees that do not complete the requisite due diligence and also has teeth where there have been due diligence misrepresentations by a settlor. The Trustee Companies Act 1981-82 provides that where there have been such misrepresentations the trustee shall resign and consequently the trust loses all the benefits of the Cook Islands offshore trust regime.

The passing of such legislation in the mid 1990’s was the beginning of the Cook Islands legislative programme against money launderers. Indeed in many respects the Cook Islands early determination to provide legislative obstacles to such business was far more substantial at that time than many of its offshore competitors as well as many prominent "onshore" jurisdictions that have much larger and more vulnerable banking systems.

The recent passing of the Act clearly underscores the Cook Islands position at the legislative forefront of countering money laundering.

Significant features of the Act include:

1. The Criminalization of Money Laundering

Anyone convicted of money laundering, as defined in the Act, will be liable on conviction to a fine not exceeding NZD20,000 and/or imprisonment of up to five (5) years.

2. The Creation of the Money Laundering Authority ("the Authority")

The Authority, comprised of the Commissioner for Offshore Financial Services, the Financial Secretary and the Commissioner of Police, has been established to act on reports or suspicions of money laundering activity and to monitor and assist financial institutions in their adherence to the provisions of the Act.

3. The Creation of a Suspicious Transactions Reporting Facility

Financial institutions, including trustee companies, are to report suspicions of money laundering to the Authority. Financial institutions are also obliged to keep records of certain financial transactions.

4. Mutual Assistance in Relation to Money Laundering

The Cook Islands has thus far been fortunate in that it has no record of being a haven for proceeds of crime or "dirty" money. The Government and participants in the offshore industry are committed in doing all they can to maintain that record. The Act will further enhance the Cook Islands position as it represents a significant step in the ongoing process to upgrade and strengthen the Cook Islands due diligence and anti-money laundering regime.

TrustNet is fully supportive of the Act and all initiatives to responsibly remove the threat posed by money launderers and other such criminals to the offshore industry in the Cook Islands.

The fact that more questions may be asked and more information is required should not deter people from doing business in the Cook Islands. It should in fact encourage business. People doing business in the Cook Islands should gain great comfort from the passing of the Act and knowledge that their affairs are unlikely to be tainted with the activities of money launderers and the reputation risk associated therewith. All information received in relation to fund transfers and the beneficial ownership of funds is for internal records only and, subject to the terms of the Act, is held according to the strict confidentiality laws of the Cook Islands. People carrying out legitimate business have no reason to be concerned.