The Cook Islands: Uniquely Strong and Compliant

When it comes to wealth management, the Cook Islands in the south Pacific must be considered as the worldwide jurisdiction of choice, bar none, for notwithstanding the effects of the Common Reporting Standard (CRS) and Automatic Exchange of Information (AEOI), its asset protection credentials remain a cut above. With numbers of HNWIs and UHNWIs – and particularly those in the Asia-Pacific region – continuing to increase at an unprecedented rate, the Cook Islands is extremely well-positioned and resourced to cater for the current explosion in demand for wealth structuring, management and administration services.

The new international ‘borderless’ regulatory landscape that CRS and AEOI will usher in holds no fear for the Cook Islands and does not lessen the attractiveness of its offer to its existing and prospective client-base. The new level playing field on the tax transparency front means that jurisdictions will become distinguished by the quality of their product and service in respect of wealth management, rather than their capacity to offer a safe haven for ill-gotten gains or away from national exchequers.

Informed by this, HNWIs, UHNWIS and their advisors can be assured that when looking for a wealth management plan for the purposes of succession planning, the Cook Islands is somewhere that presents the opportunity to mitigate the risk of assets evaporating before they can be transferred, due to ill-judged investment strategies, irresponsible conduct, political interference, or as a result of litigation, while it also offers the most suitable asset holding and investment vehicles.

Moreover, the robust protection Cook Islands law continues to afford, which helps to shield assets from rogue elements, is complemented by the fact that it offers scope to create structures that separate personal and family assets from business assets, so shielding them from each other’s potential liabilities. Meanwhile, as to the many uses of trusts in a wealth management plan in common-law jurisdictions, the Cook Islands shows that by compartmentalising assets and transferring legal and beneficial ownership to different parties, if established in the right way and at the right time, wealth can be kept away from the reaches of creditors, whether by force, litigation or legislation.

In establishing a trust in a location such as the Cook Islands, there is a distinct advantage over those that are held in any number of US States, where recent landmark cases suggest assets held are by no means protected as anticipated. Thus, so long as assets are also held outside the US, wealth can be protected from frivolous or vexatious litigation. Moreover, the Cook Islands offers further unique credentials, not least, the fact of having pioneered the enshrinement of such specific asset protection provisions into law some three decades ago.

The Cook Islands International Trusts Act, originally enacted in 1989, essentially allows for great flexibility in respect of estate and tax planning, affording the opportunity for clients to avoid both probate and forced heirship rules. It further allows for a range of trust arrangements, including dynasty, purpose, and charitable trusts. In this way, Cook Islands trusts can be put to work across a wide spectrum of global investment opportunities, frequently constituting an integral element in business succession plans.

In addition, news that the UK Government recently determined to introduce by 2020 a publicly available register of company beneficial ownership in respect of its 14 British Overseas Territories, serves to wholly undermine the business model of financial services big hitters such as the British Virgin Islands. In doing so, it gifts the Cook Islands significant advantage, since it can offer to beneficial owners of companies the confidentiality they can no longer be assured of elsewhere, so cementing its status as the pre-eminent jurisdiction worldwide for wealth management purposes.

It is important to note, however, that there is nothing inconsistent with this approach and the jurisdiction meeting its obligations in respect of compliance and exchange of information, for the skill, professionalism and proven pedigree of the service providers in the Cook Islands is matched only by the enthusiasm with which the authorities in this Pacific nation work in concert with international organisations such as the OECD, the Financial Action Task Force and the EU. In this way, thorough due diligence is undertaken on a settlor and the assets to be transferred to a trust, as well as the settlor’s ability to remain solvent on the transfer of assets and thereafter.

As part of preparations for the introduction of the OECD’s CRS, the Cook Islands tax authority has published Guidance Notes to assist the jurisdiction’s financial institutions with their CRS reporting obligations. With legislation in place to govern the new compliance requirements in the form of the Income Tax (Automatic Exchange of Financial Account Information and Other Matters) Amendment Act 2016, the Income Tax Amendment Act 2017, and promulgation of the Income Tax (Automatic Exchange of financial Account Information) Regulations 2017, and experts in the field, Digimap Ltd, confirmed as providers of the requisite software and services, everything is in place for a seamless transition to the new landscape.