CEO Insight: The Cook Islands was adjudged to be “largely compliant” following the OECD’s March 2015 Phase 2 Peer Review Report. What steps have subsequently been taken to address any highlighted outstanding issues?
Tamatoa Jonassen: Given the details of the Phase 2 Peer Review assessment of the Cook Islands’ ability to exchange information for tax purposes, the Cook Islands’ rating of “largely compliant” was actually very positive. The assessment focused on ten elements, including maintaining ownership information, accounting records, and powers to request information, and it resulted in the Cook Islands receiving the highest rating of “compliant” in eight of the ten elements. The remaining two elements were easily fixable.
One element in the Phase 2 Peer Review was assessed lower because the Cook Islands received a relatively low number of exchange of information requests. Since the number of requests should increase over time, this element is expected to be re-assessed as “compliant.” Furthermore, since the assessment was conducted, the Cook Islands has entered into two additional Tax Information Exchange Agreements (TIEAs), with Canada and Belgium, bringing the number of Cook Islands TIEAs with other countries to 21. In context, the Cook Islands has more TIEAs than any other Pacific island nation and has more TIEAs signed with European Union member countries than approximately 80% of other countries with TIEAs signed with members of the EU. The second element that was assessed lower was effectively a recommendation to monitor the operation of several legislative amendments then newly introduced in 2013 following the Phase 1 Peer Review process. These 2013 amendments mandated that accounting records and underlying documentation be maintained and subject to penalty.
CEO Insight: Why is the FATF’s recent guidance on correspondent banking services such welcome news for the Cook Islands’ financial services sector?
Tamatoa Jonassen: Modern international banking business cannot be transacted without correspondent banking relationships (CBRs). FATF has approved guidance clarifying how the risks of money laundering and terrorist financing should be managed for CBRs. This guidance reaffirms FATF’s stated risk-based approach so that financial institutions should mitigate risks rather than avoid them by closing correspondent relationships with whole classes of customers or entire regions.
This bank “de-risking” phenomenon to which FATF is responding not only renders it harder to make cross-border payments and threatens to damage the resilience and stability of the financial system, but it could also lead to financial exclusion by depriving customers access to the regulated financial sector for their financial transactions.
FATF has made it clear that correspondent banks are not required to carry out customer due diligence on every customer of their respondent institutions and that enhanced due diligence measures should correspond to the degree of risks identified.
The Cook Islands welcomes the FATF’s reaffirmation of how risks should be managed and believes it should help decrease costs of doing business with correspondents, and reduce or eliminate unnecessary pressure on banks to end correspondent relationships. As a financial service centre ideally located to bridge wealthy clients to financial services, the Cook Islands views CBRs as financial lifelines that should be protected from undeserved or unnecessary action.
CEO Insight: How does the work of the Cook Islands Financial Intelligence Unit act to enhance the reputation of the jurisdiction on the compliance front?
Tamatoa Jonassen: The Cook Islands Financial Intelligence Unit (FIU) is an independent unit within the Cook Islands Financial Supervisory Commission dedicated to collecting, analysing and disseminating financial information and intelligence on suspected money laundering, the financing of terrorist activities and other serious offences to relevant law enforcement authorities. Through its intelligence and compliance roles, the FIU contributes to the safe and stable financial and economic environment of the Cook Islands and associated coordinating governments. The FIU serves a critical function in coordinating with both domestic and international agencies in preventing and investigating financial misconduct.
“In May 2001, the FIU became a member of the Asia Pacific Group on Money Laundering (APG), a FATF-style regional body.”
In 2009, the Cook Islands was positively ranked in the top 20% of approximately 165 nations assessed by the APG on implementing international regulatory standards. The Cook Islands will be reviewed by the APG once more at the end of 2017. In addition to being a member of the APG, the FIU is also a member of the Egmont Group of Financial Intelligence Units and the Association of Pacific Islands Financial Intelligence Unit, which are organisations focused on combating money laundering, financing of terrorism, and other serious crimes.
The FIU is a valuable resource to international law enforcement agencies and to local police enforcement and is actively involved in various national groups organised to prevent, detect and combat regional and international threats from criminal activities. Through the efforts of the FIU, the Cook Islands has become a leader among Pacific Island nations in compliance and implementing international regulatory AML/CTF standards and has made its expertise available in international forums.
CEO Insight: How does the Cook Islands intend to capitalise upon recent reports of a huge increase in the number of UHNWIs worldwide, particularly in the Asia-Pacific region?
Tamatoa Jonassen: The Cook Islands pioneered legislation in the 1980s that led to the modern asset protection trust, which is a vital part of modern wealth planning for wealthy individuals and corporations. This has positioned the Cook Islands as a leader in wealth planning expertise with an ideal location in the heart of the Pacific between Asia and America. With the remarkable growth of UHNWIs in the past decade, the Cook Islands continues to focus on ensuring that its sophisticated financial services and the legal protections afforded under its legislation are utilised in a well-regulated regime centred on compliance with international standards while maintaining necessary client confidentiality provisions under our laws.
“The Cook Islands Financial Services Development Authority continues to promote the Cook Islands as a trusted jurisdiction. However, the growth of the financial services industry is reliant on licensed trust companies in the private sector. Although the Cook Islands does promote its financial services industry through the Financial Services Development Authority, it remains welcoming of trusted professionals seeking to establish reputable financial service business in the Cook Islands.”
CEO Insight: Which recent regulatory and legislative developments best evidence the Cook Islands’ commitment to transparency and accountability?
Tamatoa Jonassen: The Cook Islands’ implementation of the Common Report Standard (CRS) is the most recent development that reflects our commitment to transparency and accountability. The Cook Islands has enacted necessary legislation and prescribed regulations to effectuate CRS and signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters in October of 2016. Already having a Mutual Assistance in Criminal Matters Act and a Proceeds of Crimes Act in place from 2003, CRS joins the list of legislation seeking ‘right-touch’ regulation that promotes transparency and accountability. CRS is being implemented during a time of increased international regulation, which is also evident in the increased oversight afforded under the Cook Islands Trustee Company Act 2014 and the higher standards being implemented in the Cook Islands Financial Transactions Reporting Act awaiting enactment by Parliament.
For more information: www.cookislandsfinance.com