World-Leading and Compliant
Tamatoa Jonassen, CEO of Cook Islands Finance, talks to CEO Insight of how this Pacific nation has managed to win the praise of international regulators, whilst still knocking spots off the competition when it comes to its asset protection credentials.
CEO Insight: Why is the Cook Islands Mutual Evaluation Report, tabled and adopted in July, of such significance?
Let me start first with some context. As is well known to those who work in the asset protection space, the Cook Islands enacted the International Trust Act 1984 that began the modern asset protection trust. With no challenge against a Cook Islands international trust being successful to date, our trusts are rarely challenged.
Tamatoa Jonassen: The case law that developed in earlier years has shown how robust our asset protection regime is. However, with such a successful regime comes a certain stigma that I believe can only be overcome with the help of independent assessments such as the Mutual Evaluation process done by the Financial Action Task Force (FATF) and its regional bodies.
In 2009 the Cook Islands was reviewed by the Asia Pacific Group on Money Laundering (APG), a FATF-style regional body, and was effectively assessed in the top 20% of the 160+ countries assessed for implementing international regulatory standards. In that review, the Cook Islands did better than New Zealand and Australia. The Mutual Evaluation process is conducted by an international team that often can take a year or longer to do an in-depth review of a country’s laws and effectiveness. The resulting draft MER is heavily scrutinized by other countries before finally being adopted by FATF.
The more recent review undertaken by the APG during 2017 and 2018 shows that the Cook Islands has significantly improved from an already positive 2009 review. The MER tabled and adopted in July now places the Cook Islands as one of the top jurisdictions in the world for compliance with international regulatory standards. Given the thorough and in-depth assessment undertaken, the results of an MER can and should be relied upon by financial institutions and compliance offices around the world when contemplating their financial relationships.
CEO: How is the Cook Islands able to successfully comply with Common Reporting Standard (CRS) and Automatic Exchange of Information (AEOI) requirements, yet still be able to point to robust asset protection credentials that are second to none?
TJ: With the worldwide implementation of FATCA by the United States and the adoption of CRS by more than 100 countries, tax transparency is now an international standard across jurisdictions.
Automatic exchange of tax information between governments will assist countries in combating the serious crimes of tax evasion, money laundering, and financing terrorism and nuclear proliferation. Only relevant information is exchanged through CRS, which is done through secure portals and intended to be held in confidence by receiving governments.
“As the wealthy class in Asia continues to explode, the experience, professionalism, and well-established laws of the Cook Islands financial services industry become more relevant than ever.”
The asset protection regime of the Cook Islands was never intended to protect proceeds of crime. This is evident from the enactment of the Cook Islands Proceeds of Crime Act 2003 and other relevant legislation. Client information is still kept confidential and not publicly disclosed. Despite any exchange of information through CRS, the asset protection provisions of our legislation remain effective and relevant for those concerned about wealth preservation and planning.
CEO: Why is the Cook Islands so well placed to cater for the current explosion in demand for wealth structuring, management and administration services in the Asia-Pacific region?
TJ: The unique position of the Cook Islands places it approximately halfway between Asia and the Americas, and in a time zone that administration services may find most convenient. Its special relationship with New Zealand and use of independent judges further bolster confidence in the Cook Islands as a reliable financial services jurisdiction with the preeminent asset protection regime.
The successful implementation of asset protection experienced by wealthy clients from the very litigious society of the United States is directly applicable to societies in Asia that have an increasing number of wealthy and ultra-wealthy individuals. As the wealthy class in Asia continues to explode, the experience, professionalism, and well-established laws of the Cook Islands financial services industry become more relevant than ever.
CEO: With a level playing field on the tax transparency front, what distinguishing characteristics set the Cook Islands apart in respect of its wealth management credentials, particularly in respect of succession planning?
TJ: An important provision introduced through our International Trusts Act 1984 and a 1989 amendment was section 13E, which ensured the succession plan articulated by the settlor in a trust agreement will not be trumped by forced heirship rights in other jurisdictions. Coupled with the spendthrift provision of section 13F, the unenforceability of foreign judgements provision of section 13D, and other important asset protection provisions, the Cook Islands has a robust and long-standing framework to ensure the wealth management needs of clients are met.
CEO: What would you describe as the Cook Islands’ jewels in the crown in respect of asset holding and investment vehicles?
TJ: Our key financial services vehicle has always been our international trusts, a vehicle developed from common law. The Cook Islands international trust separates legal ownership so that the trustee legally owns the assets or investments in accordance with the trust agreement initially established by the settlor-client.
This, in itself, is a form of asset protection that makes the client an unattractive target of vexatious litigation. A timely and properly established asset protection structure will secure, manage, and disburse a client’s wealth in accordance with the client’s wishes, as formalized in the trust agreement.
In addition to the international trust, the more recently available Cook Islands foundation (available through legislation enacted in 2012) also provides asset protection under a somewhat different framework that would be familiar to practitioners from civil law jurisdictions. For more complex wealth structures, the use of a corporate entity such as the Cook Islands Limited Liability Company (LLC) allows for greater flexibility and compartmentalization between assets that have varying degrees of liability or fungibility.
CEO: What can you tell us of the skill, professionalism and proven pedigree of the service providers in the Cook Islands?
TJ: Over the last three years the number of trustee companies in the Cook Islands have grown from five to eight. However, each of the trustee companies employ professionals who have more than ten years’ experience working in the financial services industry and have legal resources to provide competent legal advice to assist with structuring wealth plans in accordance with the individual needs of clients.
While some of those trustee companies also sustain branches in other jurisdictions, such as New Zealand or Hong Kong, all of them maintain networks of legal and banking relationships throughout the world that have been developed over decades. The Cook Islands has four banks. However, only Capital Security Bank Ltd maintains an international banking license that allows them to serve international clientele from almost anywhere in the world.
Cook Islands service providers are experienced in complex wealth structuring that could include cross-jurisdictional and intergenerational concerns. Establishing a structure in the Cook Islands adds real value and substance to a client’s wealth planning. Although the Cook Islands may have the best asset protection legal framework, it is the professionalism of its service providers that makes a real difference. Indeed, the positive international assessments of the Cook Islands, such as the MER, are a reflection of the observance of international standards and professionalism of Cook Islands service providers.
For more information: cookislandsfinance.com