Cook Islands: Offshore Business Sectors
Although the Cook Islands offshore industry is relatively small in world terms, it is an important source of revenue to the Islands' Government, which actively encourages its development with tax incentives and concessions. The offshore industry now only rates second to tourism in terms of its contribution to Government finances.
However, it has been shrinking of recent years, and in February 2008, a committee set up by Finance Minister Sir Terepai Maoate was tasked with coming up with a rescue package for the offshore industry.
Marketing the Cook Islands as a safe and reputable jurisdiction for people to do business was immediately identified as a priority by the Committee. Committee member Puai Wichman stated at the time that he believed that such a goal could be achieved “quite quickly”.
“We have huge potential as a jurisdiction, I think we stand to produce the greatest source of diversification of income for the country if we do it right and now we have the opportunity to do it right,” observed Wichman.
Recognising that the industry has considerable potential for growth, Sir Terepai expressed concern that it had been shrinking in terms of its presence in the international market place and revenue contributions.
Sir Terepai did caution the Committee, however, that the offshore industry “needs to put more effort into this rather than relying on government to drive a marketing programme”.
The industry began in 1981 with the International Companies Act 1981-2, the Offshore Banking Act 1981, the Offshore Insurance Act 1981-2, and the Trustees Companies Act 1981-2. This legislation was then followed up with the enactment of the International Partnerships Act 1984 and the International Trusts Act 1984.
The Offshore Financial Services Act 1998 created the post of Commissioner of Offshore Financial Services who issued banking and insurance licences. Under the umbrella of the Commissioners office are the Registrars of Companies, Trusts and Partnerships who licenced and regulated their respective fields.
Most regulatory and supervisory functions were however transferred to the Financial Supervisory Commission after its establishment in 2003. The insurance sector came under the FSC's regulatory remit with the Insurance Act 2008. The Offshore Banking Act was replaced and modernized by the Banking Act 2003.
In common with many other offshore jurisdictions, the Cook Islands responded to pressure from the OECD and FATF by tightening up its regulatory regime. Specifically, the Cook Islands responded to its inclusion on the FATF blacklist of jurisdictions with weak anti-money laundering legislation. In September 2000 the Cook Islands parliament passed the Money Laundering Prevention Act, which provided for the setting up of a Money Laundering Authority, to consist of the government's financial secretary, the commissioner for offshore financial services and the commissioner of police.
In 2003, a series of nine new laws were passed with regard to the regulation of domestic and offshore financial industries, after the cabinet approved the work of an Anti-Money Laundering/Counter Financing Terrorism Committee. The laws included a Financial Transactions Reporting Act, which required all banks to report local and international money transfers to a central financial intelligence unit. Since June 4, 2004, the operators of offshore companies, banks, trust accounts and insurance firms have been required to make full disclosure as a result of the updated legislation.
Disappointingly for the Islands, they were not removed from the list at the FATF 's meeting in March, 2004. The issue of revised FATF regulations meant that the 2003 legislation had to be reviewed, including the Financial Transactions Reporting Act 2003, Proceeds of Crime Act 2003, Financial Transactions Reporting (Customer Identification) Regulations 2004, Financial Transactions Reporting (Offering Companies) Regulations 2004, and the International Companies (Evidence of Identity) Regulations 2004.
Following a review undertaken in 2004 by the Financial Supervisory Commission, amendments were also made to the International Trusts Act and the International Partnerships Act.
An IMF assessment report issued in December, 2004, was complimentary, stating that:
'In response to its listing under the FATF ’s NCCT initiative, the Cook Islands has taken a number of measures to strengthen its financial sector regulation. New legislation was passed for the regulation of banking activity and a Financial Supervisory Commission (FSC) was established. A suite of anti-money laundering legislation was enacted in May 2003 with work ongoing in respect of legislation for combating the financing of terrorism. The new Banking Act and FSC Act provide a good basis for sound financial sector regulation. They provide the basic framework for authorization and effective supervision of licensed entities. The major challenges facing the FSC include the training and retention of appropriately qualified personnel and the development of an adequate range of regulations, guidance notes, and general supervisory tools.'
However, the IMF made a number of detailed recommendations for the improvement of training, transparency and supervision of the financial sector.
The Islands were finally removed from the FATF blacklist in February, 2005 and has since been considered as a leader in the fight against money laundering and terrorist financing in the Asia Pacific region.