Cook
Islands Table of Statutes
This is a non-exhaustive list of the main Cook
Islands statutes affecting offshore and non-resident
business. The statutes are listed in alphabetical
order - click on the statute for a fuller description
of the statute or the legal regime it forms part
of.
Banking Act 2003
Companies Act 1971-2
Development
Investment Act 1977
Entry, Residence & Departure Act 1977
Financial Services
Act 1998
Financial Supervisory Commission Act 2003
Financial
Transactions Reporting Act 2003
Insurance Act 2008
International Companies
Act 1981-2
International Trusts Act 1984
Investment Code
2003
Limited Liability Company
Act 2008
Money Laundering Prevention
Act 2000
Offshore Banking
Act 1981
Offshore (Criminal Provisions) Act 1996
Offshore Financial Services Act 1984
Offshore Insurance Act 1981-2
Proceeds
of Crime Act 2003
Trustees (Due Diligence) Regulations 1996
Under
the Financial Supervisory Commission (FSC) Act,
which was passed in May 2003, the FSC has responsibility
for the regulation and supervision of licensed
financial institutions and administers the following
legislation:
-
The Banking Act 2003;
-
The Trustee Companies Act 1981–82;
- The
Insurance Act 2008
-
The Offshore Insurance Act 1981–82 (which
is being replaced by the Insurance Act 2008),
-
The Insurance Companies’ Deposits Act
1970–71;
-
The International Companies Act 1981–82
(as amended);
-
The International Companies Amendment Act 2003;
-
The International Trusts Act 1984; and
-
The International Partnerships Act 1984.
It
additionally administers Regulations made under
the following acts:
- Banking
(Fees) Regulations
- Financial
Supervisory Commission (Compliance Officers)
Regulations
- International
Companies (Evidence of Identity) Regulations
- International
Companies (Prescribed Fees) Regulations
- Trustee
Companies (Due Diligence) Regulations.
The
FSC is headed by a Board of Directors comprised
of a Chairman and four members. At the professional
level, its executive staff is comprised of a Commissioner,
a Deputy Commissioner, a senior supervisor, two
supervisors, a registrar, and a deputy registrar.
The FSC has taken over the role formerly carried
out by the Office of the Commissioner of Offshore
Financial Services.
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Cook
Islands Money Laundering Law
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
which have weak anti-money laundering legislation.
In September 2000, the Cook Islands parliament
passed the Money Laundering Prevention Act.
The
Act, designed to get the country taken off the
Financial Action Task Force (FATF) blacklist of
uncooperative jurisdictions in the fight against
money laundering, provided for the setting up
of a Money Laundering Authority (MLA). The MLA
consisted of the government's financial secretary,
the commissioner for offshore financial services
and the commissioner of police.
The
powers and duties of the new body included receiving
reports from financial instutions on any suspected
criminal business transactions and the passing
of such reports, if backed up by reasonable evidence,
to the solicitor-general. The authority is also
empowered to issue training guidelines to financial
institutions in terms of anti-money laundering
procedures.
The
Money-Laundering Prevention Act has a section
overriding any other secrecy provisions. It prevents
illicit funds from being introduced into the financial
system. The financial institutions which the new
Act covers are wide ranging and include money-transmission
services, those which issue and administer means
of payment (such as credit cards, travellers'
cheques and bankers' drafts), and gambling and
other betting services incorporated in the Cook
Islands.
Offences
under the new legislation are punishable by up
to a maximum fine of US$20,000 dollars or a jail
term of up to five years, or even a combination
of both.
After
the 11 September, 2001, terrorist attacks in the
United States, the Cook Islands reiterated its
commitment to the prevention of money laundering
activities set out in the Money Laundering Prevention
Act 2000 by announcing the Money Laundering Prevention
Regulations 2001.
In
2003 a series of nine new measures were introduced
in the Cook Islands Parliament 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. However 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
an International Monetary Fund review in 2004,
various
regulations relating to anti-money laundering
legislation were passed.
The
IMF's 2004 mission had the following to say about
the Proceeds of Crime Act 2003:
"With
the enactment of the Proceeds of Crime Act 2003
(POCA), the Cook Islands has put in place a sound
regime for the forfeiture of proceeds and taking
provisional measures, but it does not cover the
freezing of terrorist funds and is untested in
practice."
"Under
the POCA, tainted property and benefits derived
from crime can be recovered through two different
types of legal action, i.e., forfeiture orders
and pecuniary penalty orders. Both are discretionary
criminal penalties and require conviction of a
serious offense. Forfeiture can be applied also
against tainted property where the accused has
absconded or died. Law enforcement authorities
can use production orders, monitoring orders,
and search warrants for tracing assets, and seizure
and restraining orders can be used to secure them."
"To
date, no property has been restrained, seized,
or forfeited under the current legislation. As
there exists no legislation providing for the
freezing of funds or other property of terrorists,
the authorities are currently not in a position
to freeze such funds, etc as required by the UN
SCRs relating to the prevention and suppression
of FT. The mission recommended that forfeiture
be made mandatory for any serious offense where
proceeds are detected and that legislation be
adopted as a matter of priority to provide for
the freezing of terrorist funds."
The
Islands were finally removed from the FATF blacklist
in February, 2005.
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Cook
Islands Trust Law
Cook Island trusts are known locally as International
Trusts and are governed by the provisions of the
International Trusts Act 1984 (as amended). All
International Trusts must have non resident beneficiaries
and a resident licensed trustee (unless they come
within the custodian trustee exception cited below).
In order to meet the requirement of having a resident
licensed trustee the International Trust would
be required to use one of the 5 registered trust
companies which operate out of the Islands. To
obtain the protection of the Islands' laws the
trust must be registered by the registered trustee
company within 45 days of its creation who at
registration must certify that the trust is an
International Trust under the International Trust
Act 1984.
See Offshore Business
Sectors for details of the confidentiality
rules applied to licensed trust managers.
A Cook Islands International Trust has a number
of distinct advantageous features:
- The
International Trusts Act 1984 (as amended) abolished
the perpetuity period rule in the Cook Islands
and so enabled the "dynasty" trust to be established
and administered in perpetuity;
- The
details of the beneficiaries and settlor of
the trust are not registered; the only information
that must be filed with the Registrar of International
Trusts is the name of the International Trust,
the names of the trustees and the date of the
trust deed. Offshore public registries in the
Cook Islands are not open to the general public
and may be searched only by persons showing
to the Registrar a good and cogent reason for
doing so. Fraud constitutes one such reason;
-
The legislation specifically excludes the applicability
of foreign inheritance laws. Thus if a foreign
party from a civil law jurisdiction raised a
legal challenge in the Islands courts against
a disposition made by a settlor and cited foreign
inheritance laws as the basis of a claim alleging
that the disposition was invalid as it offended
against the forced heirship rules that applied
in his country, the action would fail since
the Cook Island courts do not recognize foreign
inheritance laws;
- Only
the judgments of New Zealand courts can be enforced
in the Cook Islands. Thus a foreign creditor
wishing to set aside a disposition would have
to commence an action in the courts of the Cook
Islands and so put himself within the ambit
of laws and procedures which are generally favourable
to the settlors, trustees and beneficiaries
of an International Trust. The foreign judgment
could only be used in the Cook Islands courts
as evidence (if any) of the strength of the
litigants claim. Furthermore exemplary and punitive
damages are rarely if ever available in the
Cook Islands with the consequence that such
categories of damages would be denied to a litigant
who successfully obtained judgment in the local
courts and would be excluded from any judgment
obtained in the courts of New Zealand.
- The
rule against accumulations has been abolished
in the Cook Islands. In the Cook Islands the
trustee of an International Trust can accumulate
the income indefinitely.
-
The common law rule against purpose trusts has
been abolished in the Cook Islands which has
provided a mechanism under which a purpose trust
can be enforced by the court.
- The
definition of what does and what does not constitute
a charitable trust has been extended in the
Cook Islands.
- Under
Cook Islands law a disposition can only be set
aside if: a)The disposition occurred within
2 years of the date of the act or omission which
gave rise to the creditors cause of action and
the creditor can prove fraud on the part of
the settlor; or b) if the action to set aside
the disposition is commenced within 3 years
of the date of the act or omission which gave
rise to the creditors cause of action . If an
action has already commenced in a foreign court
the time limit is frozen pending its conclusion.
-
Under the International Trusts Act 1984 the
rule requiring unanimity among trustees now
only applies to an International Trust if the
trust deed does not specify otherwise .The trust
deed can now set out procedures for making of
majority decisions by the trustees.Some doubt
whether this is permitted under the rules of
equity and it remains to be seen whether such
changes bring any advantage to the jurisdiction
given that these rules essentially exist for
the protection of the beneficiaries.
- In
the Cook Islands so long as the trust deed so
provides a trustee can delegate all powers except
dispositive powers. Dispositive powers are powers
enabling the trustees to dispose of assets whether
by way of sale or by way of distribution of
income or capital in favour of the beneficiaries.
Thus a Cook Islands trustee could now place
all trust fund investment decisions in the hands
of an investment company.
-
A trust deed may now impose a different standard
of care on a trustee making investments and
can provide that he is to have the same powers
of investment as a natural person.This might
prove useful where the trustee is expected to
manage a family business. Unless the trust deed
otherwise specifies the standard of care expected
of a trustee is that stated in the common law
namely that which a prudent person would exercise
in managing the affairs of another. Moreover
under the common law if the trustee is a professional
the standard of care expected is even higher.
- The
law allows for trusts created in the Islands
before these amendments came into being to have
their trust deeds re-drafted so that they can
take advantage of the new legal provisions.
Thus a trust which under the previous law had
to prescribe a perpetuity period of no longer
than 100 years can now have its trust deed redrafted
so as to take advantage of the abolition of
the perpetuities rule.
- So
long as the settlor appoints a licensed and
resident Cook Islands trustee as a custodian
trustee he is free to appoint managing trustees
within his own jurisdiction. (This is the only
exception to the rule that requires the trustees
of a Cook Islands trust to be licensed and resident
there).
- A
new mechanism and procedure has been created
whereby the trust deed can appoint a "nominated
person" who has the power to obtain the consent
of and represent all the beneficiaries including
non sui juris and future beneficiaries, beneficiaries
who cannot be found and beneficiaries who have
yet to be ascertained.
- There
are provisions allowing trusts to be redomiciled
in and out of the Cook Islands. It was felt
that the legislative changes (e.g. the abolition
of the rule against perpetuitites) will make
the Islands a particularly attractive jurisdiction
in which to locate a trust and that accordingly
there will be considerable interest in re-domiciliation.
A trust re-domiciled in the Cook Islands is
by the Islands' law deemed to be an International
Trust formed under the International Trusts
Act 1984 from the date of its inception and
not just from the date of its re-domiciliation.
- Under
Cook Islands law the trust deed can deem that
different aspects of the trust can be governed
by the laws of different jurisdictions. Furthermore
the trust deed will also be able to provide
for a change in the governing law on the happening
of a specified event (otherwise known as a "flee
clause").
The
full text of the International Trusts Act (as
amended) can be found here.
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