Source: 2006
Released by the Bureau for International Narcotics and Law Enforcement Affairs
The Cook Islands is a self-governing parliamentary democracy in free association with New Zealand and a member of the British Commonwealth. Cook Islanders are citizens of New Zealand.
After the Government of the Cook Islands remedied deficiencies in its anti-money laundering regime, the Financial Action Task Force (FATF) removed the Cook Islands from its Non-Cooperative Countries and Territories list in February 2005. The Cooks had been on the list since 2000. The FATF is conducting a year-long program, due to conclude in February 2006, to closely monitor the islands. The Cook Islands is scheduled for a mutual evaluation in 2008.
By enacting The Financial Transactions Reporting Act (FTRA) 2003, and eight other legislative acts on May 7, 2003, and additional legislation in 2004, Cook Islands authorities strengthened its anti-money laundering/counterterrorism financing (AML/CTF) legal and institutional framework. Reviews are underway to consider how the AML/CTF legislation affects other domestic laws. The Financial Supervisory Commission (FSC), regulator of the licensed financial sector, expects new insurance legislation to be drafted beginning in 2006.
The Financial Transactions Reporting Act (FTRA) 2003, and the updated 2004 amendment, require financial and other institutions to conduct due diligence, ongoing monitoring of customers and transactions, suspicious activity reporting, development and maintenance of internal procedures for compliance, and audit and record keeping. The Act provides for administrative and penal sanctions on institutions for noncompliance.
The FTRA imposes certain reporting obligations on institutions in 26 categories, including banks, offshore banking businesses, offshore insurance businesses, casinos, gambling services, insurers, financial advisors, solicitors/attorneys, accountants, financial regulators, lotteries, and money remitters. The Minister of Finance can extend the reporting obligation to other businesses.
Financial institutions are required to retain all records related to the opening of accounts and financial transactions for a minimum of six years. The records must include sufficient documentary evidence to prove the customer's identity. In addition, financial institutions are required to develop and apply internal policies, procedures, and controls to combat money laundering and to develop audit functions to evaluate such policies, procedures, and controls. Financial institutions must comply with any guidelines and training requirements issued under the amended FTRA 2004.
Financial institutions are required to make currency transaction reports and suspicious transaction reports to the Financial Intelligence Unit (FIU). Those requirements apply to all currency transactions of NZ$10,000 (approximately $6870) and above; electronic funds transfers of NZ$10,000 and above; transfers of currency, into and out of the Cook Islands, in excess of NZ$10,000; and, any suspicious transactions. Failure to declare such transactions could incur penalties. Institutions obligated to file Suspicious Transaction Reports to the FIU are banks, insurers, financial advisors, bureaux de change, solicitors/attorneys, accountants, financial regulators, casinos, lotteries, money remitters, and pawn shops. In 2005, the FIU received 10 Suspicious Transaction Reports, 566 Cash Transaction Reports, 1,763 Electronic Funds Transaction Reports , and 12 Border Currency Reports. To date, 30 of the 47 Suspicious Transaction Reports have related to non-residents.
The FTRA establishes the supervision and authority of the FIU, including cooperation with supervisors. The FIU is the central unit responsible for processing disclosures of financial information in accordance with anti-money laundering and antiterrorist financing regulations. It became fully operational with the assistance of a Government of New Zealand technical advisor. The FIU has the authority to require reporting institutions to supplement reports. It has broad powers to obtain information required to combat money laundering and the financing of terrorism, including information from any law enforcement agency and supervisory body. The FIU is required to destroy a suspicious transaction report if there has been no activity or information related to the report or to a person named in the report for six years. The FIU does not have an investigative mandate. If it determines that a money laundering offense has been, or is being, committed, it must refer the matter to law enforcement for investigation. The Minister of Finance, who is responsible for administrative oversight, appoints the head of the FIU.
The Cook Islands FIU (CIFIU) is participating in an FIU database project provided by AUSTRAC, the Australian FIU. The CIFIU recently received the database and is now capturing data stored while the database was being developed and tested. The Pacific FIU Database Project includes other jurisdictions that will receive versions of the same database framework.
The Banking Act 2003 and the Financial Supervisory Commission Act 2003 (FSCA 2003) established a new framework for licensing and prudential supervision of domestic and offshore financial institutions in the Cook Islands. The legislation in effect requires offshore banks to have a physical presence in the Cook Islands (the "mind and management" principle), transparent financial statements, and adequate records prepared in accordance with consistent accounting systems. The physical presence requirement was intended to ensure that the Cook Islands would have no shell banks by June 2004. All banks are subject to a vigorous and comprehensive regulatory process, including on-site examinations and supervision of activities.
The legislation established the Financial Supervisory Commission (FSC) as the licensed financial sector's sole regulator. The FSC is empowered to license, regulate, and supervise the business of banking. It serves as the administrator of the legislation that regulates the offshore financial sector. The FSC can license international banks and offshore insurance companies and register international companies. It also supervises trust and company service providers. The FSC regulates three domestic banks, four international banks, six trustee companies, and eight offshore and three domestic insurance companies. Its policy is to respond to requests from overseas counterparts to the utmost extent possible. The FSC has taken a broad interpretation of the concept of "counterpart" and does not need to establish general equivalence of function before being able to cooperate.
The FTRA requires the FSC to assess the compliance by licensed financial institutions with anti-money laundering regulations. Resulting reports and documentation are provided to the FIU. The FIU is responsible for assessing compliance by non-licensed institutions.
Licensing requirements, as set out in the legislation, are comprehensive. The Banking Act 2003 and a Prudential Statement on Licensing issued in February 2004 contain detailed licensing criteria for both locally incorporated and foreign banks, including "fit and proper" criteria for shareholders and officers, satisfactory risk management, accounting and management control systems, and minimum capital requirements. The Banking Act 2003 defines banking business, prohibits the unauthorized use of the word "bank" in a company name, and requires prior approval for changes in significant shareholding.
The Cook Islands has an offshore financial sector that licenses international banks and offshore insurance companies and registers international business companies. It also offers company services and trusts, particularly asset protection trusts that contain a "flee clause." Flee clauses state that if a foreign law enforcement agency makes an inquiry regarding the trust, the trust will be transferred automatically to another jurisdiction.
The domestic banking system is comprised of branches of two major Australian banks and the local Bank of the Cook Islands (BCI). The latter is the result of a 2001 merger of the Government-owned Cook Islands Development Bank and the Post Office Savings Bank. Domestic banks are primarily involved in traditional deposit taking and lending. The BCI operates as a stand-alone institution competing against the two Australian banks and is no longer engaged in development lending. Legislation allows for development lending to be undertaken in the future by a separate company not subject to supervision by the FSC. In addition, non-performing loans made by the Cook Islands Development Bank have been transferred to another affiliated company.
Progress since June 2004 includes the Cook Islands' response to the issues surrounding implementation of the AML/CFT regime. The head of the FIU chairs the Coordinating Committee of Agencies and Ministries, which promotes, formalizes and maintains coordination among relevant government agencies, assists the Government in the formulation of policies related to AML/CFT issues, and enables government agencies to share information and training resources gathered from their regional and international networks, including meetings or training seminars attended by their officials. The AML/CFT consultative group of stakeholders facilitates consultation between government and the private sector and ensures all financial sector "players" are involved in the decision making and problem solving process regarding AML/CFT regulations and reporting. The FIU is also a member of the Anti-Corruption Committee, along with the Office of the Prime Minister, Police, Crown Law, Audit Office, and the Financial Secretary.
The GOCI is an active member of the Asia/Pacific Group on Money Laundering (APG) with representation on the Steering Group, chairmanship of the Implementation Issues Working Group, and membership in the Typologies Working Group. The FIU became a member of the Egmont Group in June 2004, has bilateral agreements allowing the exchange of financial intelligence with Australia, and is negotiating a memorandum of understanding (MOU) with Thailand. All other exchanges have not required MOUs and have involved New Zealand, the United States, Hong Kong, Singapore, India, the United Kingdom, and several others. The Cook Islands is considering membership in the Offshore Group of Banking Supervisors (OGBS). The Cook Islands has received eight requests for mutual legal assistance since the Mutual Assistance in Criminal Matters Act came into force in 2003. Four have been answered, and four are pending, two of which were received in late 2005. The Cook Islands has not received any extradition requests, but successfully extradited one person from New Zealand. This court case is due to commence in February 2006
The GOCI is a party to the UN Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances. It is a party to the UN Convention against Transnational Organized Crime and to the UN International Convention for the Suppression of the Financing of Terrorism. The Terrorism Suppression Act 2004 -- based on the model law drafted by an expert group established under the auspices of the Pacific Islands Forum Secretariat. The Act criminalizes the commission and financing of terrorism. The United Nations (Security Council Resolutions) Act 2003 allows the Cook Islands, by way of regulations, to give effect to the Security Council resolutions concerning international peace and security.
The Cook Islands should continue to implement legislation designed to strengthen its nascent institutions, should maintain vigilant regulation of its offshore financial sector, and should abolish "flee clauses" in new asset protection trusts to ensure that it comports with international standards.