A tropical archipelago better known for its pearls and beaches than for its financial services, the Cook Islands lack the name recognition of more established offshore jurisdictions. However, much effort has been put into building the islands’ reputation as a reliable location for international incorporations.
Tourism has traditionally been the primary driver of the Cook Islands’ isolated economy, and while it continues to account for roughly 40% of GDP, officials are looking for ways to diversify.
The arrival of modern telecommunication infrastructure and increased connectivity with the outside world enabled the facilitated the Cooks’ transition into an offshoring destination. Legislation passed in the 1980s opened the islands for business, but there remained virtually no oversight of the offshore banks and trust companies.
Too good to be true
In the early days, settlers looking to protect their assets or set up companies could do so with virtually no questions asked. Within a decade, the number of international banks in the Cook Islands had mushroomed to 70.
While the flexible legal code was attractive to some investors, it was less popular with international regulators. In 2000, the Cooks, along with 35 other offshore jurisdictions, landed on a Financial Action Task Force blacklist of countries with insufficient regulatory regimes.
To get off the blacklist, the Cook Islands established the Financial Supervisory Commission (FSC) to keep an eye on international banks. Meanwhile, the Financial Intelligence Unit (FIU) was created to monitor questionable transactions. A host of new legislation has toughened registration procedures, increased transparency and closed loopholes. As a result, the Cooks’ credibility has been reinforced.
Yet tighter regulations have to be balanced against the offerings of privacy and limited government interference that attract investors offshore in the first place, according to Lorraine Allan, commissioner of the Cooks’ FSC since 2006.
“Regulations are a cost of doing business. People do not want to be bogged down by red tape,” Allan said. “On the other hand, we have to strike a balance with meeting our global obligations, particularly in terms of anti-money laundering.”
Brian Mason, general manager of Southpac Trust Company on the Cook Islands, emphasizes that the increased regulations have actually improved the offshore business. He says he has not observed any customer negativity toward the regulations.
“For some people, the offshore jurisdiction is no longer as attractive because of disclosure and supervisory regulations, but the other argument is that that is the sort of business that you don’t want – and you don’t need – anymore.”
Looking farther east
Attracting more business is precisely the challenge for these little-known islands, and for that they are reaching out to China and India. A task force formed in early 2008 recently completed a review of the Cooks’ offshoring industry and the islands’ government is evaluating and implementing the recommendations, particularly with regard to marketing, Allan said. Tapping China and India’s growing wealthy and middle classes is a high priority.
For potential clients in China, the Cook Islands promote their low cost of registration – US$300 to file – and quick turnaround on paperwork. Because the islands are in the same time zone as Hawaii, 16 hours behind Beijing, they work through the mainland night and can have registrations completed by the next morning. Like Hong Kong, the Cook Islands have inherited a British common law system.
Locals feel confident that a closer look at the islands by prospective investors will reveal a high level of customer service and a safe, stable environment. The islands boast one of the highest standards of living in the Pacific and a well-trained, English-speaking workforce, mostly composed of ethnic Polynesians who are eager to remain in the islands, as long as they can find stable employment.
“It’s a very different jurisdiction from what it was a decade ago.” said Mason. “The government has matured rapidly.”