By Leo Zhang.
As a leading international finance center for three decades, the Cook Islands is a prime choice for sophisticated international services for the most discerning wealthy clients and corporate entities. Located in the South Pacific northeast of New Zealand, east of Tahiti, and south of Hawaii, the country boasts an ideal location and a global client reach for its legal and financial services.
The Cook Islands is known for its innovative services and ability to respond quickly to changes in and d emands from the global market . With the recent changes in the global banking environment, the Cook Islands is ranked very highly for its regulation and oversight of the financial industry. With a supportive government and proactive industry, the jurisdiction has been able to maintain its sophisticated legal and financial services at competitive prices and, most importantly, with an outstanding level of service.
China Offshore has an exclusive interview with Jennifer A. Davis, CEO of Cook Islands Financial Services Development Authority, who talked about how the jurisdiction can help effectively protect your assets.
Jennifer advised attorneys, advisors, and clients on the optimal structures for their situation, backed by years of experience working from the perspective of the international service providers. Jennifer managed complex international corporate transactional work and structured wealth management strategies for businesses and high net worth individuals. In her role as CEO, Jennifer is charged with growing the Cook Islands international financial services industry and promoting the jurisdiction to new markets.
Q: Compared with other jurisdictions, what is unique in Cook Islands in terms of asset protection? Under the current economic scenario, why should people put their money in the islands?
A: Since enacting the asset protection features of its International Trusts legislation in 1989, the Cook Islands has been regarded as the premier jurisdiction for asset protection. The strength of the legislation combined with the expertise of trustees has allowed the Cook Islands to maintain this reputation for over twenty years. For Asian clients, the Cook Islands is uniquely located geographically allowing for ease of business between Asia and Europe and North America. In addition, clients like that the trustees have significant experience and networks in all regions, not just one niche client market. This allows Cook Islands trustees to handle a wide variety of corporate and private client work increasing their value to individual clients.
People should choose the Cook Islands for their corporate and wealth management needs because of the strength of the legislation underlying their planning structures and the level of expertise of the service providers. Clients need to feel comfortable with the people with whom they are entrusting their wealth. We find that clients might think they are going to use the Cook Islands for their trust only and invariably they bring more business to the trustee companies after seeing the sophisticated services of which the companies are capable.
Q: Please introduce the history of various laws, rules and regulations on the islands for asset protection and wealth management. What are the latest developments? What do they mean to investors? Is the Cooks Island still a "tax haven"?
A: The Cook Islands first established itself as an international finance centre in the early 1980s with the enactment of the International Companies Act which was attractive to New Zealand and Australian companies. Soon thereafter came the International Trusts Act, International Partnerships Act, International Insurance Act, and Offshore Banking Act. Shifts in client markets and demand led to numerous amendments of the legislation including the asset protection features of the International Trusts Act. This opened up new client markets for the jurisdiction and cemented its standing as an IFC that was responsive to client needs and had the expertise to handle the complexities and nuances of client issues.
The early days were light onregulation but as with all IFCs, the Cook Islands had to elevate its regulations to international standards. After the Asia Pacific Group Mutual Evaluation Reports in 2009, the Cook Islands ranked NO. 2 in the region, behind only Singapore. This means the Cook Islands had better ratings than Hong Kong, Australia, New Zealand, the United States, and a host of other countries. The Cook Islands was also the only jurisdiction with zero non-compliant ratings. This places the Cook Islands in a great position for any future regulatory standards that may be imposed as they are ahead today.
The Cook Islands Financial Supervisory Commission is in a continuous state of evaluating regulations and ensuring that the Cook Islands is employing international best practices. This is done through a process of balancing international requirements with specific businesses in the Cook Islands.
In addition to the regulatory side of the industry, the Cook Islands seeks to diversify its client base and to achieve this there must be a diversity of services available to clients. The Limited Liability Companies Act was enacted in 2008 to address demand from existing clients and shows strong growth year over year. In June 2012, the Foundations Act was enacted to address demand from Asia and civil law jurisdictions. Foundations allow clients an alternative to trusts and show great appeal with clients who are less familiar with the concept of trusts. The legislation also includes the asset protection features found in the International Trusts Act.
Captive insurance legislation will be enacted late 2012 with the aim of attracting both larger company captive work and private captives. The International Companies Act is in the midst of an overhaul, but while the current legislation is strong, the legislation is in need of modernization and features that appeal to growing markets. The year 2013 will see the creation of a Segregated Companies Act and a Mutual Funds . I n creating legislation, the Cook Islands works closely with service providers internationally as well as current experts in particular fields.
Q: What are the most popular assetprotection products on the islands? How can they protect the interest of investors and help them grow their wealth?
A:The Cook Islands are best known for the asset protection features available within its international trusts; therefore, trusts have long been the most significant product. Many clients also choose a Cook Islands company or LLC to use as an underlying entity to their trust. Cook Islands LLC legislation is modeled after the American state of Delaware's legislation and has built in asset protection benefits, not the least of which is the limitation to a charging order remedy.
The asset protection features are designed to protect the interests of clients who have set up their structures when they had no creditor issues and use the trust as one aspect of their overall wealth planning. Creditors must bring forth an action for fraudulent transfer or conveyance within two years of a transfer to a trust. Assuming the creditor does so within the prescribed timeframe, they must establish the higher burden of proof of beyond a reasonable doubt that fraud was committed. The Cook Islands does not recognize bankruptcy.
Should cases reach the courts, both creditors and clients can feel comfortable that all interests will be fairly evaluated as the Cook Islands High Court is overseen by New Zealand judges and is highly regarded for the quality of its analysis and interpretation of the international financial legislation.
Q: As for Chinese wealthy people and investors, what are the biggest selling points of the Cook Islands? How do you encourage Chinese to put their money into the islands? What are their biggest benefits of doing so? Do they have any concerns?
A: Many Chinese are familiar with and/or have ties with the Australia-New Zealand-South Pacific region. The Cook Islands are located halfway between Asia and North America providing ease of doing business for Chinese clients. In addition, the Cook Islands is the last jurisdiction east of the dateline allowing Chinese client work to literally be completed yesterday.
Cook Islands trustee companies have strong ties to Asia through ownership and company structures that should give Chinese clients comfort that the Cook Islands understands their needs. The Cook Islands is committed to the development of the Chinese client market and values the importance of developing strong long-term relationships with Chinese colleagues and their clients. Chinese clients desire efficient and sophisticated services and the Cook Islands is known for this level of service. Again, clients tend to bring more work to their Cook Islands trustee, even if not directly tied to their Cook Islands structure, as they know the professionals can handle their corporate and wealth planning needs.
Q: What kinds of professional trust and foundation services can the Cook Islands provide? What are your existing clients? What potential clients do you want to attract?
A: The Cook Islands provides a full range of trust and foundation services and a host of other functions to compliment those entities. Cook Islands trustee companies pride themselves on providing high end sophisticated services to each client. Structures are customized to suit the needs of each client situation. While many client trust and foundation structures may be similar in form, clients can rest assured that the specifics of each structure are individualized. The goals of most clients are typically the same: to grow, protect, and enjoy their wealth. How each client defines that and what their long-term goals are for their family or business results in different paths for different clients. Cook Islands trustees are expert at creating the right wealth management plan for each client's path.
The asset protection features of Cook Islands international trusts were born out of the litigious nature of the US in the 1980s. As a result, the majority of trust clients are from North America with a growing percentage from Asia. Many more countries today have similar litigious issues. Globalization of families and business interests by Asian clients has increased the attractiveness of Cook Islands trusts, foundations and ot her entities. While there are a significant number of professionals who are Cook Islands clients, the typical Cook Islands client is a private business owner looking to create structures for business and succession planning as well as wealth management and estate planning. The vast majority of Cook Islands entities are set up for long-term client needs.
There is no particular client profile that the Cook Islands is trying to attract. The appeal of Cook Islands entities is broad across numerous client types. Wealth is expanding in places like China at a higher rate than elsewhere which makes the services of the Cook Islands appealing to Chinese clients, particularly those with international family and business scenarios. The Cook Islands wants to attract quality sophisticated clients worldwide who welcome the regulatory standards in place to protect them, who demand a high level of service, and who appreciate the importance of strong legislation as the key to the success of their planning.
Q: In terms of the financial services industry, how do you attract overseas clients, especially those from China? As an offshore center, what are you going to do in terms of balancing the need for more transparency with the need to protect the privacy of the clients?
A: Attracting clients from anywhere does not happen quickly. Clients need to be educated on options for their particular needs, the differences between jurisdictions, and the importance of service over cost. Most clients will never have issues with creditors or attacks on their wealth, but should that worst case scenario occur, it is vital that the service provider with whom the client is working has experience in handling difficult scenarios. It is in those times that the strength of the Cook Islands shines.
In terms of attracting clients from China, the Cook Islands recognizes the need to be present at industry events and establishing relationships with Chinese intermediaries and clients. The best legislation and service mean nothing if clients do not know who you are. Cook Islands trustee companies have strong ties to Asia and are using those networks to expand their base of Chinese clients. The ability to respond to market demands, as in the case of Cook Islands foundations, shows clients that the Cook Islands can quickly respond to changes in market needs and demands.
Balancing the regulatory and developmentaspects of financial services is largely driven by international agencies at this stage. All IFCs are faced with the same issues and much is driven by the banking system. Most issues will be focused at that level, and the Cook Islands has excelled at meeting or exceeding the international regulatory standards while at the same time preserving client privacy to the extent allowed under today's standards. The most recent report was the OECD's Global Forum Phase 1 Peer Review in which the Cook Islands did very well.
Privacy has been greatly eroded through increased regulation in the last decade, but it has not yet disappeared. Many Cook Islands clients are not looking for privacy from regulatory authorities but rather on a more personal level. Great wealth can attract unwanted attention and put one's family in potentially dangerous scenarios in some countries. Incorporating international structures into one's wealth and estate planning as well as one the business side can create privacy for clients.
The key to making any international business or wealth planning structure work is not privacy or secrecy, but rather it is the strength of the legislation on which the entities are based. The Cook Islands has proven the strength and effectiveness of its legislation--that should be the greatest source of comfort for clients.