COOK ISLANDS: Financial Crime Hotspot or Not?

The United States Department of the Treasury has issued a warning to financial institutions operating in the country to be extra cautious when dealing with transactions involving the Cook Islands. The advisory, issued by the Financial Crimes Enforcement Network (FinCEN), highlights several systemic problems that make it an attractive haven for money launderers.

Systemic Problems

The Cook Islands is an internally self-governing country with a growing offshore financial services sector located in the South Pacific Ocean. However, its legal and regulatory systems lack effective measures to prevent and detect money laundering, making it vulnerable to criminal activities.

• Money laundering is not a criminal offense in the Cook Islands.
• Offshore banks licensed by the country are not required to verify customer identities or maintain records of transactions.
• Financial institutions in the Cook Islands are not obligated to report suspicious transactions.

FATF Assessment

The Financial Action Task Force on Money Laundering (FATF) has identified the Cook Islands as non-cooperative in the fight against money laundering due to these systemic deficiencies. The country is, however, considering legislative changes and establishing a domestic financial intelligence unit to combat money laundering.

Enhanced Scrutiny Required

Despite these efforts, the Cook Islands’ commitment to bank secrecy and lack of effective supervisory mechanisms increase the likelihood that transactions involving offshore entities and accounts will be used for illegal purposes. As a result, FinCEN advises US financial institutions to give enhanced scrutiny to all financial transactions originating in or routed through the Cook Islands, or involving entities organized or domiciled there.

Technical Assistance

The advisory is not meant to deter legitimate business with the Cook Islands but rather to emphasize the importance of due diligence and reporting suspicious activities to the authorities. US officials are willing to provide technical assistance to the Cook Islands as it works to improve its counter-money laundering systems.

Conclusion

While the Cook Islands may be a beautiful tropical destination, its financial system is plagued by systemic problems that make it an attractive haven for criminals. Financial institutions operating in the United States must remain vigilant and take necessary measures to prevent money laundering and other financial crimes.