Title: Financial Crime Enforcement Agencies Warn of Money Laundering Risks in Cook Islands

FinCEN Advises Heightened Scrutiny for US Financial Institutions

The Financial Crimes Enforcement Network (FinCEN), a branch of the US Department of the Treasury, has issued a new advisory (Issue 15), warning financial institutions about potential money laundering risks when dealing with transactions involving the Cook Islands.

Money Laundering Risks in the Cook Islands

The Cook Islands, an internally self-governing country in free association with New Zealand, has been identified as having serious deficiencies in its legal, supervisory, and regulatory systems. Over 14,000 residents call the South Pacific nation home. Known for its attractive tax incentives, the Cook Islands houses thousands of International Business Companies (IBCs) and international trusts. Here are some concerns:

• Absence of anti-money laundering laws: The Cook Islands does not have laws against money laundering.
• Weak regulations for offshore banks: Offshore banks operating in the Cook Islands are not required to verify client identities or maintain transaction records.

Identified as Non-Cooperative by FATF

The Financial Action Task Force on Money Laundering (FATF) has classified the Cook Islands as non-cooperative in the fight against money laundering.

Proposed Changes and Ongoing Efforts

The Cook Islands have proposed legislative changes, are considering establishing a domestic financial intelligence unit, and have sponsored a regional financial intelligence unit proposal at the South Pacific Forum.

Current Risks

Despite upcoming changes, the current framework in the Cook Islands offers significant opportunities for money laundering:

• Banking secrecy: The Cook Islands’ commitment to banking secrecy.
• Lack of supervision and enforcement: The absence of supervisory or enforcement mechanisms.

US Financial Institutions Urged to Apply Heightened Due Diligence

FinCEN advises US financial institutions to apply heightened due diligence when dealing with transactions originating in or routed through the Cook Islands or involving entities organized or domiciled in the country.

Institutions that report suspicious transactions related to this advisory will be considered compliant with reporting requirements and will be eligible for protective provisions against disclosure and liability.

James F. Sloan, Director of FinCEN: “There is no intention for US financial institutions to curtail legitimate business with the Cook Islands. However, given the risks identified in this advisory, it is imperative that financial institutions apply appropriate risk-based measures to ensure they are not inadvertently facilitating money laundering or other illicit activities.”