Prevention of Money Laundering: Recent Offshore Legislation

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Volume IX, Number 2 – November 2000

© Donlevy-Rosen & Rosen, P.A.

INTRODUCTION.  The Cook Islands (See, APN Vol. 5, No. 4 and Vol. 5, No. 1) and Nevis (See, APN Vol. 8, No. 2) have recently enacted anti-money laundering legislation in response to being included in negative reports issued earlier this year by the OECD and the FATFNeither enactment will have any negative effect on legitimate asset protection planning.

BACKGROUND. In two sets of reports issued earlier this year and in 1998, both the OECD and the FATF “black-listed” thirty-five jurisdictions in Europe, the Carribean, and in the Pacific, as engaging in “harmful tax competition” and for being non-cooperative in the battle against money laundering.  Both the Cook Islands and Nevis were included in this list (along with numerous other countries), and both countries immediately sought to implement corrective measures.  The Cook Islands, on August 18, and Nevis, on September 15, enacted the remedial legislation described in this newsletter issue.

NEVIS LEGISLATION. The Nevis legislation (an amendment to its trust protection law) addressed a number of areas, for example: amending the definition of “person” to include a corporation; providing for “qualified foreign trusts”, which are trusts which can be registered in Nevis, but which are governed by the laws of another country; clarification of statute of limitation provisions; new provisions rendering a trust invalid and unenforceable when trust assets or any part thereof are the proceeds of a crime for which the settlor is convicted; providing that the sole remedy available to a creditor of a settlor is to allege a fraudulent transfer (and, of course, be then the subject to the strict Nevis fraudulent transfer statute); and, providing for the retroactive application of the protective aspects of the Nevis law when a pre-existing trust changes its situs to Nevis (long a part of Cook Islands law).

COOK ISLANDS LEGISLATION. Prior to its August 2000 enactment of the Money Laundering Prevention Act, the Cook Islands had in place the Offshore Industry (Criminal Provisions) Act (the “OIA”) and the International Trusts (Due Diligence) Regulations (the “Regs”). The OIA permitted trustee companies to report suspicious transactions to a regulatory authority. The regulatory authority could then seek directions from the Cook Islands High Court regarding the matter, including directions as to the disposition of the funds involved in the transaction. The Regs required trustee companies to obtain certain assurances as to the origin and ownership of funds transferred to international trusts, and to obtain additional assurances as to the solvency of the settlor. However, neither the OIA nor the Regs (both of which continue in force) made money laundering a crime, nor did either establish a mutual assistance structure.

The Money Laundering Prevention Act makes money laundering a crime under Cook Islands law. The Act defines “Money Laundering” as knowingly –

“(a) engaging directly or indirectly, in a business transaction that involves property that is the proceeds of crime, knowing or having reasonable grounds for believing the same to be the proceeds of crime; or

(b) receiving, possessing, concealing, disguising, transferring, converting, disposing of, removing from or bringing into the Cook Islands any property that is the proceeds of crime, knowing or having reasonable grounds for believing the same to be the proceeds of crime.”

The term “proceeds of crime” is defined as “the proceeds of unlawful activity (whether derived or obtained directly or indirectly through such activity), and includes any property that is mingled with property that is the proceeds of unlawful activity.”

The term “unlawful activity” means “any activity which –

“(a) is an offence under the Crimes Act 1969 [of the Cook Islands] and carries a maximum penalty of imprisonment of not less than 5 years imprisonment or the death penalty; or

(b) under the laws of the place where the activity occurs, constitutes drug trafficking; or

(c) (i) under the laws of any place where the activity occurs constitutes an offence which carries a maximum penalty of imprisonment of not less than 5 years or the death penalty, and

(ii) would be an offence under the Crimes Act 1969 if such activity occurred within the Cook Islands and such offence carries a maximum penalty of imprisonment of not less than 5 years or the death penalty.”

The Act establishes a Money Laundering Authority, to which reports of suspicious activity are to be made.

SUMMARY.  One Cook Islands trust company has stated: “The Act does little more than impose as a legislative requirement, due diligence procedures which [the trust company] has had in place for some years”.

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