The Cook Islands tax haven companies have regularly influenced government decisions through lobbying and drafting industry-friendly laws, according to the documents leaked earlier this month. The documents also show a government official complaining about trustee companies doing poor checking of their clients, contradicting industry claims that it strictly avoids dodgy clients.
Many of the leaked files came from the company TrustNet, which was established in the Cook Islands 25 years ago. They were leaked to the Washington DC-based International Consortium of Investigative Journalists. The files show Cook Island clients including US fraudsters, Indonesian billionaires, illegal fishing companies, rainforest loggers and many others.
When the leaked TrustNet papers hit the news, Financial Services Development Authority spokesperson Jenner Davis responded that secrecy and financial crime “absolutely cannot exist” under Cook Islands law. The government had passed “robust laws” in 2003 that ensure the quality and integrity of financial services in the Cook Islands, she said.
The leaked papers tell a different story. They include monthly minutes of the Cook Islands Trustee Companies Association (TCA), where heads of the six trustee companies discuss how to promote their industry’s interests.
The TCA produced a Public Relations plan in 2004 aimed at persuading locals and overseas people that the tax haven had cleaned up its act. According to the minutes, the new message was to be:“Historically some of the criticism of the industry is justified but we need to point out that such criticism lies in the past.”
However that same year the Cook Islands’ Solicitor General Janet Maki sent an exasperated letter to one of the offshore services companies, saying than an International Monetary Fund (IMF) review team had met the prime minister and other government officials and “expressed in no uncertain terms their concern over what they perceived to be private sector interference and bias” in the writing of new financial reporting regulations.
The TCA minutes later that year show the offshore companies ignored these concerns. They continued to try to influence government decisions, starting with finding someone to draft new offshore insurance law for the Cook Islands.
“The risk of not being proactive in this matter,” Reuben Tylor of the Cook Islands Trust Corporation said, “is that we may end up with ‘regulator’ style insurance legislation rather than ‘poacher’ style legislation.” They didn’t want a law written to help government regulators control the offshore industry, but one designed to be easy for the offshore industry “poachers” to get around. But they agreed they’d “have to be subtle in our involvement bearing in mind previous criticism from such bodies as the IMF.”
The trustee company bosses agreed in a later meeting, “We are trying to get away from a situation where the Financial Supervisory Committee does what the IMF directs.”
Jenner Davis told the Cook Islands News that she cannot think of any instances of the industry influencing the government and the only legislation the industry had a hand in was the Limited Liabilities Act.
The leaked papers include various examples of the trust companies paying to get new laws drafted and then presenting these to the government. In March 2006, for instance, the late John McFadzean had just completed drafting International Companies Act amendments for the lobby group.
The trustee companies worked to cement their influence over government decisions. Iaveta Short, co-director of the Cook Islands Trust Corporation, wrote a proposal to the government lobbying for establishing an Offshore Industries Committee that would advise ministers on how to assist the offshore companies.
The idea was opposed by Financial Intelligence Unit head Cath Kara. “Cath appears to object to the private sector presenting cabinet submissions,” the TCA minutes noted. But the government approved the new committee the next year. It had two government members, two trustee company members and Short as chair: a majority for the industry.
From then on the trustee companies had a formal way of influencing government decisions. The August 2006 TCA meeting discussed the process of having legislation presented to the government. It would be from the Trustee Companies Association proposing legislation to their new Offshore Industries Committee, then from there to the Financial Supervisory Commission “who would present the legislation to the Minister.”
Ms Davis also told the Cook Islands News that the Financial Supervisory Commission and the Financial Intelligence Unit regularly audit and review the files of the trustee companies and banks to make sure they are complying. “Anyone forming a trust, company, or other structure in the Cook Islands must provide full disclosure about who is involved with the entity and where their money has come from,” she said. But this is not what one official found.
In August 2005, the financial supervisory commissioner Brian Worth attended a TCA meeting. He told them he felt that “trust companies are not doing enough with regard to asking questions of the client,” the meeting minutes said. He said they weren’t going beyond the answers provided by the clients or their representatives to check the source of funds, the client’s profession (instead accepting “general terms like ‘businessman’ or ‘investor’ ”) and the reasons for certain transactions. Worth saw “very little evidence” that offshore services companies were “digging deeper” to detect crime and money laundering.
The trustee companies resisted the idea they should check their clients more carefully. The TCA minutes record that Iaveta Short argued that if a trustee company asked “one too many question” of a client or their representatives it risked “putting them off.” Getting the clients’ business was apparently more important than doing thorough checks.
Worth backpedaled, repeating that “he saw no harm in asking that occasional well placed question” but adding that he was “now content to wait and see how it develops over the next year or two.” He left the job a year later.
His replacement, Lorraine Allen, met the Trustee Companies Association but there’s no record of her pushing for more careful checks. She told them that “she wants a laissez faire approach of non intervention in her job,” according to September 2007 meeting minutes. “Her aim is to make the Cook Islands a good place to do business and be attractive to potential clients.”
The offshore companies next began lobbying the government to provide tax-payer funded promotion for their tax-haven services. In 2009 the government agreed and passed a law establishing the Financial Services Development Authority (FSDA).
All the planning and pushing for the new body had been arranged by the trustee companies as well. Stephen Breed, the original chief executive of TrustNet when it was set up in 1987, was paid to write all the plans. Jenner Davis, who now acts as publicly-funded spokesperson for the offshore industry, was appointed head of the new FSDA in late 2009.