Cook Islands Considers Threat Of OECD Sanctions

Mary Swire, Tax-news.com, Hong Kong

30 March 2001

Discussions are taking place in the Cook Islands over the impact of sanctions imposed by the OECD and how much the country may have to endure. According to reports from the Islands' press sanctions could bring some Cook Islands businesses - particularly those based on the American dollar - to their knees in under four months.

The Westpac bank and the Cook Islands Chamber of Commerce have publicly acknowledged that the enforcement of sanctions would be disastrous for the Cook Islands economy. Westpac says they will have a 'dramatic' effect and the Chamber describes the impact of sanctions as 'severe'.

However, according to Westpac manager, Terry Smith, it is unlikely that the OECD will act against the Cook Islands. Mr Smith cites Niue as an example which has been rumoured to have been embargoed against using US dollars by the Chase Manhattan Bank and the Bank of New York. This is according to reliable sources such as Agence France Presse and Reuters but Chase Manhattan, which is a correspondant bank for Westpac, says it has not been requested by the US authorities to cease transactions with Niue nor any other South Pacific countries.

However, if the sanctions are imposed Mr Smith predicted that the worst case scenario is that 'they would prevent the American banks from dealing with the banks of the South Pacific.' The Cook Islands News says this could result in large parts of the economy 'grinding to a halt, with no business able to get payment from sources dealing in American dollars.' According to the news service nine per cent of visitors to the Islands come from the United States, but they are among the biggest spenders and sanctions could result in them avoiding the Cook Islands for their vacations.

Westpac has contingency plans including requesting overseas authorities to exempt the bank from sanctions because it does not provide any offshore services, Mr Smith said 'we would ask for an exemption to the bank but whether that would be forthcoming is another thing .. [also] 'we've got [money laundering] controls in place to make sure that that doesn’t happen. We get lots of requests but we decline those requests.'

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