Cook Islands and other safe places to hide uneasy money

April 14, 2002|By JAY HANCOCK

WHEN the owners of the Bibelot book chain absolutely, positively had to shield $17 million from the Bank of America and the U.S. legal system, they didn't mess around with Bermuda, the Bahamas or Liechtenstein.

They sent the money straight to the Cook Islands, the tightest ship in the "asset protection" business. A gorgeous, palmy archipelago in the boundless blue between Australia and Chile, the Cook Islands cooked up a new set of incorporation and trust laws in the 1980s with the help of a Denver lawyer.

The idea was to break new ground in the lucrative money-stashing industry made famous by Switzerland. Switzerland is a hermetically sealed, cast-iron piggy bank for your cash. The Cook Islands is a titanium piggy bank inside Fort Knox on Jupiter.

The Cook Islands Trust and Banking Corp., the firm sheltering the Bibelot-linked assets, describes its nation's commercial code as "a unique legal environment" underpinned by "modern and innovative legislation." This is a tactful way of saying that your American creditors and their lawyers will go nuts while your money basks unmolested in a setting from a Gauguin painting.

But the Cook Islands, a self-governing state whose defense is handled by New Zealand, and the world's other asset castles are getting a double dose of attention these days, and they're not happy.

For years tax havens such as the Cayman Islands, a British colony in the Caribbean, and Nauru, a coral dot of a country in the South Pacific, have been denounced for shielding the profits of dope dealers, embezzlers and other crooks. But they're taking new heat these days as suspected terrorism abettors and for enabling tax dodges by Enron Corp. and other U.S. corporations.

Enron's corporate welter includes 881 subsidiaries with addresses in places such as the Caymans and Mauritius, in the Indian Ocean. Osama bin Laden is suspected by U.S. authorities of moving money through organizations with operations in the Bahamas, Switzerland and Liechtenstein.

Enron did not locate in Mauritius because of the country's natural gas deposits. There are none. Alleged bin Laden bank Al Taqwa doesn't have a branch in the Bahamas because of the islands' great interest rates. These islands and their brethren, short on resources and exports, have rented their sovereignty to foreigners.

Because the places are tiny, they can live with the civic and economic distortions of outlandish secrecy, tax and money-protection laws that would cripple other nations.

One example: the Cook Islands prohibits its own regulators from examining basic corporate records without a company's permission.

In the summer of 2000, as lenders dunned them, Bibelot owners Brian and Elizabeth Weese transferred more than $20 million to a Cook Islands trust named Book Worm Too. Through Baltimore-based Bibelot, which was on its last legs, they owed $17 million to Bank of America and millions to other lenders.

The couple's loans have not been repaid, and their banks contend that their South Pacific move was a blatantly fraudulent attempt to get out of paying the debt.

The Weeses have denied fraud, but last week a judge appointed an overseer for their bankruptcy case and made the obvious point that they did not appear to have the interests of their creditors at heart.

The Cook Islands came highly recommended.

In 1998 the Russian mafia funneled $70 billion from Russia's central bank through South Pacific tax havens, including the Cook Islands, according to the Organization for Economic Cooperation and Development. Cooks officials have denied a Russian connection.

Denyse and Michael Anderson of California ran a $34 million telemarketing Ponzi scheme and hid the profit in the Cooks, according to the Federal Trade Commission. A.R. Baron & Co. of New York stole some $75 million from stock market investors and cached much of the proceeds on Rarotonga, the main Cook islet, according to Manhattan District Attorney Robert Morgenthau.

Although the Cook Islands were on the OECD's tax-haven blacklist as recently as February, the country reportedly has agreed to reform its corporate laws in return for being dropped from the list.

Aided by post-Sept. 11 urgency, the OECD has gotten 30 tax havens to agree to collect and share financial information.

Despite opposition within the Bush administration by those who oppose international "tax harmonization" and fear a future world tax agency, in recent months Washington signed tax-data sharing agreements with the Bahamas, the Caymans and Antigua and Barbuda, an island country in the Caribbean.

Signing agreements and enacting and enforcing better laws aren't the same thing, however. The smart money says the tax havens will smile, play along and continue loading questionable millions onto their beautiful shores. That's what the Weeses' money seems to be thinking.

"Once creditors become aware that your assets have been transferred to a Cook Islands trust, history shows you are more likely to be able to reach a satisfactory settlement of any claim," says promotional material from the couple's offshore trustee.

And that doesn't mean satisfactory to Bank of America.

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