When picturing the offshore world, it’s easy to envision warm and sunny places – places equally adept at attracting tourists as money. High on the list would be such lush locales as the Cayman Islands, the British Virgin Islands, Panama and Belize, replete with beautiful beaches and friendly banks.
A joint project of The International Consortium for Investigative Journalists and The New York Times last week pulled back the curtain on a post-card perfect spot that has gotten scant attention, the Cook Islands in the middle of the Pacific. Like its offshore brethren, some – but not all – of the Cooks’ clients fit the famous description of a “sunny place for shady people.” Others have no such connections and are simply rich and want to keep their wealth away from prying eyes.
What sets the Cooks apart are its “asset protection trusts.” These trusts allow a person to keep their assets far from creditors, the government or anyone who might have a claim on them. The Cooks are not a low-tax locale and instead should be thought of as a very big safe deposit box. One clear sign that the Cooks are marketing themselves to the global rich is that only foreigners, and not Cooks residents, can set up these trusts. What’s more, if anyone wants to seize assets in these trusts – even when armed with an American court order – the case must be litigated in Cooks courts and under Cooks law. Add to that a 14 hour, two-stop flight from New York to Rarotonga to bring a case.
As the author of the NYT-ICIJ project, I had a chance to crack open the safe deposit box and get a glimpse of how the Cooks’ offshore system operates. I also reviewed reams of documents obtained by ICIJ and conducted dozens of interviews. Here are some of my observations about the hidden world of the Cooks’ offshore economy.
- There's a story behind every trust - maybe
ICIJ documents open a window on the lives on the rich and famous. One of the most prominent is Denise Rich, songwriter, socialite, political donor and ex-wife of the fugitive billionaire Marc Rich, whose pardon by President Bill Clinton set off a political scandal. Ms. Rich’s trust shows a life that few can imagine. Her trust includes a super yacht named “Lady Joy” (Joy is her middle name), a 157-foot behemoth incorporated in the low-tax Marshall Islands. This replaces her former yacht, named the “Artful Dodger,’’ until she changed it. There is also a Learjet 60, millions in hedge funds, private equity and other investments, a Swiss account and payments to yoga instructors, masseuses, attorneys and other advisors.
One unanswered question about this trust is – why? It was set up in 1992 by her late father just as she and Mr. Rich were divorcing. It was recently closed, according to Peter Cervinka, her financial advisor and boyfriend. “Why? It was for asset protection,” said Mr. Cervinka, “I don’t know the motivation of the father. It didn’t make sense. Only a small portion of her assets were in the trust.” Mr. Cervinka added that “it never made sense to have the trust so it was dissolved.”
Mr. Cervinka said he and Ms. Rich, who is no longer an American citizen, live together in Lichtenstein. He said that Ms. Rich spends much of her time in London, where her daughters live, and comes to New York to raise money for her charitable foundation.
- Cook trusts are often found in clusters
People talk and often act alike. An online tabloid that chronicles the foibles of the wealthy of Palm Beach, “Gossip Extra.com,’’ scoured the ICIJ database and found 30 names of local individuals who had Cook trusts. Many are in real estate -- Brian Kosoy, chief executive of Sterling Organization, which owns shopping malls, had the Sterling Trust; Dudley Moore III of Sotheby’s real estate and relator Nadine House. Ditto for prominent Palm Beach philanthropists Richard and Phyllis Krock, who named their trusts, since closed, Coconut, Eggplant and Hollyhock.
Doctors form another cluster - scores are in the ICIJ data. That’s not surprising since doctors, often fearful of malpractice suits, have long been targeted by attorneys eager to gain trust business. While many doctors with Cook trusts have run into serious trouble, others have not. One is Dr. Paul Dwan, a California neurosurgeon and an Air Force reserve brigadier general, with numerous postings including Afghanistan. In an interview, Dr. Dwan said he was not concerned about malpractice, and had never paid a malpractice claim in his career. He said he set up the trust for estate planning purposes for his family and the next generation.
- Many shady operators have Cook trusts
One group that stood out in the ICIJ database are Medicare fraudsters. One is Floyd Seibert, who set up the “Blue Clear Sky Trust” at the same time that, according to the government, he was stealing nearly $4 million from his employees’ pension fund and committing Medicare fraud at a chain of health care facilities he owned in Oklahoma and elsewhere. The scheme involved shell corporations in the British Virgins, and Mr. Seibert even invented an alias “Martin Mesquite’’ to hide his identity, according to court filings. His attorney, James Golden, set up the Cook trust, and later also pleaded guilty in 2006 to his role in the scheme. He was disbarred in 2008. In an interview, Mr. Golden said he couldn’t comment on his client, Mr. Seibert, who was sent to federal prison in 2007. In the meantime, Federal marshals also seized Mr. Seibert’s 695-acre Texas ranch, which contained exotic animals used for hunting.
- Trusts are big business for the Cooks
Located somewhere east of Tahiti and south of Hawaii, the Cooks are nothing more than a grouping of 15 coral atolls with little to sell. Tourism is the number one economic driver, with fishing and black pearl exports contributing to the mix. Financial services have been a growing segment for two years. There are six trust companies on the islands, contributing to the economy in various ways.
Trusts’ registration fees alone bring in $1.5 million a year. Then there are jobs created and wages and profits to be taxed. Those indirect benefits bring in another estimated $13 million. Like many offshore centers, the Cooks wants to expand. Asia is one market. Another is providing additional offshore services for foundations, insurance companies and business partnerships. There are strategic as well as monetary reasons for this. What if, for instance, Congress decided to clamp down on offshore trusts? “We know that with a stroke of a pen, we could be shut down overnight,’’ said Jennifer A. Davis, chief executive of the Cooks Financial Services Development Authority, in an interview. “That’s why we want to diversify our services and our client markets.”
Find out first! Receive ICIJ's investigations by email