KYC and AML Requirements for Cook Islands Trusts

Every Cook Islands trustee company is required by law to conduct know-your-customer (KYC) and anti-money laundering (AML) due diligence before accepting a new trust. This process is not optional and cannot be abbreviated. It is mandated by the Financial Transactions Reporting Act 2017, enforced by the Financial Supervisory Commission, and aligned with international standards set by the Financial Action Task Force. Trustees that fail to comply face fines, regulatory sanctions, and potential loss of their license.

For settlors establishing a Cook Islands trust, KYC and AML compliance is the single most common source of delay during the setup process. Understanding what the trustee requires, why it requires it, and what causes problems can save weeks.

The Regulatory Framework

Cook Islands trustees operate under overlapping domestic and international compliance obligations.

The Financial Transactions Reporting Act 2017 (FTRA) establishes the domestic AML framework. It requires all Cook Islands financial institutions, including licensed trustee companies, to implement compliance systems for the prevention, detection, and prosecution of money laundering, terrorist financing, and other financial crimes. The FTRA mandates customer due diligence at onboarding, ongoing monitoring of trust activity, and reporting of suspicious transactions to the Cook Islands Financial Intelligence Unit (CIFIU).

The Trustee Companies Act 2014 reinforces these obligations specifically for trustee companies. It expanded the FSC’s monitoring and oversight powers and brought trustee company regulation in line with the regulatory regime already in place for banks and other financial institutions. The Act authorizes FSC inspections of trustee companies, requires production of information on request, and imposes sanctions for AML/CFT non-compliance. The licensing requirements article covers the broader regulatory framework governing trustee companies.

Beyond domestic law, Cook Islands trustees must comply with the Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS). FATCA requires foreign financial institutions to report information about accounts held by U.S. persons directly to the IRS. The Cook Islands has not signed an intergovernmental agreement with the United States, so Cook Islands trustees file FATCA reports directly with the IRS as registered foreign financial institutions. CRS imposes similar reporting obligations for account holders who are tax residents of other participating jurisdictions. These international reporting requirements mean that the trustee must accurately determine the tax residency of every significant party to the trust, which is one reason the KYC questionnaires are as detailed as they are.

What the Trustee Collects

The trustee’s due diligence covers every “controlling person” associated with the trust. This includes the settlor, any co-settlors, the proposed protector, any advisory trustee, and in some cases the initial beneficiaries. For each person, the trustee collects identity verification, residential address verification, tax residency information, and source of funds documentation.

Identity Verification

The trustee requires a certified copy of the settlor’s current passport or government-issued photo identification. Certification must be performed by a notary public or other approved certifier who has sighted the original document. Some trustees now offer certification by video conference, but many still require in-person notarization. The identification document must be current and unexpired at the time of certification.

For each additional controlling person (co-settlor, protector, advisory trustee), the same identification requirement applies. If the protector is an entity rather than an individual, the trustee requires the entity’s formation documents and identification for the entity’s controlling individuals.

Proof of Residential Address

The trustee requires original documentary evidence of the settlor’s residential address. Acceptable documents typically include a recent utility bill, bank statement, credit card statement, or government-issued document showing the settlor’s name and residential address. The document must be an original rather than a photocopy, must be recent (generally within three months), and must show a residential address rather than a post office box.

This requirement is the source of more delays than any other single item in the application process. Settlors accustomed to paperless billing may not have recent original utility bills. Bank statements downloaded from online portals are often treated as copies rather than originals. The trustee’s compliance team will reject documents that do not meet these specifications, and obtaining replacements takes time.

Tax Residency and Reporting

The trustee collects self-certification forms establishing the tax residency of each controlling person. For U.S. persons, this includes providing a Taxpayer Identification Number and confirming U.S. tax status for FATCA purposes. For persons who are tax resident in CRS-participating jurisdictions, the trustee collects equivalent information for CRS reporting.

The trustee uses this information to determine its reporting obligations. For a trust with a U.S. settlor, the trustee will register the trust under FATCA and report account information directly to the IRS. This reporting occurs annually and is separate from the settlor’s own U.S. tax filing obligations, which are covered in the IRS tax reporting article.

Source of Funds

Source of funds documentation is the most substantive component of the trustee’s due diligence. The trustee must satisfy itself that the assets being transferred to the trust were lawfully acquired and do not represent the proceeds of criminal activity.

What the trustee expects to see depends on the nature and size of the assets. For liquid assets (cash and securities), the trustee typically requires a narrative explanation of how the settlor accumulated the wealth being transferred, supported by documentary evidence. Acceptable evidence includes recent account statements showing the assets to be transferred, tax returns demonstrating income consistent with the asset level, documentation of a business sale, inheritance, or other liquidity event, and professional confirmation from the settlor’s CPA or financial advisor.

The narrative explanation matters as much as the supporting documents. A settlor who provides account statements showing $2 million in a brokerage account but no explanation of how those funds were accumulated will face follow-up questions. The trustee needs to understand the chain of ownership: the settlor earned income through a medical practice for 25 years, invested consistently, and the current portfolio reflects those accumulated savings. That narrative, supported by tax returns and account statements, satisfies the requirement. A bare account statement without context does not.

For non-liquid assets such as real estate interests, business ownership, or intellectual property, the source of funds inquiry focuses on how the settlor acquired the asset and its current valuation. The trustee may require purchase documentation, appraisals, or corporate records depending on the asset type.

The trustee’s compliance team reviews source of funds documentation with particular attention to consistency. If the settlor’s stated income does not plausibly support the asset level being transferred, or if the documentary evidence contradicts the narrative explanation, the trustee will request additional information. This is not adversarial. The trustee is building a compliance file that must withstand regulatory audit, and gaps in that file create risk for the trustee’s license.

What Causes Problems

Certain patterns consistently trigger additional scrutiny or delay during the trustee’s due diligence review.

Incomplete Documentation

The most common problem is simply submitting an incomplete application. Missing a certified passport copy, providing a photocopy instead of an original address document, or omitting the source of funds narrative forces the trustee to request supplemental information. Each round of follow-up adds one to two weeks to the process. U.S. counsel can minimize this by reviewing the application package for completeness before submitting it to the trustee.

Insufficient Source of Funds Explanation

A source of funds explanation that describes current holdings without explaining their origin is insufficient. Stating “I have $3 million in a Schwab account” is not a source of funds explanation. The trustee needs to know how the $3 million got there. Similarly, an explanation that is plausible but unsupported by any documentation will prompt follow-up. The trustee needs both the narrative and the evidence.

Politically Exposed Persons

A settlor who holds or has recently held a prominent public function is classified as a Politically Exposed Person (PEP) under international AML standards. PEP status triggers enhanced due diligence, meaning the trustee must conduct a more thorough review of the settlor’s background, source of wealth, and the purpose of the trust. PEP status does not disqualify a settlor from establishing a trust, but it extends the due diligence timeline and may require additional documentation that standard applications do not.

Pending or Recent Litigation

The trustee will ask whether the settlor is currently involved in litigation or aware of any pending or threatened claims. Litigation does not automatically disqualify a settlor, but it triggers additional review. The trustee needs to understand the nature of the claims, the settlor’s solvency position after the proposed transfer, and whether establishing the trust could be characterized as a fraudulent transfer. The affidavit of solvency, which the settlor executes as part of the trust formation process, addresses this directly. However, a settlor who fails to disclose known litigation and the trustee later discovers it may be grounds for the trustee to resign. Trustees are required by law to resign if a client deliberately conceals the existence of material litigation during the establishment process.

Complex or Opaque Ownership Structures

Assets held through multiple layers of entities, trusts in other jurisdictions, or structures with unclear beneficial ownership create additional compliance work for the trustee. The trustee must trace ownership back to the individual settlor and verify that the assets being transferred are legitimately owned. Complex structures are not disqualifying, but they require additional documentation and extend the review timeline.

Ongoing Compliance

KYC and AML obligations do not end at trust formation. The trustee is required to maintain and periodically update its compliance files throughout the life of the trust.

Ongoing monitoring includes reviewing trust activity for unusual or suspicious transactions, updating KYC information when the trustee becomes aware of changes in the settlor’s circumstances (such as a change of address or tax residency), and re-verifying identity documents when they expire. The trustee also continues to file annual FATCA reports for trusts with U.S. persons and CRS reports for trusts with account holders in participating jurisdictions.

If the trustee identifies a suspicious transaction, it is legally required to file a report with the Cook Islands Financial Intelligence Unit. The trustee cannot inform the settlor or any other party that a report has been filed.

Beneficiaries are subject to KYC verification when a distribution is made to them, even if full due diligence was not required at the time the trust was established. The trustee will collect identification, proof of address, and tax residency information from any beneficiary receiving a distribution for the first time.

How to Prepare

The most effective way to minimize delays during trustee due diligence is to assemble a complete documentation package before submitting the application. U.S. counsel experienced in Cook Islands trust formation will know exactly what the trustee requires and can review the package for completeness before it is sent.

Settlors should expect to provide current, certified identification for every controlling person in the structure, original proof of address documents (not copies or digital downloads), a written source of funds narrative explaining how the assets to be transferred were accumulated, supporting documentation including recent account statements and tax returns, and complete self-certification forms for FATCA and CRS purposes. Addressing these requirements proactively rather than reactively is the single most effective way to keep the trust formation process on schedule.

For information about the overall trust formation timeline, see the application process article. For details on the trust deed and its key provisions, see the trust agreement article. For a comprehensive overview of Cook Islands trust planning, return to the Cook Islands trust overview.