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Spy film type thing: Alarm grows over Cook Islands cryptocurrency bill

Monday 15 April 2024 | Written by Supplied | Published in Economy, Environment, National, Technology

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Spy film type thing: Alarm grows over Cook Islands cryptocurrency bill
The Tainted Cryptocurrency Recovery Bill 2023 was tabled in Parliament in December last year. PHOTO: CI NEWS. 20032507

Alarm is growing over proposed Cook Islands legislation, drafted by a US-based company, which could validate hacking into any account or system in the world, writes Barbara Dreaver, Pacific Correspondent 1News.

In an investigation, 1News has learned that Drumcliffe, a high-value debt collector specialising in international asset seizure, hired at least two Cook Islands-based lawyers to draft the Tainted Cryptocurrency Recovery Bill 2023.

The Cook Islands' own Crown Law says it was excluded from the drafting process.

The bill, which has been tabled in Parliament, has far-reaching and potentially serious international ramifications.

On Friday, before a Select Committee meeting, Cook Islands Crown Law's deputy solicitor general David Greig slammed the bill, calling it "flawed", adding that some provisions are "clearly unconstitutional".

He said the legislation essentially validates carrying out criminal activities in any part of the world, which could be considered terrorism in some countries, and the bill should not be progressed.

Greig said that given that it could be used to hack into accounts in New Zealand, it could affect the Cook Islands' constitutional relationship with this country.

The Select Committee was also given a legal opinion from a UK-based barrister who specialises in the recovery of crypto assets and who described the bill as "state-endorsed cyberpiracy".

How does it work?

The Tainted Cryptocurrency Recovery Bill allows for "recovery agents" to use a variety of means including hacking to investigate and find cryptocurrency that may have been used for illegal means or is the proceeds of crime.

Suspected international assets would be seized and eventually turned into cash.

That cash would be put into a bank account in the Cook Islands and while there is little detail on where it would go from here, there would supposedly be some form of revenue stream and benefits to the Cook Islands economy.

Red flags

Cryptocurrency specialist AUT senior lecturer Jeff Nijsse has examined the bill and said there is a multitude of red flags, including giving the green light for illegal entry into systems around the world whether it be universities or governments.

"I see this as maybe right out of a spy film type of thing," he said.

The bill is so broadly written that anyone who is suspected of having or even suspected that they might have tainted cryptocurrency in the future can be hacked and spyware installed. Nijsse said he had never seen anything like it.

"At first I thought that it couldn't really be real, I thought that a lot of what's contained in the bill doesn't make sense, particularly with respect to cryptocurrency," he said.

"There's a whole section about ethical hacking which I found surprising and I think a lot of people would find to be just a really broad violation of their privacy, their digital privacy."

International affairs commentator and professor Robert Patman from Otago University said there will be concern on the world stage.

"It just seems to be something which on the face of it is inconsistent with the rule of law internationally, particularly international law with emphasis on due process," he said.

Given that the Cook Islands is a realm country of New Zealand, he said our Government should be very concerned as "it does have implications for New Zealand governance arrangements".

Professor Patman said New Zealand may have to reconsider its relationship with the Cook Islands and "it might also want to raise the issue with the state that has jurisdiction for the company involved which is the US as I understand it, so it has potential implications for the relationship between New Zealand and the United States".

A spokesperson for Foreign Minister Winston Peters who has just returned from the United States, said MFAT is tracking the legislation and "are in discussions with Cook Islands officials".

A number of sources who 1News has spoken to say they are astounded how a US-based company can wield such influence in the Cook Islands and why this has been kept off the public radar.

In its submission on the bill, the Cook Islands Financial Services Development Authority - the Government agency tasked with promoting and developing the financial services industry - says having Drumcliffe fund legislation, under which it could potentially earn substantial fees, would appear to be a conflict.

"It would not look good for the Cook Islands Government, either domestically or on the international stage, if the Cook Islands was seen to be influenced and controlled by foreign private sector interests who seek significant financial benefit from Cook Islands laws," it said.

"Even more so given the aggressive and contentious nature of the extraterritorial civil forfeiture regime proposed by the bill."

Who is Drumcliffe

Drumcliffe, based in the US describes itself as "a private investment management firm overseeing portfolios of high-value claims pursued on behalf of the victims of fraud, corruption and abuse of power".

It has an equity stake in Odyssey Marine Exploration, a company which is involved in deep-sea mining exploration in the Cook Islands.

Odyssey Marine Exploration is taking the Mexican Government to court for US$2.3 billion for damages after its environmental permit for deep sea mining was denied. Drumcliffe is the lead funder in the litigation.

1News asked Drumcliffe's principal James Little a number of questions about its involvement in drafting the Tainted Cryptocurrency Recovery Bill.

Little claims the bill is a Cook Islands Government initiative and while it is "interested in an ongoing role should the legislation be enacted, no such arrangements have been finalised with the Cook Islands Government at this stage".

He said the bill is a good thing for the fight against international crime as it will involve victim identification and restitution.

"This will establish at least regionally, the Cook Islands as a good global citizen."

He said the country will "be equipped with enhanced cyber security protection" as part of the commercial negotiations.

At odds with Crown Law’s submission, Little said his legal team is very confident that the bill is fully compliant with the Cook Islands constitution and all relevant laws both domestically and internationally.

Cook Islands

Cook Islands prime minister Mark Brown has not responded to 1News questions that were sent to him several days ago.

However, yesterday he put out a media release, saying the bill is intended to help in the fight against international cybercrime.

Brown said, as a result of submissions made to the Select Committee so far, "it is likely that our approach will be tied more closely to international crime-fighting activity; and will fall into an international consensus”.

“I’m confident that the law we pass will be within the constitution and laws of our country, and will also comply with international treaties and laws.”

But a number of experts say seizing the supposedly tainted cryptocurrency is not an easy thing to do. Jeff Nijsse said any seizures, that have been seen, have been as a result of people cooperating with law enforcement to hand over passwords and private keys.

"If you are talking about confiscating or trying to seize crypto assets without somebody's help, you know it’s almost impossible and I don't think we have seen large dollar amounts of this yet," he said.

"And if the intention going forward is that this is going to help the Cook Islands, I think the probability is very low that they're going to see, you know, any dollar value at the end of the day."

Cook Islands Finance, the government agency established to promote and develop the country's financial services industry, said it will potentially harm that industry.

Between 2018 and 2022, the trust industry provided the Cook Islands Government with approximately NZ$19.6 million in fees and taxes.

Ora Partners chief executive Puai Wichman told 1News the bill in its current form needs to be stopped.

"There are national security issues for us, there are constitutional issues, there are reputational issues, so, as a whole this bill needs to be looked at more deeply as to whether it really will benefit the Cook Islands."