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DoJ charges pair over China-linked attempt to build semi-autonomous crypto haven on nuked Pacific atoll

Yes, that’s a lot to digest: Marshall Islands legislators allegedly bribed to make it possible

About halfway between The Philippines and Hawaii is a place called Rongelap Atoll that’s infamous for having been unintentionally irradiated by nuclear weapons tests conducted by America at nearby Bikini Atoll in 1954.

The atoll’s thousand-strong populace was not told of the high-yield thermonuclear tests code-named Castle Bravo nor warned when radiation reached their home. Many fell sick before the US evacuated residents to a nearby atoll. Residents were allowed to return a few years later when they experienced high rates of radiation-related illnesses.

Rongelap is now part of the Republic of the Marshall Islands which has fought for compensation and justice for the atoll’s residents. That struggle is just about the only reason anyone outside the Marshall Islands pays attention to Rongelap.

But last week the US Department of Justice (DoJ) unsealed an indictment that alleges the atoll has been of interest for odd reasons: a China-linked scheme to create a semi-autonomous region that would be a haven for digital dealings.

The indictment alleges that Marshall Islands passport holders, Cary Yan and Gina Zhou, proposed that Rongelap be established as a “digital special economic zone” that would attract foreign business by “lowering or eliminating taxation and relaxing immigration regulations.”

It's said that the pair promoted the idea at a conference in 2018 and a few news outlets picked up on that plan and suggested Rongelap could become “the new Hong Kong.”

(For those who don't know, the US and the Marshall Islands have deep ties for historical reasons, hence the Feds' involvement here.)

The International Monetary Fund (IMF) noticed the alleged plan and disapproved of it. In a May 2021 publication [PDF] the IMF noted the proposal to create a digital economic zone on Rongelap and characterized it as “envisioned to focus on virtual means of exchange, including virtual assets.”

The IMF did not like the idea at all, suggesting economic benefits would accrue mostly to offshore entities and “generate a host of new risks.

“The planned combination of a tax-exempt zone targeting primarily (if not exclusively) non-resident entities with no physical presence in the jurisdiction, could prove highly susceptible to illicit financial flows and activity, while the proposed legislation – as currently stands – describes no mitigating solutions, such as preventive measures and meaningful oversight mechanisms.”

The IMF also opined that the Marshall Islands lacked the laws, institutions, and personnel to effectively oversee the digital economic zone.

Which may be why, according to the DoJ, Yan and Zhou allegedly bribed government officials and legislators to advance their scheme to create a digital economic zone.

The DoJ alleges the pair sourced the funds for illegal payments to legislators and officials “from China and elsewhere”.

And the payments are alleged to have worked as in 2020 the Marshall Islands government passed a bill to allow the establishment of the Rongelap Atoll Special Administrative Region. Nothing seems to have come of the plan since, meaning the world has been spared an unusually radioactive tax-free crypto haven.

Yan and Zhou have been charged with conspiring to, and breaching, the USA’s Foreign Corrupt Practices Act. The pair also face charges of actual and planned money laundering.

News of the claims comes as China increasingly pushes into the Pacific with offers to connect and secure small island nations. Western nations have tried to combat such offers with pledges of extensive assistance. Australia even helped a local telco to buy the region’s biggest mobile carrier to ensure it did not fall into Chinese hands. ®

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