U.S. Must Contain Fallout From Crypto-Zone Scheme On Nuked Pacific Island

A couple bribed their legislators in a nearly-successful scheme to establish a semi-autonomous crypto-zone on a remote Pacific island that is largely uninhabitable due to nuclear waste. The details are juicy—and the plot is much thicker. Earlier this month, the U.S. Department of Justice unsealed the indictment of two naturalized citizens of the Republic of the Marshall Islands (RMI) for violating the U.S. Foreign Corrupt Practices Act, money laundering, and conspiracy to commit both. The indictments involve something much larger than a get-rich-quick scheme gone awry. They come at a time when the relationship between the U.S. and the RMI is under great strain—and has never been more important. The U.S. must carefully manage the case’s implications for geopolitics in the Pacific.

The RMI’s Rongelap Atoll is an unlikely place for an investment project. It lies about 120km from Bikini Atoll, where the U.S. conducted nuclear testing between 1946 and 1958. The Atoll’s thousand or more residents were not warned of the tests or the resulting radiation, and many fell ill before the U.S. evacuated them. They were allowed to return a few years later, but radiation levels remain high more than seven decades later.

Cary Yan and Gina Zhou, both of Chinese origin, hatched a plot to form a Rongelap Atoll Special Administrative Region (RASAR), also known as the Digital Economic Zone of the Rongelap Atoll (DEZRA). According to the indictment, in 2016, the pair formed and registered an NGO in New York City, and allegedly began communicating with RMI legislators about developing RASAR. The “digital special economic zone” would be a semi-autonomous region that would relax taxation and immigration restrictions to attract investment. An International Monetary Fund Report from May 2021 explains that the zone would “prove highly susceptible to illicit financial flows and activity” and that the RMI does not have the legal or institutional capacity to monitor and supervise such a zone.

To promote their plan, Yan and Zhou began paying for RMI officials to travel to and from the islands and stay in New York City. Yan invested in the business venture of one legislator, who subsequently appointed Yan as “special advisor” to the Atoll. In 2018, the NGO paid for several RMI legislators to attend a conference in Hong Kong. Some news reports began to tout RASAR as “the next Hong Kong.” Yan and Zhou then allegedly began to bribe and offer other financial incentives to legislators for their support, ranging from $7,000-$22,000 USD in value.

The initial RASAR Bill in was quashed in August 2018 by then-President Hilda Heine’s government, which said it violated the constitution and would undermine the rule of law. Heine accused bill’s promoters of working for China to make the RMI “a country within a country.” At some point, Heine’s administration revoked Yan’s passport.

After Heine left office in January 2020, Yan and Zhou renewed their passports and revived their plot. They quickly began emailing and meeting with RMI officials, promising one that, if RASAR were created, the official’s “family will be one of the most powerful” in the RMI. In March 2020, the legislature endorsed the RASAR concept. Yan and Zhou were arrested in Thailand in late 2020 at the U.S.’s request, and extradited this month.

The indictments come as the U.S. is renegotiating the Compact of Free Association (COFA) with the RMI, Palau, and the Federated States of Micronesia. The RMI’s COFA expires in 2023. The U.S. provides the COFA states with economic support and is responsible for their defense, and receives military access and certain rights in return. COFA citizens can live and work in the U.S. and serve in the U.S. military. The U.S. maintains an important military base in the RMI, and has floated the idea of establishing others as competition with China increases in the Pacific. However, COFA negotiations with the RMI have stalled. The U.S. is reportedly refusing to engage the RMI on claims for health and environmental damage resulting from nuclear waste. The U.S. claims its prior settlement with the Marshallese is fair and final, while the RMI claims that they got an unfair deal. Bipartisan lawmakers have repeatedly expressed concern that the stalled negotiations will allow China to gain power in the RMI and in the Pacific. Meanwhile, the indictments will likely put pressure on the U.S.’s relationship with the RMI government. As of mid-month, the RMI opposition’s calls to investigate RMI legislators for corruption have been met with silence. Meanwhile, the U.S. investigation continues, with unknown implications for RMI legislators who could be co-conspirators. Any effects of the indictments on RMI politics are also uncertain.

The indictment also has implications for U.S.-China competition in the Pacific. Despite former RMI President Heine’s assertions, the indictment does not indicate that China was directly involved in the plot. It simply alleges that Yan and Zhou sourced their illegal payments from China and elsewhere. The plot does involve many hallmarks of China-backed corruption schemes: promises of economic development, purchased using personal relationships, bribes, and payments for travel and entertainment. China has also been working actively to gain inroads into legislatures in the Pacific. The RMI is of particular interest to China because it is one of the thirteen countries that has diplomatic relations with Taiwan. In recent years, China successfully used economic and development incentives to cajole Kiribati and the Solomon Islands to cease diplomatic relations with Taiwan. China has actively lobbied the RMI to switch. The investigation may reveal whether it was willing to resort to underhanded means.

Through these indictments, the U.S. has shown that it is willing to use the long arm of the law to fight corruption half a world away—and effectuate its foreign policy in the process. In doing so, it is signaling to other Pacific Island countries doing business with China that the U.S. is willing to enforce the rule of law. However, the case has uncertain implications for U.S. foreign policy in the Pacific, and its relationship with the RMI in particular. The U.S. must carefully manage any fallout from the indictments that affects RMI and regional politics. Above all, the U.S. must take care to ensure that it is not perceived as curbing the Pacific Island nations’ sovereign right to do business with whomever they choose. Law is a powerful weapon—and the U.S. must wield it with care.