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

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

The Atoll’s thousand-strong populace was not told of the tests or 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.

The tax-exempt zone could prove highly susceptible to illicit financial flows and activity

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 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.”

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”.

The International Monetary Fund (IMF) noticed and disapproved of that plan. In a May 2021 publication [PDF] the IMF noted the plan to create a digital economic zone on Rongelap and characterised 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 appear to have worked as in 2020 the Marshall Islands government passed a bill to allow the establishment of the Rongelap Atoll Special Administrative Region, although nothing seems to have come of the plan since.

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 scheme 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. ®