The US Department of Justice has arrested Chinese citizens Cary Yan and Gina Zhou for attempting to create an autonomous offshore region in the Marshall Islands. A Chinese couple has been bribing local officials for several years to obtain the right to use Rongelap Atoll. They wanted to create a new offshore jurisdiction similar to Hong Kong on this island. The official charge filed by US prosecutors against Cary Yan and Gina Zhou is money laundering and violation of the Foreign Corrupt Practices Act. For this charge, they face up to 25 years in prison.
The couple was arrested in Thailand in November 2020 and extradited to the United States in early September.
Marshall Islands incorporation: general information about the jurisdiction
The Marshall Islands consist of 29 atolls and 5 islands located between Hawaii and Australia. The state was under the control of the USA for about 40 years. In November 1986, the Marshall Islands signed an agreement of free association with Washington, which gave the jurisdiction the right to conduct its own foreign policy. However, areas such as finance and defense remained under US control.
Nowadays, the Marshall Islands remain Washington’s key strategic base in the Pacific. However, this state of affairs is not very pleasing to China, which seeks to expand its influence in the Pacific region.
They wanted to create a second Hong Kong in the Marshall Islands
On the Rongelap Atoll, Cary Yan and Gina Zhou planned to create a special offshore zone with preferential taxation and loyal migration laws, like Hong Kong. However, according to US prosecutors, such an offshore zone would expand foreign influence in the Marshall Islands, thus undermining its sovereignty.
“Yan and Zhou’s bribes blatantly flouted the sovereignty of the Republic of the Marshall Islands and its legislature,” stated Damian Williams, US Attorney for the Southern District of New York. He also said that the primary goal of the Chinese citizens was to obtain financial benefits for themselves and their partners by violating the integrity of the Marshall Islands’ democratic processes.
According to Cary Yan and Gina Zhou, a new offshore zone in the Marshall Islands would become a magnet for investors and contribute to implementing economic and social projects in the region.
In turn, the US Department of Justice claimed that several Marshall Islands officials received bribes from $7,000 to $22,000. For that, they supported the bill to create a special offshore zone in the country in 2018 and 2020.
The government of the Marshall Islands has not yet responded to allegations of officials taking bribes, despite calls from opposition parties. On September 12, former President of the Marshall Islands Hilda Heine and the opposition demanded the government address the issue.
How the creation of an offshore state in the Marshall Islands happened
The US Department of Justice indictment alleges that Chinese citizens posed as employees of a non-governmental organization (NGO) from New York. The NGO had special consultative status with the UN Department of Economic and Social Affairs from 2016 to 2018, allowing defendants to use it to liaise with Marshallese officials.
Since 2016, Yan and Zhou have been in constant contact with representatives of the island to persuade them to change local laws. Their ultimate goal was to create an offshore jurisdiction on Rongelap Atoll. This remote, almost deserted area was abandoned after the US hydrogen bomb tests in the 50s.
US authorities say Yan and Zhao sought to change the island’s laws substantially. In particular, they wanted to lower taxes and ease immigration restrictions to attract foreign investment. In general, they wanted to create a new corporate law for the atoll so that it would receive the same status as Hong Kong in China.
Prosecutors allege that at least 6 Marshall Islands officials received improper benefits from cooperating with the defendants. In particular, Yan and Zhou paid for their flights and accommodation in New York and Hong Kong hotels, where officials participated in conferences dedicated to creating a new offshore zone.
In addition, one official appointed Cary Yan as a special adviser in the Marshall Islands for a bribe. The couple also received citizenship from the Marshall Islands.
In 2018, officials who took bribes introduced a bill to Parliament to support the creation of a special Hong Kong-like offshore zone, according to US prosecutors.
“The defendants offered and provided a series of bribes and other incentives to obtain the support of legislators for the bill,” states the indictment of the US Department of Justice.
However, the bill was not supported by Parliament due to the strong opposition of the island’s President, Hilda Heine. The President criticized the changes and accused opponents of collaborating with China, on behalf of which they wanted to turn the atoll into a country within a country.
The state of affairs changed in 2019 when Heine lost the election. And in 2020, the new Parliament passed a resolution that approved the concept of creating an offshore mini-state. However, in the fall of 2020, Cary Yan and Gina Zhou were detained in Thailand.
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