Passports remain a ticket to corruption in the Pacific Islands

Pacific island countries have sold passports to foreigners since the early 1980s,  Vanuatu is the most prominent supplier today. Passport sales in the first half of 2018 brought the country about US$39.3 million — 9 per cent of GDP.

In their heydays, passport sales schemes in Tonga (1982–1996), the Marshall Islands (1995–1996), and Nauru (1998–2002) were generating between 6.5 per cent and 11 per cent of these nations’ GDP. Each of these ventures rose and fell in chaotic environments and were followed by similar, but smaller, schemes.

In contrast to passport selling programs in other regions such as the Caribbean and Europe, passport sales in the Pacific islands have been isolated and mostly disconnected from offshore financial (‘tax haven’) activities in the same country. This has restricted the sophistication of Pacific island passport sales activities. They have often provided erratic, one-off and poorly organised services, with governments doing little effective monitoring of sales and proceeds.

Programs have generally been characterised by poor governance, lack of transparency, improper accounting, and even theft, fraud and corruption. Those benefitting illicitly from passport sales often avoid prosecution, especially if they are linked to the local elite.

Most buyers of Pacific island passports have been ethnic Chinese seeking instrumental advantages, such as visa-free entry to particular countries, lower taxes and escape routes. In Tonga and the Marshall Islands, promoters of passport sales wrongly contended that purchasers would not want to settle in the issuing country.

In both countries Chinese passport buyers quickly rose to prominence in local businesses — especially retail trade — marginalising indigenous people. In Tonga’s capital of Nuku’alofa, a riot on 16 November 2006 was directed at Chinese-owned enterprises that had arisen since passport sales started and also businesses owned by Tonga’s passport-selling royal family.

Pacific island passport programs attract some shadowy purchasers. In March 2016 global attention was drawn to Kim Wong, a Chinese national and long-term Philippines resident, who held a Vanuatu passport and was accused of orchestrating the electronic theft of US$81 million from the Central Bank of Bangladesh.

Nauru’s passport holders have included alleged terrorists from al-Qaeda and the East Turkestan Liberation Organization. US immigration authorities often refuse to accept Marshall Islands passports as valid identity documents.

A passport sales scheme damages the credibility of all passports issued by that country. Foreign governments often act or threaten to restrict entry of all passport holders, even innocent citizens by birth.

International organisations fighting money laundering and terrorism are not favourably impressed. Overseas banks worried about their reputations are less likely to form or maintain correspondent relationships with local banks, making international transactions more difficult and expensive.

Scandals and domestic political opposition often lead Pacific island countries to curtail passport sales. Before this happens, new and supposedly improved versions of the passport sales arrangement are often announced and put in place — only to be plagued, in turn, by irregularities, scandals, conflicts between retailers and new rounds of public opposition.

In Vanuatu, the notorious informal passport selling schemes of the 1990s were replaced by the official Capital Investment Immigration Plan (CIIP) in 2014. Hit with accusations of malfeasance, it was supplemented by another authorised passport sales venture, the Vanuatu Economic Rehabilitation Program (VERP), after the damage caused by Cyclone Pam in March 2015 created a rationale for more revenue raising.

The CIIP’s reputational problems were so great that it was replaced by the Vanuatu Real Estate Option Program in November 2016. Similarly, VERP was replaced in March 2017 by the Vanuatu Development Support Program and the Vanuatu Contribution Program.

In October 2017 an agent of the supposedly suspended VERP, British-born former Bangkok nightclub operator and Vanuatu’s nominated Honorary Consul to Vietnam ‘Lord’ Geoffrey Bond,  made international news by proclaiming that Vanuatu would be the first country to accept bitcoin for its passports. Although this statement was refuted by the Reserve Bank of Vanuatu, Bond remains very popular with many members of the local political elite and prominent politicians support him.

Claiming to terminate a particular program has frequently been a way of removing associated scandals from the political agenda and protecting well-connected participants from investigations and media attention. This has not necessarily meant that the allegedly suspended program’s agents actually stop selling passports. Nevertheless, eventually a point is reached when notoriety and pressures on the arrangements become so intense that passport sales almost cease.

Over time, the stigma attached to any particular scheme diminishes. This reopens opportunities for a new series of passport sales, at least until they attract too much unfavourable public attention as well. If the same organisational approach is used in the new Pacific island venture, it too will very likely create the same kinds of instability and crises.

This article was published by the East Asia Forum.