The Foreign Service Journal, November 2006

standing the arguments in favor of bank secrecy, the overwhelming real- ity is that tax havens largely serve an unsavory clientele of tax evaders, criminals and money launderers. The proliferation of tax-haven banks and the growing sums of money they receive hardly permit any other con- clusion. The tiny island-state of Nauru alone operated about 400 off- shore banks, all registered to one government mailbox. Other coun- tries, like the Marshall Islands, Niue, Vanuatu, the Cook Islands and Samoa, have dabbled in this area as well. In general, according to a February 2005 IMF report concerning offshore centers, most of these countries do not meet the international regulatory stan- dards necessary to safeguard against terrorist-related transactions. The sale of passports for revenue is another risk for the U.S. In April 2003, U.S. authorities reported that six alleged terrorists, including two alleged al-Qaida opera- tives, had been arrested in Southeast Asia carrying Nauruan passports. Under U.S. pressure, Nauru has agreed to end its passport sales and shell banks in return for U.S. assistance. Several other Pacific microstates have also sold passports as a means of attracting investment, most notably the Marshall Islands and the Federated States of Micronesia. In 1996 alone, the Marshall Islands earned $15 million from the sale of so-called investment passports. These documents could easily have ended up in malevolent hands. Although these programs have been ended, the likelihood of recurrence is high, given revenue pressures and tendencies toward corruption in some locales. The Developing Chinese Sphere of Influence Overall, whether the issue is political instability, offer- ing flags of convenience or passport sales, a lack of resi- dent U.S. diplomatic missions in these islands and the lack of interest from Washington it reflects naturally limit the ability of the U.S. to influence governments and events in Oceania. In essence, the early-intervention mechanism provided by diplomatic missions is turned off. The other prospect is these states’ integration into an extended Chinese sphere of influence. Beijing’s expand- ing influence in Oceania has gone almost unremarked in Washington. This is partly because most Pacific island states have viewed China’s growing role in Oceania with favor rather than fear. Their leaders and diplomats have not tried to focus American attention on what they deem to be non-threatening. Faced with increased political instability and a precarious economic future, even the relatively small involve- ment of a large power can have a major impact on domestic developments in many Pacific states. Moreover, the generous assistance they get from benefactors such as China and Taiwan — which (unlike their Western counterparts) do not set preconditions of “good” (that is, democratic) gover- nance for receiving development aid — is particularly welcome. The trend in recent years has therefore been for Pacific island-states to “look north,” and China has encouraged this process. Over the past two years, the PRC has hosted the leaders of Papua New Guinea, Fiji, Vanuatu, Samoa, the Federated States of Micronesia, Tonga, Kiribati and East Timor. It is now routine for the first official overseas visit by a new head of government from the region to be made to Beijing, not to Canberra, Wellington or Washington. The extensive range of these visits means that most Pacific-island leaders have had much closer personal contact with the Chinese leader- ship, and thus have a greater knowledge of them than they do of senior politicians and officials in the United States. For Beijing, such personal “visit diplomacy” provides a lucrative return on a modest investment. While China’s interests in Oceania appear mainly polit- ical and diplomatic, there is also an important military dimension. Beijing is steadily gaining a military foothold in the region through defense cooperation agreements with countries such as Fiji, Tonga and Vanuatu. This mil- itary assistance is noteworthy as it focuses on the few Pacific countries that maintain forces. Even without a blue-water navy, China may be able to develop these cooperative agreements into control over large parts of the South Pacific in the future. For example, two deputy chiefs of the Chinese People’s Liberation Army have visit- ed Tonga in recent years. That country may be tiny — no F O C U S 42 F O R E I G N S E R V I C E J O U R N A L / N O V E M B E R 2 0 0 6 The collapse or weakening of any microstate would create a political vacuum, opening a large area to undesirable and potentially harmful external forces.