Sherry O’Sullivan

In 1961, when Yap, Chuuk, Pohnpei and Kosrae were still protectorates of the United States, Bob and Patti Arthur decided to move their young family from Southern California to the island of Ponape (now Pohnpei) and build a small hotel; a sweet resort using natural timbers and resources, a comfortable yet rustic series of private cabins and a restaurant by the sea that blended right into the lush tropical hills which embrace the structures. They clearly came under the incoming category of creative and earnest investors. It was hard work, but they loved it and persevered through all the years and red tape. It became a successful and desired destination for locals and worldwide travelers alike. As a result, their local and offshore investors have almost always made money and the group of families who entered into long-term leases for the hotel property have enjoyed decidedly enhanced life-styles. Training and local employment are happily provided where none existed before and a whole host of local provisioners lead secure economic lives. All around it was a win-win situation for Micronesia and the Arthur family alike. However, now, almost fifty years later, Bob and Patti and their splendid Village Hotel are suffering a diabolical and malicious ten-year legal siege by the FSM and Pohnpei State Governments. Where the Arthurs should be receiving accolades for their contributions to the FSM, instead they've suffered the loss of two independent businesses thanks to the governments' interventions. As well, the Arthurs also suffer the indignity of having their United States passports stripped from them by the Pohnpei state government more than 2 1/2 months ago and, as of this writing, they are still being held under house arrest. How on earth did this come to pass in an alleged democracy funded by U.S. taxpayers and whose laws are based on U.S. concepts of commerce, equity, property rights, and the Canons of Legal Ethics? First, permit a small historical overview of the Federated States of Micronesia and its voyage into the murky waters of self-service, mismanagement and hypocrisy.

It is a given that any investment in a foreign country is a kind of Russian roulette. And it isn't easy to dig past the surface to obtain a clear reading of how a government really treats its foreign investors or vise versa. Having said that, fifty years ago, how on earth could the Arthurs have anticipated the unbelievable pickle in which they now find themselves?

There are as many motives to invest in a developing country as there are investors. Many are altruistic such as some faith-based incursions and some NGOs. Some are darker and more controlling like the International Monetary Fund (IMF), Asian Development Bank (ADB), World Bank, and their ilk. Some are idealistic and exploratory such as many returning former Peace Corps volunteers. Some are simply creative and restless personalities. Sadly, some also are base and opportunistic, like con men, disbarred lawyers, sidelined American bureaucrats, escaped felons, carpetbaggers, and all their allies. Many even combine some of these traits with excellent business acumen. Over decades, all of these personalities have and continue to have an impact on indigenous populations and ensuing government ethics, sometimes negatively influencing business climates. Investors should proceed cautiously. Whether a government is sponsoring agrarian projects, government "reform," amorphous sustainability schemes, clean water projects, or you, yourself, want to start a business be it a tourist resort, hotel, newspaper, retail sales outlet, solar power project, or anything else you can think of, it is mandatory that you do your homework and rely less on the inevitable smiling assurances and more on real investigation. Since many of these lovely places are now sovereign island nations -- except US militarized billboard joints like Guam, or the welfare state of American Samoa -- the process of investment selection narrows down to government affiliations and proclivities. In sum: is the foreign government trustworthy?

Comes now the Federated States of Micronesia (FSM) where, in 1961, Bob and Patti Arthur chose to invest, work and raise their children. In the mid-1980s, it became a sovereign island(s) nation after postwar decades of being managed and tutored by successions of American bureaucrats from the Department of Interior, with lethargic input from the State Department. What appears to have been passed on as ethical and democratic processes at that time slowly began to metastasize to include all kinds of unethical behavior within the FSM Governments (state and national). Perhaps it was because of the cloudy lines of accountability over all those thousands of miles between Micronesia and Foggy Bottom, the Department of Interior and the Department of Accountability (DOA) that made "creative" management and subsequent cover-ups so common. You must understand ... the FSM likes be a friendly, delightfully sybaritic, superficially uncomplicated, and happy place without the onerous intrusion of an independent free press, nor of any particularly well trained and reliable police forces, and certainly not burdened with either independent special prosecutors, reliable local accountants, or even marginally educated lawyers and Attorneys General.

It is also a safe haven for disbarred lawyers, pedophiles, former Nazi pilots, convicted felons, the usual carpetbaggers, outright lunatics, addicts, and a host of self-serving opportunists; now most of them sons of the FSM. Of the current indigenous malfeasors, almost without exception they all were carefully tutored by the dubious examples established from waves of temporary government and transient private expats. And, ever since the Micronesians took over in 1986, its government slowly has taken on a life of its own. The FSM government has been, and is, notorious for secrecy, nepotism, abuse of power, endless U.S. and FSM taxpayer-paid frivolous and malicious lawsuits, election interference of the most blatant, and a covert "anything goes" philosophy in order to protect the very laid back and profitable status quo. In the not-so-extreme, it resembles classic scenes from The Sopranos of paid no-show and no-work jobs for "friends and family." To complicate matters, although the entire FSM legal and governing systems are based on the U.S. model, nevertheless there is an entire shadow system of jurisprudence. It is called "Custom and Tradition" and often when the U.S. system seems too cumbersome or threatens to reveal too much, locals revert to "Custom and Tradition" with impunity. However, these slippery laws of the land differ from village to village, clan to clan, island to island, and state to state. Most importantly, none of it is codified. Nevertheless it IS FSM law that this unidentified vast area of "Custom & Tradition" take precedence over the established system of law under the FSM Constitution. This social and economic minefield represents yet more opportunities for manipulative avarice and abuse of power to became systemic at the expense of anyone or anything in its way. Needless to say, some of the worst malfeasors simply slide through the cracks without so much as a wrist slap.

Who pays for all this in the proud FSM sovereign government? American taxpayers do. In 1996, the Charge d’Affaires at the American Embassy at Palikir on Pohnpei, the capitol of the FSM Government, told me that the U.S.A. had spent approximately five billion dollars in the ten years since the FSM became sovereign in 1986! This was doled out under a continuing Compact of Free Association without much thought to accountability. As a result it is difficult to figure out where the money went on its porous journey from Washington, D.C. to Palikir and then to the four island states. Infrastructure is hopeless: electricity is a sometimes thing, the roads are terrible, the water is downright dangerous in many areas, the hospitals are undersupplied and understaffed, many schools are tin sheds with drastically undereducated local teachers, and on and on. However, with FSM sovereignty, Uncle Sam immediately introduced the FSM into the United Nations and continues to pick up the annual multimillion dollar tab for membership. The benefits from this maneuver are embarrassingly obvious. For instance, in April of 1997 at an emergency session of the U.N. General Assembly, a resolution condemning Israel’s construction of a new settlement in Jabal Abu Ghneim in occupied East Jerusalem was passed by an overwhelming vote from 134 countries. Only three countries voted against the condemnation: Israel, the Unites States and -- wait for it -- the tiny Federated States of Micronesia.

So, what happened to the Arthurs? It all started back in 1986 when Patti Arthur established a corporation separate from the hotel for the purpose of producing, processing and distributing world-class gourmet peppercorns, as well as the establishment of the successful production of buttons made from trochus shells. The corporation, APHW, represents the initials of Patti Arthur and three local families of which only the women are shareholders. Pretty buttons were being created and the pepper product was superior -- the businesses flourished. But some members of the Pohnpei State Government must have been jealous. So, naturally, the Pohnpei State Government suddenly limited the collection of trochus shells, effectively shutting down the button production. Then it used U.S. taxpayer money to establish its own pepper company. Eventually the government’s ability to garner supplies at a price APHW couldn’t match and its publicly subsidized cheaper product put the corporation out of business. During the years of operation, however, APHW had taken out a loan from the FSM Development Bank (FSMDB), a government agency devoted solely to promoting businesses in Pohnpei. It is largely funded by U.S. taxpayer money separate from the Compact of Free Association. Payments on the loan were diligently made by APHW until the Pohnpei government forced APHW out of business. The remaining balance from that loan has now ballooned to an astronomical total thanks to so many years of interest applied by the FSMDB.

It was almost ten years ago that the Arthurs first initiated the original lawsuit against the government of Pohnpei for damages resulting from its premeditated destruction of APHW. Almost the minute the complaint came out of the printer, the Pohnpei government’s tax-paid lawyers went into overdrive. As has happened many times before, when any part of the FSM Government is caught with its pants down, it launches a vicious and sustained offense; damn the costs! For ten years this legal legerdemain has continued, ever escalating, and ever more outrageous on the part of the government. Eventually in 2004, the FSM Supreme Court agreed that it was the action of the Pohnpei State government that forced the APHW corporation to close and belatedly awarded a damage judgement in favor of AHPW. But Pohnpei didn’t want to pay and it dragged its executive feet until interest due brought the judgment up to almost a million dollars. After being ordered by the Pohnpei Governor, finally the Pohnpei Executive branch grudgingly made a token partial payment a few months ago. However, unbelievable as it may sound, this only spawned more litigation and unsustainable presumptions by the state’s lawmakers and lawyers.

Tax funded lawyers for The FSM Development Bank (FSMDB) got into the act and sued Bob and Patti Arthur for the inflated balance of the AHPW business loan. Common law says that if a lender interferes with and destroys the borrower’s business, then the loan is unenforceable and that was further sustained by the Court. That they (FSMDB) sued the Arthurs and not the separate AHPW corporation still remains a mystery that probably involves the government's predilection for riffling among the files while holding a bottle of White Out. Nevertheless, it was clear that the cabal was on! Then a separate Court ruling came down in favor of the FSM Development Bank and ordered the Arthurs to sell off a stock portfolio plus pay $10,000 from their personal savings account. The Arthurs paid the $10,000 but refused to sell their portfolio because it had recently crashed. In December of 2008, the Court then declared that Bob and Patti Arthur (78 and 72) were in contempt of court. At the urging of the FSM Development Bank, the Pohnpei State Government seized their American passports and placed the Arthurs under house arrest. It was so ruled and still stands. Yes Virginia, there is a debtor’s prison and Franz Kafka lives!

However, the real issue now before the FSM Court is still not clearly understood by most. Specifically, the Court won't recognize that a link exists between AHPW being destroyed by the very government who now wants its loan repaid. The Court has limited itself to whether the loan was paid or not. The FSM Court in which AHPW is being sued has refused to consider WHY loan payments could not be made.

In desperation for some independent help, the Arthurs recently filed a complaint in U.S. Federal Court. Meanwhile, despite a large outpouring of support for the Arthur's case, it looks like the FSM and Pohnpei Governments are callously willing to stand obdurate until either one of two things happen: (1) the Arthur’s legal fees far exceed their deserved judgments and they give up, or (2) the Arthurs die. Either way, the Federated States of Micronesia has amply demonstrated that it is a cynical climate for business and human rights.

Sherry O’Sullivan is a Canadian journalist who lived in the Federated States of Micronesia (FSM) for five years. She was the editor and co-owner of The FSM-NEWS (subcaptioned: No Fear - No Favor), the only independent newspaper in the FSM until it was forced closed and she was illegally deported in 1997.

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